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Munich Re
involving many different insured
objects at the same time, giving
rise to immense claims burdens.
The balancing of risks within a
community of policyholders, one
of the fundamental principles of
insurance, therefore functions only
on a regional or global basis.
The insured losses from the winter
storms in Europe in 1990 amounted
to US$ 10 billion, those from Hurricane
Andrew in the USA in 1992 to
US$ 20 billion, and those from the
earthquake near Los Angeles in
1994 to US$ 12.5 billion.
In fact, the estimated potential
maximum losses for such events
are far beyond these amounts:
for example, US$ 20 billion for a
windstorm loss event in Europe,
US$ 50 billion for a hurricane in the
USA and US$ 150 billion for an
earthquake in California.
Providing cover for losses caused
by natural catastrophes continues
to be a central task of the international
insurance industry. Owing
to the immense loss potentials
involved, however, this can only be
tackled properly by means of a
“risk partnership” involving state,
insureds, insurers and reinsurers.
On 4th and 5th September 1995 Hurricane
Luis caused widespread devastation on
the Caribbean islands of St. Martin and
St. Barthélemy.
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The state needs to create the
necessary legal framework. This
requires above all adopting and
enforcing building codes and landuse
regulations in order to prevent
and reduce losses. The state
also needs to ensure freedom of
services and free movement of
capital. This gives the local direct
insurers access to the international
reinsurance market and allows
reinsurers to achieve the requisite
global balance.
The involvement of the state as risk
financer, on the other hand, is only
called for – if at all – where the
coverage required exceeds the
capacity that can be organized by
the insurance and reinsurance
markets worldwide.
Insureds, too, need to play their
part in this risk partnership – on
the one hand by complying with
regulations and recommendations
and on the other by bearing an
appropriate part of claims themselves
in the form of deductibles,
as has long been customary in
such classes of insurance as
motor own damage. Deductibles
substantially diminish the overall
insured loss, not least through the
lower number of claims that need