Preparing against “acts of God”

Panama, while being largely free of major weather related “acts of God”, like hurricanes, is a perennial sufferer from heavy rains often leading to floods, of varying intensity. A couple of months back scores of homes in the capital city were recently left with layers of mud and slime in living rooms and bedrooms. Even more disastrous were the floods last month in Chiriqui, Colon and Bocas del Toro, causing deaths, millions of dollars in damage and the livelihoods of many literally washed away.

News from America this week focused on the death of a family, mother in-law, wife and two children, from a fighter plane that crashed into a suburban home and engulfed it in flames.

We cannot prevent natural disasters, or “acts of God”, but we can certainly take precautions, from where and how we build our homes, live our lives and by asking a simple question, before a disaster strikes: “How much will it cost not to have insurance?

We get the answer to this question when we do not take the necessary precautions and suffer economic and material losses due to events that we often cannot prevent but whose effects and impacts we could mitigate by transferring these risks to insurance companies through an insurance policy.

It is a fact that a culture of prevention is not a Panamanian idiosyncrasy. Only a few individuals have insurance that will cover them against incidents for what could be considered, next to family, among the most important things for the human being, home and business.

During the 31st Hemispheric Insurance Conference of the Inter-American Insurance Enterprises Federation of 2007, in Guayaquil, Ecuador, it was said that in Latin America the risk of suffering catastrophes has increased since 1998. Not only were they talking about hurricanes, storms and floods, but also about earthquakes, such as the one that happened in Peru in 2007 and where the losses were estimated to be more than $1 billion. Only $100 million of the damaged property was insured.

At world level the insurance companies have their eyes on the effects of climate change with the likelihood that the natural catastrophes that will cause more damages to infrastructures, properties and people, and the frequency of the events will increase.

According to the Social and Economic World Study 2008 of the United Nations due to the losses caused by related natural disasters, the insurance companies at world level are forecasting significant increases during the next ten years, as much as a billion dollars in a bad year.

The production sources of plains will be ruined by climate changes which will exacerbate food and water insecurity, affecting the physical security of the developed and third world countries in the short and medium terms, according to Ban Ki-Moon the secretary general of the United Nations.

That is why, in the last few years climate changes have been the subject of scientific studies, not only by academics and environmentalists, but also economists and financiers.

The world insurance sector is studying the problem and is worried about how to deal with climate change and it repercussions. According to reports, given during the Conference about Climate Change in Nairobi in 2006, experts in the insurance sector predicted that the economic damages caused by natural disaster could reach $3 billion in 2040. The scenario was calculated assuming a growth of 6 percent in losses due to storms droughts, hurricanes, floods and other extreme phenomena.

In my next article I will outline some preventative steps that we should all take.

Jorge del Rio is an insurance broker with Ducruet Insurance.