Page 19 - Turkinsurance Digital Magazine

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Catastrophic Risk Dynamics on a Global Scale Sectoral Impacts

Over the past 20 years, the economic losses caused by natural Catastrophic risks affect the insurance sector across several key
disasters worldwide have exceeded 3 trillion dollars. According to areas:
data from Munich Re, the total damage caused by disasters in 2023 1. Pricing: The unpredictability of risks directly complicates
alone reached 250 billion dollars, while the insured loss portion premium calculations. The rising cost of reinsurance is reflected in
was recorded at 95 billion dollars. This data also highlights the higher premiums for policyholders.
protection gap in insurability.

Forest fires in North America, flood disasters in Europe, and 2. Capital Adequacy: As regulators make climate stress
tropical storms in Asia stand out in particular. Reinsurers have tests mandatory, companies are required to allocate larger capital
begun to rely more heavily on climate science in modelling these buffers.
risks. Catastrophic risk modelling companies (such as AIR
Worldwide, RMS, etc.) are producing more advanced projections
by integrating meteorological datasets with artificial intelligence 3. Product Development: Parametric insurance
algorithms. However, the high level of uncertainty is making pricing products are emerging as innovative solutions in the face of
increasingly difficult in the reinsurance market. catastrophic risks. These products enable automatic payouts when
predefined thresholds—such as a certain amount of rainfall or
Regulations and Global Approaches temperature—are reached, ensuring a faster claims process.

Many countries are developing regulatory frameworks to make the 4. Reinsurance Relations: In high-risk countries like
insurance sector more resilient to climate risks. The integration of Türkiye, reinsurers tend to have limited appetite. This underscores
climate risks into capital adequacy calculations under the European the importance of state-backed pools to enhance reinsurance
Union’s Sustainable Finance Taxonomy and Solvency II framework capacity.
represents one of the most significant steps in this direction. In the
United States, insurance regulatory authorities (NAIC) have placed
climate stress tests on their agenda. 5. Technology Utilization: Satellite data, IoT devices,
and AI-powered modeling have now become indispensable in
In addition, following the Paris Climate Agreement, many countries insurers’ risk assessment processes.
are establishing disaster insurance pools through public-private
partnerships. Flood Re in the UK, the CatNat system in France, and Priority Actions for Türkiye
the earthquake pool in Japan are examples of such initiatives. In
these systems, the state provides reinsurance support to guarantee According to experts, the following areas are critical for building a
insurability in high-risk areas. Thus, private insurance companies more resilient insurance architecture against catastrophic risks in
can share risks at a societal level that they would not be able to Türkiye:
shoulder on their own.
• Expanding the scope of DASK: It should be revised to cover
Approach to Catastrophic Risks in Türkiye not only earthquakes but also floods and wildfires.

Due to its location in an earthquake-prone zone, Türkiye is one of • Public-private partnerships: Models similar to Flood Re
the countries where the highest level of sensitivity must be shown should be adapted for Türkiye.
regarding catastrophic risks. The establishment of DASK (Doğal
Afet Sigortaları Kurumu – Turkish Catastrophe Insurance Pool) • Mandatory climate stress testing: Regulatory authorities
following the 1999 Marmara Earthquake was one of the most should assess insurance companies’ resilience against climate
critical steps in this field. With the implementation of compulsory risks.
earthquake insurance, both awareness and insurance penetration
increased. However, the scope of DASK is still limited to earthquakes. • Financial literacy and awareness initiatives: To increase
In recent years, the rising number of forest fires, flood disasters insurance penetration, it is essential to strengthen public
in the Black Sea region, and drought risks have brought the need awareness.
to reassess insurance portfolios in Türkiye to the forefront. The
Agricultural Insurance Pool (TARSİM) covers climate risks such
as drought and frost, but sector representatives emphasize the need Catastrophic risks serve as a reminder that the insurance sector
to diversify these products. functions not only as a financial system but also as a societal
safety net. In this era of accelerating climate change, Türkiye must
Especially within the framework of climate change adaptation, the reinforce its insurance infrastructure by learning from global best
implementation of “multi-disaster policies” and “integrated risk practices. Otherwise, the growing economic burden of disasters may
management” is being discussed in Türkiye as well. reach an unsustainable level for both the sector and society.