Risk factors in reinsurance

Insurers and reinsurers have always felt the effects of natural catastrophes. After all, insuring property values is their business, and when natural catastrophes occur, it is their job to pay for the resulting loss and damage.

Assessing and quantifying the risk from natural hazards is therefore of fundamental significance. And that is exactly what Geo Risks Research has been concerned with for the past 30 years. Natural catastrophes like earthquakes, windstorms, and floods are increasing dramatically, and like other sectors, the insurance industry is confronted with mounting losses. In order to assess these trends and the associated risks properly, it is crucial to examine the scientific principles of these phenomena and their economic effect.

Prevention is an important factor in dealing with natural catastrophes

Effective prevention measures help to keep the human and financial consequences of natural catastrophes within bounds. The following measures can help: providing instruction, developing awareness, training, keeping supplies of emergency goods, making forecasts, issuing warnings, building protective structures, designating risk areas and keeping them clear, devising disaster plans, and putting in place effective disaster management.

Last but not least, a central role is played by insurance for natural hazards. The support provided by insurance makes it possible to protect against the eventuality of an extreme natural hazard event causing financial ruin.

The state, the affected party, and insurance - a risk partnership

Making provisions for natural catastrophes is something that concerns us all. It is only possible to reduce risk and loss efficiently if all the parties involved work together. Such a risk partnership is essentially made up of three components: the state, the party affected, and the insurance industry.

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  It is up to the state to take proactive measures against natural catastrophes by passing appropriate laws (e.g. regarding building safety and land use). It is also the state's responsibility to give the public basic protection and issue timely warnings.
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  The contribution made by the parties affected is one of the most important parts of loss reduction. They must implement the statutory requirements in line with their own individual situation and if an event occurs must minimise the loss by moving valuable items to a safe place.
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  The primary function of the third component, insurance, is to protect policyholders against financial ruin - but not to assume every loss they incur. Insurance can also play an important part in reducing losses: stipulating substantial deductibles in the policy, for example, acts as an incentive for policyholders to keep their own losses and hence the overall loss at a low level. In addition, insurers can achieve a great deal by supplying information and instruction both to the public at large and, through their work on committees, to political decision-makers.