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Brief analysis: The human side of disaster

Johannesburg - The human side of the Covid-19 disaster is on open display as countries assess the impact of the pandemic on the lives and livelihoods of their citizens. Over the past 18-months, the black swan event has claimed over four million lives, swelled the ranks of the global unemployed and dislodged an estimated 54 million citizens from middle income to the low income ‘band’. 

“The devastation caused by the pandemic is unprecedented, both in terms of the number of lives lost and its economic impact,” says Natalie Pakkiri, Client Management Executive at Munich Re of Africa. She was participating in a panel debate titled ‘The human side of disaster’ during the recent African Insurance Exchange conference. From a South African context, the pandemic has contributed to a severe spike in excess deaths, coupled with a significant drop in life expectancy.

According to Statistics SA, the average life expectancy at birth of a South African male has dropped from 62.4 years in 2019 to 59.3 years in 2020. And the South African Medical Research Council (SAMRC) has confirmed 222000 excess deaths in the country between May 2020 and July 2021. The SAMRC believes that most of these deaths can be attributed to the Covid-19 disease. “The pandemic was felt widely across the globe; but it is clear that some countries, South Africa being among them, suffered worse than others,” said Pakkiri. Sadly, the pandemic is only one of the risks that global leaders need to consider.

Climate change has been flagged as the main reason for global natural disaster losses exceeding US$210 billion in 2020. Munich Re Group, which keeps a close eye on natural catastrophes, has reported rising trends in both the frequency and severity of such events going back to the 1980s. Pakkiri singled out weather-related disasters as the primary driver behind a 3% annual increase in the number of natural catastrophe loss events since 1980, with the number of geophysical disasters remaining constant. The losses attached to these disasters are staggering. 

The difference between economic and insured losses, also referred to as the insurance gap, is common to both the natural catastrophe and pandemic insurance environs. “The proportion of uninsured losses remains extremely high, with about 60% of total natural disaster losses suffered in 2020 having no insurance cover; and the proportion  is much higher in developing countries,” said Pakkiri. The pandemic experience has once again illustrated how vulnerable the world is when it comes to catastrophe events, with far too many firms and individuals having little or no protection from its economic impact.

The pandemic has forced insurers and reinsurers to review the principle of insurance diversification when it comes to large systemic risks. It has become painfully clear that large systemic risks that affect multiple markets simultaneously are in theory becoming uninsurable, and it will require collaboration between the insurance industry and governments to define sustainable approaches to insuring against future occurrences of such risks.

The past 18-months have shone the spotlight on governments, that serve as the last line of defence against catastrophe insurance gaps. And our pandemic experience has also exposed various inconsistencies in country responses to a common threat. According to Pakkiri, government is an important stakeholder in the human disaster context: “We need a more analytical approach to decision making within the government framework, assisted by greater transparency around the identification and management of outcomes for all stakeholders”.

The insurance operating environment is changing rapidly, forcing insurers and reinsurers to develop solutions that respond to emerging risks in a more sustainable manner. “It is our responsibility to build a society that is able to withstand the type of systemic shocks we are currently living through,” concluded Pakkiri. “Insurers and reinsurers will have to work together to expand our skill sets and build solutions that enable us to address the current challenges and develop sustainable solutions for the risks we face going forward”.

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