Natural catastrophe case studies
What impact does the prevalence of non-life insurance have on a country’s ability to recover from a natural catastrophe – and who foots the bill?
In 2005, hurricanes Katrina, Rita and Wilma hit the United States; in 2007 the UK saw widespread flooding; Sichuan Province in China was devastated by the earthquake of 2008; while 2011 brought devastating flooding to Thailand and the Great Eastern earthquake and subsequent tsunami to Japan.
These examples demonstrate there will always be a role for governments to play in delivering emergency relief after a natural catastrophe hits, but the overall impact on public finances will greatly depend on the degree of non-life insurance in place.
Global insurance markets allow major risks to be spread internationally, reducing the burden on any one country’s domestic market. In Thailand, for example, it’s estimated around 70% of the economic losses caused by the floods were picked up through international insurers. In Japan, on the other hand, less than 17% of the estimated $210 billion damage was recoverable through insurance - leaving the taxpayer to pick up costs of around $175 billion.
China is a particularly interesting case. With incredibly low levels of private non-life insurance, but a strong government balance sheet, the government has – so far – been able to finance swift reconstruction that improves on the building standards which existed before disaster struck.
But with finite government resources and economic growth slowing, is this model sustainable for China?