Sept 6 (Reuters) - Flood insurance can be made more widely available and affordable by using lessons learned from recent disasters to minimise physical risks and making greater use of insurance-linked securities to offset financial risk, Swiss Re said.
The industry should also team up with government agencies to help provide suitable flood protection, the world’s second-biggest reinsurer said on Thursday.
“Insurers cannot do it alone,” Swiss Re said.
Last year’s Thai floods will cost the insurance industry $15-$20 billion - with the Lloyd’s of London insurance market alone taking a $2.2 billion hit, the third-biggest loss in its 324-year history.
Australia ordered a review into disaster insurance and the need for a national disaster fund after cyclones and floods in Queensland in March 2011 left the country with a clean-up bill of around A$10 billion ($10.5 billion).
Swiss Re said it expected a surge in insurance-linked securities (ILS) - capital market instruments that allow a company to offload risk. The most common form of ILS is the catastrophe bond which insurers use to manage their exposure to natural disasters by passing on potential losses to investors.
“The demand for ILS solutions for flood has been limited, but that could change,” it said.
The change could be spurred by Zurich-based loss and exposure data aggregator PERILS providing market loss estimates for European flood risks, said Swiss Re.
Loss estimates by PERILS have been used as the index base in all the main forms of industry loss-based insurance risk transactions -- similar to the Property Claims Service (PCS) data widely used in the United States.
“Future cat bonds could be based on that data,” Swiss Re said.
It and Allianz sold a catastrophe bond in 2007 to cover against flood risk. The $150 million Blue Wings bond was the first transaction to cover flooding in Britain, combining it with earthquake risk. Even then, only 20 percent of the expected loss was attributed to flooding events. (Editing by Dan Lalor)