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Cat loss estimates reveal 60% protection gap: AIR

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Global catastrophe loss estimates for a one-in-100-year scenario have highlighted the insurance protection gap, AIR Worldwide says in its annual risk report.

The catastrophe modeller estimates insured losses worldwide could reach $US270.9 billion ($374 billion) in the modelled scenario, representing about 41% of all exposures eligible for cover.

“This difference presents not only potential business growth opportunities for the insurance industry to offer essential protection to vulnerable home and business owners, but a responsibility to act.”

In Asia the potential insured loss for a one-in-100-year experience is $US64.2 billion ($88.6 billion), while the insurable loss is $US444.3 billion ($613.4 billion).

Catastrophes in the region this year included Typhoon Mangkhut hitting the Philippines, mainland China, Hong Kong and Macau, while an earthquake and tsunami in Indonesia also showed the protection gap.

“For the insurance industry, the protection gap can spur innovation in product development,” AIR Worldwide EVP Rob Newbold said.

“In the public sector, governments are recognising the importance of moving from reactive to proactive risk management, especially in countries where the risk is well known and a risk transfer system is not well established.”

The North American insured loss estimate of $US223.7 billion ($308.8 billion) represents 72% of the insurable total.

For Oceania, which includes Australia and New Zealand, the loss estimate of $US25 billion ($34.5 billion) compares with an insurable potential of $US27.6 billion ($37.7 billion).

The global insured loss estimate has jumped from last year’s figure of $US245.9 billion ($336 billion), and from $US205.9 billion ($281.5 billion) in the 2012 report.

For a one-in 250-year experience, the global insured loss estimate is $US341.9 billion ($472 billion), compared with $US325.3 billion ($449.1 billion) in last year’s calculation.

“Companies with global exposures and an expanding global reach should prepare for the possibility that future catastrophes will produce losses exceeding any historical amounts,” AIR Worldwide says.

The insured average annual loss is estimated at about $US85.7 billion ($118.3 billion), based on regions and perils modelled by AIR and property value databases for more than 100 countries.

AIR says severe storms and tropical cyclones account for about one-third of the estimated insured average annual loss, with earthquake, crop loss, flood, wildfire and terrorism the remainder.