The private market will continue to provide catastrophe insurance. So agreed the three panellists taking part in a discussion on government run insurance pools. This is despite the growing climate change threat and fears that developments in Florida this year could set a precedent for greater government involvement.
The State of Florida is keeping down the price of homeowners’ insurance by increasing the capacity of the state’s insurer and reinsurer of last resort, and pushing commercial re/insurers out of the market. But this does not mean an insurance crisis is looming, says Maurice Williams, managing director, Asia, Middle East, Turkey and Africa, at Willis Re. “Florida flies in the face of the global trend for both commercial organisations and governments to promote insurance products at affordable and sustainable prices,” he said.
Fears that climate change will produce more mega-catastrophes like Hurricane Katrina have led to some questions whether the insurance industry could cope. The issue was high on the agenda at last year’s Florida elections, and new Governor Charlie Crist was quick to provide a solution for homeowners.
At Climate Change 2007, Kyle Beatty, vice president, catastrophe management services, Willis Re, argued that Florida citizens are now, unknowingly, exposed to even greater risk if the state’s re/insurance mechanism fails because there is a major disaster before it has time to build up funds. “They wanted to achieve that price result in whatever way they could,” he said.
Florida is an exception and not the way forward, was the consensus from the panel. But as the effects of climate change become more obvious, governments will have an increasing role to play, particularly in providing a much needed catastrophe reinsurance backstop in emerging insurance markets.
Rama Warrier, associate vice president and group lead (insurance), Infosys Technologies, used India’s proposed catastrophe pool as an example. Warrier explained India still has relatively low insurance penetration, but it is a country where “Mother Nature is testing out climate change”. The 1999 Orissa super cyclone cost around $600m economic losses, but only $117m in insured losses. This could change with wider take-up of insurance.
Government involvement is appropriate, he believes. It could help introduce compulsory insurance coverage, smooth the effect of reinsurance cycles and facilitate the sharing of catastrophe data between insurers.
Helen Yates is the editor of Global Reinsurance.