Swiss Re sigma Reports High Flood Loss Burden for Insurers in 2002

Natural catastrophes and man-made disasters cost non-life insurers $13.5 billion in 2002 and property losses were below the long-term average, according to Swiss Re sigma statistics which started in 1970. Flood losses, however, cost insurers a record $4.1 billion. Floods reportedly are posing a growing challenge to the insurance industry and the state.

According to Swiss Re’s latest sigma study, “Natural catastrophes and man-made disasters in 2002”, catastrophes cost insurers $13.5 billion worldwide – $1.5 billion more than the provisional sigma estimate of December 2002. The increase was mainly due to higher storm losses, which totalled $6.7 billion. However, the annual loss burden on insurers was substantially down from $35 billion in 2001. While natural catastrophes in 2002 caused the majority of losses, $11.4 billion, man-made losses totalled $2.1 billion. This marks the return of natural catastrophes outweighing man-made disasters, a trend which was only broken in 2001, due to the 11 September terrorist attack.

Floods caused record losses in 2002, costing insurers worldwide $4.1 billion. $3.2 billion of this amount was due to the two flood events in Europe during the summer. The previous records for flood losses also stem from the recent past: $2.9 billion in 2000 and $2.7 billion in 1993. The economic losses caused by the floods are significantly higher than the insured losses: sigma estimates that the two European floods alone triggered an economic loss of $15 billion.

These figures show that some countries are underinsured against flood losses. Developing and introducing comprehensive flood cover is a major challenge. A carefully balanced private-public partnership could be in the best interests of the public and private sector.

For property insurers, threat scenarios still include terrorism, and Sept. 11 gave the public a clear reminder of its ominous dimensions. In 2002, the attacks on Bali and Djerba further proved that international terrorism is a lurking threat. However, potential insured losses have been reduced considerably for private direct insurers and reinsurers. Terrorism cover has been restricted, and some markets have introduced new types of cover, eg the U.S., Germany and France, in which the state carries a substantial share of any loss.