PH flooding boosts losses among global insurers

Calamities in the Philippines, including the damage wrought by Typhoon “Ondoy” in 2009, contributed to the ballooning of global insurance losses due to floods, according to Swiss Re.

The Zurich-based reinsurance group said in a report titled “Flood—an under informed risk: Inspect, inform, insure” that the value of insured properties lost to floods reached $15 billion in 2011 from between $1 billion and $2 billion in 1970.

In an accompanying statement, Swiss Re said that no other natural catastrophe impacts as many people as flooding, with an estimated 500 million people affected every year.

“Recent flood events in Thailand, Australia and the Philippines have shown that floods are now rivaling earthquakes and hurricanes in terms of economic losses,” the group said.

Swiss Re classifies floods into the following: flash flood, dam burst, storm surge, tsunami, river flood, torrential rainfall, ice jam (caused by melting ice in the spring), mudflow, lahar and groundwater (seepage from underground).

Jens Mehlhorn, head of Swiss Re’s flood unit and main author of the report, said the $12-billion insured losses in Thailand last year shows clearly the potential for flood to cause extreme losses.

“The insured losses corresponded to 1,800 percent of the country’s total annual property premium,” Mehlhorn said. “This emphasizes the difficulties the industry faces in creating an economically viable approach to flood insurance.”

He added that the most important lesson from the Thailand floods was the identification of “hotspots” or clusters of globally relevant industries in flood-prone regions.

He explained that such hotspots can cause extreme losses because claims are not only incurred locally, but through interruptions to supply chains and decreased manufacturing productivity internationally.

Because recent flood-related industrial and commercial losses in the Philippines have been comparably small, the country is not considered included among the global hotspots.

Last August, the Philippine Insurers and Reinsurers Association said its initial assessment shows that damage to insured properties caused by the monsoon floods is “a lot less” than the P11 billion recorded in the aftermath of Ondoy three years ago.

In a 1998 report, Swiss Re concluded that flood was “an insurable risk if the principles of insurability were met,” and flood insurance has become widely available in many developed countries since then.

“However, key insurance principles were not followed in all cases, and large losses have called into question the economic viability of flood insurance,” the 2012 report said. “In contrast, in most developing countries flood insurance is neither available nor affordable.”

Swiss Re described the role of governments to help develop a functioning flood insurance system. To do this, according to Swiss Re, a government must set the rules that enable the insurance market to absorb losses.

Also, the government must act as a sponsor and facilitator of the insurance market by initially subsidizing premiums, for example.

A government may also be an insurer and reinsurer for certain risks to supplement the private sector as well as a buyer of insurance and reinsurance to help fund disaster expenses before a catastrophe occurs.