Friday, September 22, 2017

Hurricane Harvey highlights insurance protection gap

A significant proportion of the unprecedented flood losses generated by Hurricane Harvey in Texas and Louisiana will be uninsured, again highlighting the existence of a global protection gap.

The US is one of the most insured countries in the world and yet, in 2016, almost 50% of the economic losses sustained from natural disasters remained unprotected, according to Aon Benfield, which released its Reinsurance Market Outlook this week.

Meanwhile, the first half of 2017 saw a renewed surge of capital into the reinsurance sector, raising the total capital available to a record level of US$605 billion at June 30, 2017, according to Aon Benfield figures.

“Hurricane Harvey has had devastating consequences and unfortunately many of the losses are uninsured, leaving the United States government, and therefore taxpayers, to pick up most of the bill,” said Eric Andersen, chief executive of Aon Benfield.

“At the same time, we have an ‘over-capitalised’ reinsurance industry and new investors actively seeking access to diversified insurance risk,” Andersen added. “The frequency of severe weather-related losses is increasing and there needs to be a significant step-up in the efforts made to address the protection gap evident globally.”

The report reveals that major reinsurers continued to produce solid results in the first half of 2017, driven by a relatively benign loss environment and stabilised investment returns. It also highlights the competitive impact of a surge in alternative capital at the mid-year renewals.

Based on preliminary figures, and prior to the impact of Hurricane Harvey, insured losses for the first eight months of 2017 totalled US$24.5 billion, representing 56% of the 10-year average for the period. The reinsured component of these losses was low, given that a high proportion related to localised severe weather events in the US.

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