Two decades on from storms Lothar and Martin in Europe, re/insurers need to stay vigilant and avoid ‘optimism bias,’ according to Edi Schmid, Chairman of Swiss Re Institute and Swiss Re Group Chief Underwriting Officer (CUO).
In December 1999, Lothar and Martin caused economic losses of €16 billion and insured losses of €8.6 billion, devastating areas of France, Germany and Switzerland over two days.
The storms levelled 200 million cubic metres of woodland, left more than three million homes without power, and exhausted the capacity of some insurers to pay out settlements.
But infrastructure and property development in the intervening years suggest that the potential for damage is even greater today, Schmid noted, despite the efforts of re/insurers.
“The problem is that until such catastrophes become anchored in societies’ collective consciousness rather than just confined to the memories of individual communities, there’s unlikely to be any broad-based effort to strengthen resilience across whole societies,” Schmid explained as part of a recent Swiss Re blog.
“Those communities and individuals actually scarred by such events will be keenly interested in efforts to prepare for, and mitigate, similar disasters in the future,” he went on.
“But even in these cases, most of us find it tough enough to plan for what’s definitely going to happen, let alone making provisions for what might be lurking over the horizon.”
Schmid argued that re/insurers are prone to a kind of ‘optimism bias’ where they assume that rare events such as storms Lothar and Martin will not impact them.
But Schmid warns that the industry should not underestimate the potential risk posed by winter storms in Europe, and should endeavour to be more vigilant, based on the lessons of long-term history.
While insurance penetration remains comparatively high in many developed countries, there is still a substantial protection gap to be bridged, according to Swiss Re.
For example, in 2018 half the economic losses caused by smaller natural disasters were not covered by insurance.
“The irony is that insurers have more than enough capital in reserve to absorb such losses,” Schmid noted. “But too many of us and too many small businesses often don’t consider insurance as a way to offset risk either because of the cited optimism bias or because they aren’t aware of their options in the first place.”
“As we commemorate the ferocious winter storms that hit Europe in December 1999, we’re reminded that natural disasters like these can strike again any time – and just how much is at stake,” he concluded.
“With more people and property in harm’s way, our communities today are confronted with a rising level of risk from natural hazards, extreme weather and climate change. Making them more resilient is therefore as important as ever. We owe it to them to take on this challenge together.
