It is crucial that insurers and reinsurers take account of statistically rare loss events in their risk management calculations. One such rare event was the torrential rainfall and severe flooding that Hurricane Harvey brought to the Houston area in August. The series of three extreme hurricanes that struck within the space of just a few weeks – Harvey, Irma and Maria – is also indeed rare but by no means impossible, especially as experts predict that certain types of extreme weather events are likely to become more frequent in the future as a result of climate change. 2017 therefore gave us a foretaste of what we can expect in the future.
Once again, significantly less than half the losses were covered by risk transfer solutions: the share of insured losses was higher than the previous year, but at 41% still well below the 50% mark. And this even though more than four-fifths of all losses were in North America, with its high level of insurance density.
I believe these facts and figures not only highlight the business opportunities available to insurers. They also show the enormous economic challenges that people, companies and public institutions face in tackling the consequences of disasters. Given these circumstances, insurers are almost obliged to develop new covers that better meet clients’ needs. The use of data from sensors or satellites and systems incorporating elements of artificial intelligence now make it possible to offer entirely new insurance concepts. Here is one example: Crop insurance for farmers in regions where it is difficult to estimate losses using traditional methods of damage assessment. One positive effect of such a system is faster payouts by insurers, which help victims to get back on their feet more quickly following a disaster. Studies have shown that emerging countries in particular are able to recover more quickly after extreme catastrophes if insurance density is high, as the international insurance community carries a higher proportion of the risks spread across many shoulders.