Swiss Re Urges Governments to Prepare for Uninsured Cat Losses

Swiss Re is urging governments to close the gap between economic losses and insured losses from natural catastrophes.

At Swiss Re's Nordic Risk and Insurance Summit in the Finnish capital of Helsinki, the company's chief risk officer Raj Singh said that the risk landscape was constantly evolving and that risks could change suddenly and unpredictably in the future.

Singh cited a laundry list of major risks that might affect the insurance and reinsurance market over the next decade: infrastructure problems, flooding, nanotechnology, climate change, pandemics, protectionism, fiscal crisis, liability regimes, asset price collapses and a hard landing by the Chinese economy.

According to Singh, risks are best carried by multiple shoulders, both private and public, and the larger the loss from a catastrophe, the greater the burden that is picked up by reinsurers and the capital markets. He pointed out that new forms of public-private partnerships are needed to tackle climate-related and natural catastrophe risks that can enable the state to share risks with the private sector, adding that the Caribbean Cat Risk Insurance Facility was an example of the risk transfer tools that can support governments in the wake of a natural disaster.

Swiss Re is urging governments to create country risk officers for the public sector, who would have the same kind of role as chief risk officers in the private sector. These would work jointly with the insurance industry to identify emerging risks, steer mitigation efforts towards the biggest risks, manage a pool for large catastrophe risks that can't be carried by insurers or the capital markets alone and create a frequency/severity risk landscape based on the latest scientific information--and let the public and policymakers know about this.

Singh called on the market to try to think the unthinkable as the next hazard it faces could come on unexpectedly. He also pointed out that while economic risks were currently high on the agenda at the moment as the world copes with the aftermath of the global financial crisis, it is still important not to divert attention from the longer-term horizon.

Swiss Re currently has a Best's Financial Strength Rating of A (Excellent).