By Siow Li Sen and Emilyn Yap

Buildings in Singapore may not have adequate earthquake insurance or reinsurance cover. So if a major quake hits, there could be losses all round.

Also at risk could be insurance companies which have not adequately priced in the risk of natural catastrophes or 'nat cats'.

Reinsurers are paying more attention to this issue, especially after earthquakes which hit Sumatra last March and September were felt in many parts of Singapore.

Workers streamed out of tall buildings in Suntec City, Raffles Boulevard, Raffles Place, Beach Road, Shenton Way and Chulia Street when the tremors were felt.

'We are addressing this with insurance companies and reviewing the nat cat coverage adequacy,' says Kua Ka Hin, chief executive of Munich Re's Singapore branch.

It's not that no building or structure here is covered against earthquake risk, he said. Rather, the cover may not be properly priced considering the value at risk.

'It's a case of price adequacy and risk management.'

Some primary insurance policies may even have earthquake cover effectively thrown in for free or cross-subsidised, in the belief that the island is not at risk from nat cats.

But 'from our geo-scientists' view, Singapore is not entirely immune from natural catastrophes', says Mr Kua.

Swiss Re's vice-president of property and specialty Peter Zimmerli also observes that Singapore is not entirely risk-free when it comes to nat cats.

'Swiss Re has discussed earthquake exposure with our clients in Singapore and is working to ensure that such exposure is part of their overall risk management strategy,' he adds.

For nat cats, Mr Zimmerli points out that 'as a general trend, globally, losses are increasing in frequency and severity due to factors such as increasing population density'.

Data from Munich Re also indicates rising losses from natural disasters over the years. Overall losses worldwide hit US$83 billion in 2007, and insured losses made up US$26 billion.

'This year could be very volatile when it comes to natural catastrophes,' says the chief executive of Munich Re Greater China and South-east Asia, Ulrich Trumpp.

'We are still ahead of two typhoon seasons, even though we have already seen large-scale disasters such as the snowstorm and earthquake in China.'

Rising urbanisation magnifies the impact of a natural catastrophe because of the large number of people and economic assets exposed.

'Even if natural catastrophes occur with the same frequency and severity as last year's, overall losses this year could be higher,' says Mr Trumpp.

Swiss Re believes it is too early to make a definite prediction on the size of insured losses for 2008.

'If looked at from a global perspective - that is, as a globally diversified reinsurer - then insured losses due to this year's Sichuan earthquake and snowstorm are well within expectations of event losses occurring in any year,' says Mr Zimmerli.

How would rising losses from natural catastrophes affect premiums for such insurance?

'To assure stability and sustainability for clients and companies, we need risk-adequate pricing. Therefore, we will not take on business that is priced too low,' says Mr Trumpp.

Mr Zimmerli also says that 'natural catastrophe premiums must be commensurate with the financial risk'.

Asia appears relatively underinsured for natural disasters, accounting for 49 per cent of overall losses last year, while only 11 per cent of insured losses were from the region, according to Munich Re.

In contrast, 29 per cent of overall losses were caused by natural disasters in Europe, but 54 per cent of insured losses were from there.

This article was first published in The Business Times on 23 June 2008.