Reinsurers have a potential major market at their fingertips: Working with governments to boost their disaster resilience.
Standard & Poor’s Ratings Services draws that conclusion in a new article that contains snippets from its annual “Global Reinsurance Highlights” publication set to come out in September.
“There is a strong case to be made for the benefits of government-backed risk protection solutions,” Standard & Poor’s argued in its article. “The successful development of this market could be key to entrenching the relevance of insurance in high-growth markets.”
S&P said that the market is opening up, in part, because the growing middle class wealth in “many developing economies” is outpacing the market penetration of the insurance industry, which heightens the level of uninsured losses a country has to absorb when disaster hits. The need to absorb a higher level of uninsured losses creates a larger financial shock to a country and its government, and leaves a greater potential to disable economic growth, the ratings entity pointed out.
That leaves an opening for reinsurers to help governments boost their disaster resilience, Standard & Poor’s said.
“By building disaster resilience, before an event, governments can benefit from their ability to devise solutions that will help protect economic stability and provide timely relief, recovery and reconstruction funding,” S&P noted in the piece. “We believe that reinsurers can play a role in protecting governments and their citizens from the financial shocks associated with natural catastrophes, which should reinforce the relevance of the insurance market.”
S&P said that the global reinsurance industry is well suited to help states with large catastrophe exposures reduce liability and protect economic stability moving forward.
“Reinsurers can offer expertise in modeling and assessing catastrophe risk exposure, educating stakeholders on the level of their exposures, creating bespoke solutions that provide proper protection, and acting as an intermediary with the capital markets to pair buyers and sellers of protection,” S&P said.
Standard & Poor’s pointed out that some governments globally are already pursuing reinsurance solutions in some way, including “pooling arrangements, structured reinsurance solutions and bespoke insurance policies.” But governments typically pursue these actions after a catastrophic event and not before, S&P said.
Source: Standard & Poor’s