Insurers seek protection gap solutions

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  • Finding solutions: Fid Norton at XL Catlin (Photograph by Blaire Simmons)

    Finding solutions: Fid Norton at XL Catlin (Photograph by Blaire Simmons)


There is a global insurance gap, and it’s a big one. Natural catastrophes caused $350 billion of economic losses last year, and of that only $134 billion, or 38 per cent, was covered by insurance.

A bigger number has been calculated by Swiss Re, which in 2016 said the world faces a protection gap of more than $1.3 trillion, based on the difference between current levels of insurance coverage and the value of assets at risk from disasters.

For the past three years a number of Bermudian-linked individuals and companies have been involved in an initiative to close that gap, including Stephen Catlin and Fielding Norton.

Mr Catlin, former executive deputy chairman of XL Catlin, is chairman of the Insurance Development Forum. Mr Norton, chief enterprise risk officer at XL Catlin, is on the Forum’s management committee and is chairman of its insurance communications working group.

The IDF is a partnership among the insurance industry, the World Bank and the United Nations.

“The premise is that the protection gap against mostly climate-related natural disasters is growing, especially in developing markets,” said Mr Norton, explaining that “despite best efforts nobody on their own was doing a good job of solving the issue”.

The protection gap has increased during the past 25 years, Mr Catlin stated in an interview in October with AM Best. He said 10,000 pro-bono hours had been donated by the insurance industry to the IDF to develop “new products, improving risk management and risk analysis to help emerging nations have a better idea of what their risks really are, because you can’t insure a risk you don’t understand”.

The IDF is making progress, according to Mr Norton. He said the Forum is establishing a more formal secretariat and has received support from development ministries of the British and German Governments. This has led to the setting up the Centre for Global Disaster Protection in London.

He said the centre was a place where solutions were created to address the protection gap in developing markets.

“We have a steering committee that includes World Bank, UN and insurance leaders, and that has met twice a year for two years and agreed that this is an area we really want to invest resources in,” said Mr Norton.

“Some of the sponsors will have an opportunity to put a resource in the centre in London, for example. It is a complex problem, it takes time to solve, it has taken time for these people to get together — part-time as it is not even most people’s day job — and agree that there is something there, and get some funding and traction.”

A number of pilot projects are planned for this year.

Mr Norton, who lives in Bermuda, said: “The idea is to bring the expertise and skills of the insurance industry to this problem, so it is not just bringing our capital.”

He noted that catastrophe models are often scarce for areas of the world that are most impacted by the protection gap.

“They tend not to exist. The modelling companies have not created them for the developing markets because there is not a big market or demand there.

“So the idea would be that the industry, because we have some expertise in that area, we can help develop some simple models so those countries can understand the risk and help them understand the cost benefit of transferring the risk by buying something ahead of time, or not.

“As long as they know from the outset, eyes open, what risk they have and then they can make an informed decision about them.”

It is hoped many developing countries will benefit from being shown how to be better prepared before a disaster occurs.

“It’s like insurance basically, understand the risk and then fund the risk ahead of time rather than rely on aid after the fact.”

Other members of the IDF committee with Bermuda connections include Brian Duperreault, CEO of American International Group, and Albert Benchimol, president of Axis Capital.

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Published Feb 16, 2018 at 8:00 am (Updated Feb 16, 2018 at 8:31 am)

Insurers seek protection gap solutions

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