Natural catastrophes in focus: Volcanoes

Volcanic eruptions are one of nature's most destructive phenomena. Globally, a significant number of people live close enough to volcanoes to be immediately impacted by an eruption, while roughly 1 billion people (12% of the earth's population) live within 150 km of a volcano. Historically, humans have settled near volcanoes because they are often near coastal regions and volcanic deposits from past eruptions helped create fertile agricultural land.

While video of lava flows from shield volcanoes makes for dramatic video footage, often explosive stratovolcano eruptions that can produce heavy ash and pyroclastic flows represent a volcanic eruption's  biggest economic and human threat. Significant ash fall can result in property and infrastructure damage, disruptions to transportation, as well as loss of life and business interruption.

There is no discernible trend in volcanic activity. It remains difficult to predict when a volcano will erupt given often long intervals between periods of activity. However, scientific equipment, including seismometers, allows for better monitoring of impending eruptions. Coupled with communications advances, monitoring technology can help warn more people earlier, so they can avoid immediate dangers of volcanic eruptions. These advances may help reduce fatalities from volcanic eruptions, but outcomes also depend on people in vulnerable areas heeding warnings.

Despite the potential for technology to help reduce loss of life, existing properties in regions exposed to volcanic eruptions are vulnerable to catastrophic damage. However, in regions with high volcanic risks, policy makers and others can potentially mitigate damage by limiting development. Adequate insurance protection for those living in areas with historic volcano activity is critical to ensuring resilience.

In addition to the improved monitoring of volcano activity, sophisticated modeling of volcano risk allows Swiss Re to better underwrite coverage that enables local communities to recover more quickly, making them more resilient. We developed the world's first global volcano risk model, which covers 500 active volcanoes worldwide and allows insurers to calculate risks and expected losses so coverage can be priced properly.

While figures vary greatly between countries and regions based on local insurance regulations and customs, a fairly small percentage of global economic losses from volcanic eruptions is covered by insurance. Where figures are available on insured losses, they generally represent less than 10% of total economic losses. This is partially because many areas where there is volcanic activity are located in low-income regions where insurance penetration is low.

In addition to traditional insurance coverages, governments can consider public-private partnerships that can provide innovative solutions. These include incentivising individual purchase of insurance or government-backed programmes designed to assist whole regions in rebounding more quickly than they would in the absence of coverage.