Disaster insurers tap under-protected emerging markets

 When an April 2015 earthquake ravaged Nepal, killing 9,000 people and destroying half a million homes, insurers say the money paid out to victims amounted to less than a tenth of that received by Americans hit by winter snowstorms earlier in the year.

The figures reveal a huge potential market yet to be tapped in the developing and emerging world, major insurers said at an annual four-day gathering of billionaires and the political and business elite in Davos, Switzerland, which wrapped up Saturday.

Illustrating the paucity of insurance taken out in developing and emerging markets, re-insurance group Swiss Re's initial estimates indicate that the US$6 billion (€5.5 billion) in wreckage caused by the Nepal quake resulted in payouts of just US$160 million.

By contrast, the US storms two months earlier caused US$2.7 million in damage but resulted in insurance payments amounting to US$2.1 billion.

"The difference between the storms in the United States and the earthquake in Nepal is an extreme comparison that really highlights the gap in terms of protection," said Esther Baur, head of global partnerships at Swiss Re, which provides insurance to other insurance firms in case disaster strikes.

"But it does not need to be like that," she said. "Insurance is here to put a plan in place beforehand."

Worldwide, 70 per cent of the damages wrought by natural disasters are not insured, according to Swiss Re, the world's second-largest reinsurer after Munich Re.

But expanding into developing markets presents important challenges.

When people have fewer resources to subscribe individually to insurance, their governments have to shoulder a greater responsibility, placing public finances at risk.

In this context, insurers must turn to new tools, said Baur, who leads a Swiss Re unit dedicated to partnering with governments, non-governmental organisations and other institutions such as the World Bank.

In Bangladesh, for example, Swiss Re launched a flood insurance product in cooperation with Oxfam and the local authorities.

'TRAPPED ON TINY ISLANDS'

Under the scheme, the insurance is offered to NGOs and the payout, which is linked to the level of flood waters, goes directly to the NGOs for them to distribute to disaster victims.

The scheme allowed the insurer to offer cover even in a country where two-thirds of the land is less than five metres (15 feet) above sea level, making it difficult and costly to assess flood damages in zones that are often inaccessible.

New technologies could help insurers to wade into the structurally under-insured markets by offering affordable yet profitable policies, said Inga Beale, chief executive of Lloyd's of London, the specialist insurance market.

"Digital technologies are really going to make an impact," she told AFP at Davos.

In the past, some attempts to offer affordable insurance to the poor had failed, Beale conceded.

"The only way you can deliver it efficiently and in a cost efficient way is by using mobile technology, with just a few clicks without all these complex records," she said.

Rapid urbanisation, and the resulting expansion of cities and infrastructure to previously uninhabited areas, presented a daunting task, Beale said, pointing to the months-long Thai floods of 2011 that interrupted the supply chain for the automobile industry.

"Nobody had ever really assessed the risks," she said. "Nobody knew it was a flood zone because there was nothing there before."

Drones could one day help the task of insurers in assessing the damages wrought by disasters, Beale said.

"You'll send a drone to whizz around, take a few pictures and bang you'll have all the information you need."

Runa Khan, founder of Friendship, which intervenes in disasters with a hospital ship, testified to the difficulty of operating on the ground in disasters, notably when Cyclone Sidr struck Bangladesh in November 2007.

"I took a catamaran to go to the areas hit by the storm," she said.

"With the rising tide, people were trapped on tiny islands that could crumble at any time and with the currents they could not go across the rivers that kept growing and growing," Khan said.