Whenever there is a earthquake like the one that happened in Portugal in August, José Galamba de Oliveira He says that he has no shortage of hands with so many invitations to “speak on television and radio.” However, “after a few weeks, the issue disappeared from the radar,” laments the president of the Portuguese Association of Insurers (APS). “APS has been fighting for years” to increase seismic risk coverage in homes in Portugal, which is very low, but climate change They are leading the sector to also worry about other types of calamities – such as, for example, the recent floods in Valencia. In Europe, the coverage of these risks does not exceed a quarter of what would be necessary – and in Portugal, that “protection gap”is even bigger.

That “protective pit”(protection gap), where Portugal seems to be in an even more worrying situation than the average of European countries, was analyzed this Tuesday at the annual conference of the entity that supervises the activity of insurance companies in the country, the PPA (Insurance and Pension Fund Supervision Authority). The concept refers, in simple terms, to the difference between total economic losses caused by a natural disaster, for example, and, on the other hand, securities that were protected through insurance.

The larger this “gap,” the less resilient societies and economies will be if natural disasters or other risks occur. Recovery from these calamities will also be slower and greater pressure will be placed on States that, “at the end of the day, may have to do the same.” rescue of many of these losses,” said the Minister of Finance, Joaquim Miranda Sarmentoin the keynote address of the ASF conference. That is, in these extreme situations the State, with its limited resources, is forced to appear as a lender of last resort.

The Minister of Finance highlighted that “the Government has been following” the discussion on the risks of natural disasters, with earthquakes in the foreground, and “waiting for work” which is being developed by ASF and which is behind the initially defined deadline. The president of the regulator, Margarida Correa de AguiarThen he answered yes.perspective soonthe delivery to the Government of a “first document with concrete proposals” on how risks of this nature should be addressed, involving the public and private sectors.

“The creation of a national seismic risk coverage systemwhich will include a specifically dedicated fundmay represent a first step towards Subsequent expansion of the system to cover climate risks.”, stated the president of the ASF, and added that, “without prejudice to the technical studies that must still be carried out, the ASF will point in that direction, in the report that it will deliver to the Government, particularly at the level of proposal for an institutional model for the management of the seismic fundin order to allow future management to be expanded to other risks of a catastrophic nature.”

Moments earlier, the Minister of Finance had said that “in recent decades, the effects of climate change have been particularly visible in the greater frequency and severity of external phenomena, such as natural disasters.” “Disasters such as the one we have recently witnessed in Valencia highlight the importance of having robust disaster prevention and management mechanisms, but also the urgency of training and raising awareness among populations and economic agents about the need to have disaster prevention systems. adequate protection,” stated Miranda Sarmento, highlighting that “Due to its geographical location, Portugal is especially exposed to physical risks.specifically seismic phenomena.”

“With just one strong complementarity between public and private agents We will be able to reinforce risk prevention and management mechanisms that are increasingly demanding and necessary for everyone,” concluded Miranda Sarmento.

Climate risk and catastrophes. “Protection gap” in Portugal it could reach 96%

Swiss Re, one of the world’s largest reinsurers (companies whose business is to buy part of the risk to which insurers are exposed who, in fact, sell insurance to customers), recently published a global study in which it revealed that, Only In 2023, global economic losses associated with natural disasters will reach $280 billion, of which only 38% were covered by insurance. That is, the protection gap exceeded 60%.

“Natural disasters such as hurricanes, earthquakes, floods and storms have become more intense and frequent in recent years, posing a threat to both people and economies around the world,” says Swiss Re, in a study cited several times in the conference. “The financial burden of these types of events is enormous, but despite this threat, many people and businesses remain uninsured, leaving them vulnerable when a natural disaster occurs,” the study warns.

One of the conference participants, Pamela Schuermansof EIOPA (European regulator of the sector), highlighted that “natural disasters are increasingly frequent and economic losses are increasing.” Europe is not in a particularly favorable situation in this regard, as he protection gap is close to 75%on average, that is, Europe is worse than the rest of the worldon average, compared to values ​​calculated by Swiss Re (for 2023).

And what is the protection gap in portugal? José Galamba de Oliveira, president of APS and representative of insurance companies, says that “We cannot reach such good figures, we lack reliable information and data“. “Our great difficulty,” added Galamba de Oliveira, is “understanding the value of the economic losses in Portugal, because in relation to the events we are managing to capture some values.”

Even so, the person in charge argued that “we have a tendency, in Portugal, to increase the frequency of these extreme natural events.” “Since 2010 there has been More than 800 million euros of losses covered for insurance policies in extreme natural events”, which contrasts with a “value of more than 15 billion euros in economic losses [totais] in the same period.” Galamba de Oliveira acknowledged that this last value is an “approximate” calculation, which could be higher or lower, but serves to give an idea of ​​the small fraction of the economic losses that were compensated by insurance.

SOURCE: Portuguese Association of Insurers (APS)

At the request of the ASF, the Nova School of Business and Economics prepared, in 2022, a technical report identifying the main areas where gaps of insurance coverage in the national market. And the conclusion illustrated Portugal’s comparatively worse position in this matter.

“HE protection gap in relation to the climate and the risk of natural disasters observed in Portugal between 1980 and 2020 was 96%, compared to 78% for the 27 countries of the European Union“revealed the report. “With total losses caused by natural disasters reaching around 13.5 billion euros in the aforementioned period, Portugal is the tenth EU country with the highest record of losses per square kilometer,” adds the study, available at the ASF website. .

“Houses are the main assets of families” and are “unprotected,” says the APS

The European supervisor of the sector, EIOPA, estimates that, for example in the field of forest fires, the degree of protection in Portugal does not exceed 5%. And in the field of housing, stated José Galamba de Oliveira, “we have a gap very high: we have more than 6 million homes in Portugal and 47% have insurance coverage, but many times the insurance coverage is only fire coverage.which is mandatory for horizontal property.”

In terms of seismic risk insurance, in 2022 the the level of coverage in homes corresponded to 19%just two percentage points more than what was calculated five years earlier, in 2017. That is, only one in five houses has some type of protection against seismic risk.

“Housing is, for the majority of Portuguese families, their main asset, it is where their savings accumulate, and It is surprising that this heritage has no protection in most cases,” stated José Galamba de Oliveira.

Another problem, he added, is related to the “literacy” of the insured, as seen in the floods of late 2022 in several Portuguese cities (including the Lisbon region). “When the floods occurred, we visited some of the most affected municipalities and saw that people even had insurance but they did not have coverage for natural phenomenaThat is, people believe they have insurance and believe that the insurance will cover them but they only have the minimum mandatory coverage,” said the APS president.

The association considers that, in the same way that fire insurance (in buildings) has been mandatory for several decades, “the time has come to see if it would make sense to extend it to other types of phenomena such as natural phenomena“. José Galamba de Oliveira asks that a “national system of protection against catastrophic risks: “I think this is an issue in which we must advance quickly in Portugal, we have been discussing it for 25 years and we continue to be in a situation of lack of protection against seismic risk,” he concluded.