Natural disasters are getting more frequent, but cheaper: Could that scare insurers away from emerging markets?

 
Emma Haslett
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6.6 Magnitude Earthquake Strikes Central Italy
Earthquakes in Italy were amount the 348 natural disasters last year (Source: Getty)

The insurance sector faces higher payouts as it moves into emerging economies, new analysis has warned, as natural disasters become increasingly frequent.

Analysis of figures from the Centre for Research on the Epidemiology of Disasters (Cred) by PwC found the number of natural disasters rose by an average of three per cent a year between 1970 and 2016. According to the study, last year's 348 disasters, which included devastating earthquakes in Italy and heavy flooding in Louisiana, cost $150bn.

And although the cost per disaster has been pushed down in recent years by early warning systems and preventative measures, such as laws encouraging wetlands in flood-prone areas which can absorb excess water during heavy rain, the total cost of damages will continue to rise, PwC said.

Read more: Why the UK's weather in April was better than you thought

"[Natural disasters] are becoming more prevalent and costly on a global scale," said Barret Kupelian, a senior economist at the company.

"The increase in the real costs of natural disasters should serve as a reminder to businesses and governing bodies of the importance of increasing the risk-resilience of hard infrastructure and prioritising the management of the impacts of extreme natural events.”

Mohammad Khan, insurance partner at PwC, added: "As insurers look for ways to grow their businesses they are increasingly expanding the geographical reach of the risks they insure and becoming more involved in diverse markets including Latin America, South-East and Far-East Asia.

“These are geographies where, historically, there has been less natural catastrophe data available to help insurers understand how to price risks. As we see significantly more economic and infrastructure risks globally being insured, the insurance industry is facing having to more frequently pay out costly insurance claims for natural catastrophes.

“Insurance companies will need to reflect this uptick in claims within their pricing of policies. They'll also need to manage shareholder and analyst expectations of their performance as the financial results of global insurers and reinsurers may be more volatile, depending on how material their exposure is to catastrophic events.”

Read more: Losses from natural disasters more than doubled last year

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