The softening property market, combined with a record low for insured catastrophe losses over the last three years, has made consumers more comfortable than ever – many to the point of neglecting insurance coverage.
According to the Swiss Re report “Underinsurance in property risk: closing the gap,” America is the world’s most uninsured country, representing vast swaths of property, under- and unprotected against natural disasters every year.
The rest of the world is not doing much better – Japan and China are also dramatically underinsured, and emerging markets like the Philippines or Brazil are also facing low insurance penetration.
In a recent webinar, industry experts from Swiss Re and the Insurance Information Institute explored just where global and American property is suffering from lack of insurance, as well as which insurance lines in general have the lowest take-up rates.
The top three most uninsured natural disasters, globally, are:
- Earthquake – 90% lack insurance
- Flood – 86%
- Windstorms – 55%
All told, that’s an estimated uninsured property loss of $153 billion annually, according to Thomas Halzhou, chief economist with Swiss Re.
“This is even a conservative estimate as it doesn’t consider things like hail, drought, or volcano,” Holzheu said. “So there’s a chance this [uninsured property] gap could be even higher.”
In the US, natural disaster-related risks account for most of the under- or uninsured properties and businesses. However, other areas account for low insurance penetration in the country. According to III statistics, the following is a recent snapshot of US insurance rates:
- Earthquake – 10% have insurance
- Flood – 14%
- Renters – 40%
- Cyber – 52%
- Terrorism – 62%
III President Robert Hartwig noted that high insurance take-up rates (such as the 87% of Americans who carry private passenger auto, or the 9% with homeowners policies) are usually associated with legal requirements. By contrast, something like earthquake insurance seems expensive and indulgent even for consumers living in high-risk areas.
There are generally three root causes of this kind of underinsurance, the presenters said: Insurability (where risks like cyber liability or terrorism are challenging to insure against), buying behavior (precipitated by faulty risk perception or lack of consumer awareness) and undervaluation (most property is undervalued by an average 26%, according to the Swiss Re report).
Hartwig also suggested a fourth: consumer assurance that the federal government will take responsibility for much of the damage in the event of a natural disaster.
"Clearly we see evidence of rising reliance on government aid in the wake of large disasters," he said.
To correct these issues, Swiss Re senior economist Ginger Turner recommends greater public/private collaboration in terms of better government regulation, building standards and zoning. She also put in a plug for innovation in distribution of insurance products.
“We need broker presence not just at the point of sale, but engaging with customers at all levels,” Turner said. “Consumers need reminded that insurance is still very important, that their property is still exposed.
“With so many innovations in technology, whether it’s drones or sensors in property that allow people to monitor risk, there is a lot of potential out there to improve insurance services after the sale.”