One stunning industry data point from Swiss Re paints a disturbing picture of the challenge and scale of global underinsurance: the re-insurance giant estimates that in the first six months of 2020, only 40 percent of the $75 billion in global economic property damage (non-COVID related) losses were covered by insurance.
According to Munich Re, another leading global provider of reinsurance, global losses from natural disasters in 2020 came to $210 billion, the highest figure in years, again with the uninsured portion of the losses at around 60 percent.
With Asia accounting for an ever-larger proportion of global GDP and a corresponding larger value of insurable real estate, it is clear that a substantial proportion of these figures reflects under-insurance in the Asia region.
For example, Munich Re estimates that only around 2 percent of the losses due to the severe flooding in China in 2020 were insured.
To some degree, the large quantities of assets that were uninsured as highlighted in these recent reports from Swiss Re and Munich Re might be expected since many governments self-insure.
However, the extent of the uninsured losses indicates that a significant percentage of assets covered under existing insurance policies may have been severely underinsured.
In other words, insurance values declared to insurers for offices in Beijing or beach resorts in Phuket may be at far below current real rebuild costs.
Insurers Face Pressure to Reduce Costs
It has always been the case that the possible immediate benefit to owners of reduced premiums is quickly offset when faced with a slow, contentious, and time-consuming claims process in the event of a loss.
This is especially true now as insurers seek to mitigate the impact of Covid-19 on reduced premiums and falling investment income through closer review of claims.
As insurers tighten up their underwriting processes, and implement wide ranging cost saving measures including challenging weaker claims, the question of incorrect values declared by asset owners to insurers will become even more pressing.
In short, asset owners may face increased challenges to recover full losses under property damage insurance policies if they have submitted incorrect declared values.
When claims are eventually settled, asset owners who have submitted erroneous values could be left in the unenviable position of facing large holes to plug in their corporate balance sheets.
Tech to Bridge the Insurance Gap
Incorrectly insuring assets is a recurring issue for the insurance industry, and the property sector specifically – exposing businesses to unnecessary corporate risk and costing insurers millions of dollars a year in lost premiums or legal administration costs during claims.
This is where insurance technology – commonly known as InsurTech – platforms present an opportunity to help both asset owners as well as insurers, re-insurers, financiers, and brokers.
To find out more about InsurTech, and how it can lower insurance costs, visit John Foord’s website here.
To understand what is changing, and the opportunity for all parties involved, we need to take a step back and look at the existing process to arrive at accurate reinstatement costs to submit to insurers for calculating policy premiums.
Traditional methods usually involved detailed site inspections by specialist valuers and appraisers, especially for large-scale industrial facilities or real estate portfolios that span multiple geographies. For asset owners this process could involve site disruption, preparation of extensive documentation, and significant management time, often over several weeks.
The upshot being that valuations and appraisals across Asia were only being carried out on a fraction of assets each year.
In practice, this meant that most asset owners were relying on outdated or wrong information for their declared values without thought for the eventual pitfalls should a claim against their insurance policies be required.
In 2020, based on the reports from Swiss Re and Munich Re, numerous company executives were left to explain to their boards why they exposed the company’s real estate portfolio to millions in uninsured claims when they could have spent a small amount on an updated valuation exercise for their entire portfolio.
How InsurTech Serves Asset Owners
Where InsurTech can really make things easier for stakeholders, is by taking a traditionally slow and inconvenient process and transforming it into a fast, easy and efficient step, driven by big data, AI-powered analytics, and simple cloud-based access.
The cloud-based model that we have all become familiar with during these work-from-home times, e.g. Zoom calls and collaboration software such as Microsoft Teams and Slack, is now being applied to the asset valuation process.
In 2021, the hotel, office, power plant or manufacturing plant owner, or their advisors and insurers, will be able for the first time to go online and at the click of a button receive a comprehensive assessment of their entire real estate portfolio to within an acceptable margin of error.
Over time, we believe that technology will help to dramatically reduce the systemic rate of under-insurance we see across the global property market, as highlighted by insurance leaders like Swiss Re and Munich Re.
If there is one lesson to be learned, from a year that saw the worst pandemic in a century along with high natural catastrophe losses, it is that for real estate stakeholders there is a very real risk of declaring inaccurate asset values to insurers and being caught out as a result.
The continuing impact of climate change and COVID on the insurance sector is making the desire to solve this insurance gap problem through technology urgent for both asset owners and insurers.
If there is a silver lining, it is the emergence of a new category of disruptive InsurTech that will begin solving this systemic problem at scale.
This sponsored feature was provided by John Foord.
About Andrew Slevin
Based in Singapore, Andrew Slevin is chief executive officer of John Foord. With 30 years experience in valuations and advisory, Andrew has served Fortune 500 clients in the UK, Hong Kong, mainland China, Southeast Asia and globally. LinkedIn profile.
About John Foord
John Foord, founded in London in 1828, specialises in the valuation of commercial and industrial buildings, civils, structures, plant and equipment. As a truly independent advisory firm, delivering advice of the highest quality that minimize risk is central to our purpose. This commitment to quality is at the core of our business strategy, the focus of which is to build trust and transparency with our clients, the insurance and financial markets and wider society.
We support insurance companies, re-insurers, brokers and owners by assessing current reinstatement costs, indemnity values and actual cash values.
For financial reporting, lending and asset management requirements, we provide accurate defendable values and costs as well as documenting fixed assets.
All senior John Foord staff are either qualified with The Royal Institution of Chartered Surveyors or the Institution of Mechanical Engineers, or have internationally recognized quantity surveying, IT or engineering qualifications.
We support clients across 45 countries and have valued assets in over 70 countries. We typically value assets exceeding $100 billion per annum.