22 October 2013News

Public-private partnerships can help close loss gaps

According to William Donnell, president of US property catastrophe at Swiss Re, public-private partnerships can help close the gap between insured losses and economic losses. Hurricane Sandy, which struck the east coast during last year’s PCI conference, flagged up the massive disparity between the two loss categories.

Donnell said, “There are positive and negative lessons from Sandy. On the positive side, the employees in our industry really gave back and helped those communities affected get back on their feet through volunteer efforts. It was really exciting to see the industry rally around the affected communities. The industry also fared very well in terms of paying claims—it was under a lot of scrutiny but paid claims very quickly.

“In terms of the negative, it’s amazing to me that in a mature economy like the US you can have an insured loss in the neighbourhood of $25 billion and an economic loss three times higher. That’s the kind of disparity you would imagine seeing in an emerging market, but not a mature market.”

Tackling the issue, Donnell said, is complex. “It’s not an easy issue, but the idea of publicprivate partnerships is an interesting concept.” Swiss Re, he said, is dedicated to building partnerships with governments with an eye towards commercial growth.

“To do that we need more innovative products that understand the exposure of governments, in addition to educating stakeholders about the impact of natural catastrophe losses.”

According to Swiss Re’s data, catastropherelated losses are set to double every 10 years. Donnell said, “It becomes a staggering amount.”

Developing products specifically aimed at governments is not new for Swiss Re. Donnell would look to replicate post-event parametric cover with third party evaluation of when claims must be paid which Swiss Re developed for the Mexican government’s earthquake exposure.

“It’s about future planning,” Donnell said. He also supports the reauthorisation of TRIA, explaining: “Our view is that terrorism cannot be modelled and that the amount of potential loss exposure is so significant that a government solution is clearly needed. In our view, the government needs to stay involved.”