Insurance Shortfall Hits Poorest and Most Vulnerable

By Kieran Cooke, Climate News Network

LONDON – The Philippines is located at the center of one of the world’s most severe storm regions. Scientists say that climate change is increasing the frequency and ferocity of such events.

Yet despite the growing risk to their homes and livelihoods, most of the 96 million Filipinos have no insurance cover. According to insurance brokers in the Philippines, only 13 percent of the population has any life or accident insurance – and only a small proportion of the millions of farmers in the country have any crop insurance.

According to insurance brokers in the Philippines, only 13 percent of the population has any life or accident insurance. 
Credit:Nove foto da Firenze/Flickr

Munich Re is one of the world’s biggest re-insurance groups, covering risks of insurance companies themselves. In 2012 it produced a map of the world’s most – and least – insured regions.

While the U.S., Canada, much of Europe, Japan and Australia have what’s referred to as high insurance penetration, there are vast swathes of the world, including much of sub-Saharan Africa, the Indian subcontinent, China and Southeast Asia, which are classed as being either inadequately or only basically insured.

Pay-outs in advance

The East Coast of the U.S. is regularly buffeted by hurricanes. Hurricane Sandy, which struck late last year, is estimated to have caused $68 billion worth of damage in the U.S. While many U.S. homeowners are still fighting for their insurance money, at least they have some cover. If you live in the Philippines or Bangladesh, it’s very unlikely that any such financial help is available.

A recent survey by Munich Re found it’s the poorer economies that lose most: on average the lesser developed economies lose about 2.9 percent of their gross domestic product each year due to natural catastrophes, while industrialized counties lose  0.8 percent .

The big reinsurance groups have been studying risks associated with climate change for several years and are now trying to extend their business and come up with plans which will give some cover to those in poorer regions.

A series of micro-insurance schemes have been launched around the world, offering financial protection to farmers and others affected by extreme weather. In many cases policies are paid out before rather than after such events: when satellites record the approach of weather patterns – such as a storm or a drought of a particular and agreed-upon intensity – a policy pay-out is triggered.

A recent survey found on average the lesser developed economies lose about 2.9 percent of their gross domestic product each year due to natural catastrophes.
Credit: Fred Noy/UN via Climate News Network

Munich Re, in association with local insurers and other groups, has introduced such schemes in Jamaica and on other island states in the Caribbean. Swiss Re, another of the big reinsurance companies, has launched similar schemes in the Tigray region of Ethiopia and in Senegal, in collaboration with the UN’s World Food Programme and Oxfam. Less than half of one per cent of Ethiopia’s 85 million people have any insurance cover.

Bankruptcy threat

Insurance analysts say that while those in poorer regions struggle to afford some form of insurance cover, those in richer areas exposed to storms and other climate change-related events are facing big hikes in their premiums.

In the U.S. figures collated by the National Association of Insurance Commissioners indicate average homeowners’ insurance went up 36 percent between 2003 and 2010, with premium rates rising particularly sharply in states round the Gulf of Mexico – a region of intense hurricanes.

In Florida rates went up by more than 90 percent, with many large insurers refusing to cover properties. The state, concerned about any slowdown in development, has been offering its own subsidized insurance. The trouble, say insurance experts, is that one big storm could effectively bankrupt the state.

Meanwhile the federal government, through its new Flood Insurance Reform Act, is removing subsidies from flood insurance, meaning ever higher premiums for those living in known flood zones. 

Kieran Cooke is a co-editor for Climate News Network. Climate News Network is a news service led by four veteran British environmental reporters and broadcasters. It delivers news and commentary about climate change for free to media outlets worldwide.