Hit by growing disaster losses, insurers set limits on coverage

Syful Islam in AlertNet: The growing number of natural disasters linked to climate change has pushed global and local insurers to put a cap on their liability, leaving policy holders vulnerable to financial losses in the event they suffer major destruction. Recent catastrophes such as flooding in Thailand and Australia, earthquakes in New Zealand and the tsunami in Japan have caused enormous losses to global insurers and reinsurers.

In response, reinsurers announced recently that they will limit their future liability in any disasters in Asia to 1.5 billion Bangladeshi taka (about $18 million) per event for each insured party. Following suit, Sadharan Bima Corporation (SBC), Bangladesh’s lone state-owned reinsurer, imposed the same condition for renewing reinsurance treaties with local insurance companies for the fiscal year 2012-13. SBC underwrites almost 80 percent of the country’s billions of dollars of insurance coverage. The cap came into effect in April.

According to the assistant general manager of SBC, Jakir Hossain, the country’s insurance companies provide coverage of some 60 billion taka ($731 million) for natural disasters such as earthquakes, floods and cyclones. The increasing frequency of cyclones and flooding in Bangladesh is believed by experts to be a consequence of climate change.

Bangladesh’s insurance companies worry that the reinsurers’ decision has put them in peril, since a major disaster that causes large-scale destruction could leave them with huge financial losses...

A flooded village in Bangladesh after a 1991 cyclone, photo by Airman 1st Class Cheryl Sanzi (USAF)