Bridging the divide

Murat Kayacı
Chairman, Turkish Catastrophe
Insurance Pool

Istanbul is a city of 14 million people that generates a substantial portion of Turkey’s GDP. The Northern Anatolian Fault line runs a few miles south, putting Istanbul at constant risk of a devastating earthquake. The Turkish government has been continuously investing to enhance the country’s resilience. One outcome has been the creation of the Turkish Catastrophe Insurance Pool (TCIP) in 2000, which provides homeowners with compulsory earthquake insurance. In addition to the continuous support we provide through traditional reinsurance, in 2015 Swiss Re Capital Markets co-structured a USD 100 million catastrophe bond sponsored by the TCIP. Covering Istanbul’s large metropolitan area, the three-year bond has a parametric trigger that will pay out if the specified earthquake conditions are met. It was well received by investors and ensures that TCIP will have access to additional reconstruction funds in the event of a major earthquake. Thanks to TCIP, about 40% of Turkey’s homeowners already have earthquake insurance today and more will be covered in the coming years. Such innovation is exactly what’s required to close the world’s protection gap.

What are protection gaps?

We are surrounded by risks that are insurable in principle but which go uninsured in practice — leaving a protection gap. Natural catastrophes offer the most glaring examples. Only 30% of disaster losses have been covered by insurance over the last 10 years. Over that period an astounding USD 1.3 trillion in property losses were left uninsured — losses borne by governments, businesses, and individuals. There are also protection gaps in life and health that also undermine society’s resilience (see Building resilience in China), as well as risks to property far below the threshold of natural catastrophes. To close these gaps we are taking insurance where it is needed most, including in the world’s most advanced countries.

Affordable solutions

Around 18% of adults in Australia don’t have access to financial services, and an even higher percentage lack insurance to protect their belongings. To address the needs of this population, Swiss Re teamed up with Suncorp to provide affordable products to those with low financial means.

As a reinsurance partner, we take 50% of the risk on all of Suncorp’s “Essentials by AAI” microinsurance policies. The policies offer very low limits for home contents and car insurance, with flexible payment options and a simple underwriting and claims process. The initial distribution will be via the Good Shepherd Microfinance organisation, a leading microfinance operator in the country. Other support providers, such as legal and financial counsellors, can refer customers to Essentials by AAI. By making insurance accessible and easy to understand, Suncorp is closing protection gaps for people on social benefits or those with household incomes of around half the average wage or less.

Closing the flood gap in the UK

In the UK, we are helping to close another protection gap on an even larger scale. Floods, which affect more people worldwide than any other type of natural disaster, have had a significant social and economic impact in the UK in recent years.

Just as in Turkey, closing the flood protection gap will require more than a response from just insurers alone.

The UK is now taking a leadership position in tackling the issue of floods and in strengthening people’s ability to recover from their financial impact. With Flood Re affordable flood cover will be provided to an estimated 350 000 homes at risk. From April 2016 we are proud to support Flood Re in a three-year reinsurance programme that is one of the largest ‘natural peril’ programmes in the world. Swiss Re’s contribution to Flood Re is provided by an international team, including UK property underwriters and Swiss Re Global Partnerships, who develop innovative solutions to improve risk resilience for governments and public sector bodies around the world.