Friday, September 23, 2011

Swiss Re suggests how India can cut disaster burden

Mayur Shetty in the Economic Times (India): Reinsurance giant Swiss Re has approached the Indian government suggesting ways in which the government could reduce the economic burden of natural disasters which are increasing in frequency. The move comes in the wake of a series of disasters, with the Sikkim earthquake being the most recent. For the world, 2011 is already the second most expensive year in terms of natural disaster losses, second only to 2005 when Hurricane Katrina struck US.

Swiss Re has proposed a host of risk transfer measures that could be taken in advance to deal with the economic consequences of natural disasters. These include the issue of catastrophe bonds, similar to the ones issued by Mexico, or through the purchase of insurance cover by the state itself. Swiss Re, which provides cover to insurance companies from large losses, is also a strategic partner of the World Economic Forum, participating in its Global Risk Network.

These risk transfers mechanisms are seen as crucial for emerging markets like India, primarily because the government has a high level of debt, and secondly, the level of insurance penetration is very low. Because of the low level of insurance penetration, there is a huge gap between the economic loss and the insured loss in the aftermath of natural disaster. As a result, the government ends up picking the tab and the economy suffers.

Speaking to TOI, Ivo Menzinger, MD, global partnerships, Swiss Re, said, "India is very much exposed to all sorts of perils -earthquakes and cyclones-which result in losses of billions of dollars. However there are significant gaps between the economic losses and the insured losses and the government, at the end of the day, is paying for the difference."

A Swiss Re study shows that the economic cost of natural catastrophes has risen from an average of $25 billion a year in the '80s to $ $95 billion in the 1990s and to an average of $130 billion in the last ten years. On average, over the last twenty years, only 20-40% were covered by insurance. Insurance coverage is not widespread particularly in the developing and emerging markets....

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