Swiss Re Calls On Governments To Change The Way They Handle Disaster Risk

One of the most notable things about the aftermath of any major natural disaster is the substantial gap between total losses and total insured losses. If Swiss Re has its way, this gap could narrow a great deal.

The Switzerland-based reinsurer is calling on governments to change the way they tackle disasters, to work more closely with insurers and try to deal with disasters in a faster and more cost-effective manner.

One way that Swiss Re suggests this can be done is via the appointment of country risk officers. This is an interesting idea -- these officers would take the same kind of role as a chief risk officer in the private sector, looking at risk assessment and hazard mitigation and communicating on how to address these risks. According to the company, the more information that is out there, both for governments and the public, on the nature and possible severity of these risks, the better they can be cost-effectively managed.

This may be a valid point. The more information about a risk that is out there, the better the degree of response tends to be. It is, after all, easier to plan for the expected rather than the unexpected. And given the amount of research being done on natural catastrophes at the moment, especially in the wake of events like Hurricane Katrina, there is a lot of information out there that needs to be assessed and placed in the correct context.

Swiss Re also said risks are best carried by many shoulders, both private and public. Without an efficient risk-transfer market, governments might have to play a more active role as a risk taker. As a result more public-private partnerships are needed to tackle risks and allow governments to share risks with the private sector and to access skills and tools to help manage these risks.

The company stresses there are a lot of potential hazards out there, ranging from floods and fiscal crises to pandemics, asset price collapses and climate change, which according to the company is now a scientific fact that is beyond doubt.

The latter is something that the company has warned is an increasingly important area to address. Swiss Re pointed out that global climate change is set to impact parts of Scandinavia quite hard over the next century, with winter storm risk expected to double in some areas. According to Swiss Re, many cities in the region are in coastal areas, making them increasingly vulnerable to storms, especially in terms of flooding. In 2007, windstorm Erwin caused devastation across Denmark and Sweden, with insured losses of up to 500 million pounds (568.3 million euros).

It's going to remain to be seen how the industry, as well as national governments, respond to the call from Swiss Re for action on this subject. The general attitude towards risk can be described as patchy in some areas, and there has been a tendency for some companies to appoint chief risk officers with little influence, while others have taken the concept far more seriously.

One sobering fact about the need for greater public awareness -- earthquake insurance. It's been 15 years since the 1994 Northridge Earthquake near Los Angeles, which caused insured losses of $12 billion (8.3 billion euros). Further temblors are a constant threat for anyone living near the San Andreas fault -- but how many people have earthquake insurance in the state? One figure quoted by the California Earthquake Authority in recent years has been just 14%. What that figure is at present, due to the impact of the recession, is probably anybody's guess. That means that around 86% of Californians have no earthquake insurance. That's a wide gap.