Pool schemes could lead to greater risk exposure - Zurich CRO

Government-backed schemes such as Flood Re could, in the longer run, lead to people exposing themselves to “significant” risks, Zurich chief risk officer Alison Martin has warned.

Speaking to Insurance Times at a press conference for the launch of the World Economic Forum’s Global Risks Report 2018, Martin suggested that part of the increase in cost of extreme weather events due to people placing themselves at risk.

The government and insurers need to “continue to work effectively together” on pool schemes for flood damage and terrorism, Martin stated.

However, she continued: “I think it is important, when we look at the cost of extreme weather events, we also need to take into account the fact that some of the increase in cost is because we, whether it is we as society, we as business, we as government, choose to place ourselves at more risk. Whether we are building on flood plains, whether we are going into significant windstorm exposed areas.”

The insurance industry has a huge part to play by completing risk assessments, according to Martin. She questioned whether it was better to offer enhanced cover through pool schemes, or highlight the risks of setting up in an area where there is a significant exposure to risks such as flooding.

Martin continued: “I think part of the insurance industry’s role is in that risk assessment piece. So before people do that, it’s to highlight the risk that that has and to make sure that that is reflected in the prices. I know you can argue that things like the flood scheme, which is so valuable to people there today, does that actually dis-incentivise people from not building on the flood plains, because they can actually get quite a reasonably priced insurance product? Is it better for the insurance industry to highlight and recognise that there is a real risk here?”

However, she acknowledged that schemes such as Flood Re are vital so that people already in at-risk areas can access insurance, commenting: “If you live there today then of course we need to maintain a reasonable kind of lifestyle for you and you can still afford to have insurance, clearly, but we shouldn’t be encouraging that more and more economic exposure is put in areas where there is significant catastrophe risk.”