Lloyd’s Warns Natural Disasters Threaten High-growth Economies
A £105bn ‘global insurance deficit’ leaves 17 rapidly-growing world economies vulnerable to the long-term costs of natural disasters, according to research commissioned by Lloyd’s of London from the Centre for Economics and Business Research (CEBR).
Lloyd’s said that the world may not be able to afford a repeat of the run of catastrophes in 2011, which included the earthquake and tsunami that struck Japan in March and widespread flooding in Thailand during the second half of the year. The disasters caused £3.6 trillion of damage to infrastructure, homes and businesses, resulting in record insured losses in 2011 of US$107bn.
CEBR’s research identified China, Poland, Colombia, Thailand, Mexico and Saudi Arabia as among the countries under-insured against natural disasters and calculated that the cost of catastrophes had increased by US$870bn in real terms since 1980.
The amount of under-insurance identified for individual countries was as follows:
“Too many high-growth countries are failing to take the steps required to prepare properly for these sorts of events, leaving people and businesses exposed,” said Richard Ward, Lloyd’s chief executive officer (CEO). “As high-growth economies continue to develop and supply chains become increasingly interconnected, now is the time to ask ourselves: can the world afford to keep taking such a big risk?”
Douglas McWilliams, founder and CEO of the CEBR, added: “The ‘insurance gap’ has a huge and lasting impact on the ability of businesses, governments and people to recover from the earthquakes, hurricanes, flooding and forest fires that affect us all every year.
“This means lost orders, lost jobs and wasted taxpayer money as a failure to prepare ahead of such events creates costs that are more severe and unmanageable.”
China, which accounted for nearly US$80bn of the global shortfall, insured just 1.4% of losses arising from natural disasters between 2004 and 2011, with US$208bn in uninsured losses. Much of this resulted from damage caused by the 2008 Sichuan earthquake, which was estimated at US$125bn and with only 0.3% covered by insurance, which required the state footing to meet most losses.
“China is a very rich country with phenomenal foreign reserves,” said Ward. “There could be an attitude that this is a loss the state can bear.”