Disaster Risk “Cold Spots” Appearing in Emerging Markets
Opportunities are abundant in emerging economies, but untapped markets may also present uncharted challenges. These risks pose a unique set of struggles to insurers and reinsurers alike, according to “Cold Spots Heating Up: The Impact of Insured Catastrophe Losses in New Growth Markets.”
The report, issued by Guy Carpenter & Company, reveals that while insurance demand in emerging markets has gone up, recent global natural catastrophes have exposed risks in territories that have historically been considered non-peak, or low-risk, zones. These “cold spot” losses have been expensive. In 2011, for instance, Asia, Australia and New Zealand accounted for more than two-thirds of insured losses, but only 20% of global insurance premiums.
“As (re)insurers look for opportunities on the frontiers of developing markets, we see an immediate need to plan and manage risk exposures in order to ensure profitable growth in these regions,” said David Flandro, managing director and global head of business intelligence at Guy Carpenter.
The implications for insurers operating in emerging markets include an increased demand for insurance and reinsurance as well as a rising need for enterprise risk management programs, better portfolio diversification and improved catastrophe modeling.