The Conference on Catastrophic Risks and Reinsurance, held on Tuesday, May 21st, during the International Insurance and Reinsurance Forum - FIAR 2019, examined the impact of climate change on reinsurance and catastrophic risk modelling.
The event was supported by PAID Romania, as Partner.
Some of the speakers from "NatCat & Reinsurance" Conference:
- Eugene GURENKO, Lead Insurance Specialist, World Bank
- Daniela GHETU, Editorial Director, XPRIMM Publications
- Natalia MAN, Deputy General Manager, PAID Romania
- Alejandro Izuzquiza Ibanez de ALDECOA, Operations Director, Consorcio de Compensacion de Seguros, Spain
- Menekse UCAROGLU, President of the Board, IUC, Turkey
- Codrina ILIE, GIS/Remote Sensing Scientist, Terrasigna, Romania
- Florentina NANU, Managing partner Business Development Group, member of NAIAD consortium
- Nicoleta RADU, General Manager, PAID Romania
- Florin GOLOVATIC, Director, ASF
- Bruce SAMPSON, Managing Director Reinsurance CEE GUY Carpenter
- Evgeny POTOKOV, SCOR
- Michael THEILMEIER, Re/Insurance Expert
Natalia MAN,
Deputy General Manager, PAID Romania
- There are different types of partnerships around the globe: in the case of PAID Romania, we talk about a private company functioning based on legislation established by the State
- Romania is among the countries which have a protection system in case of catastrophes, created ex-ante: PAID Romania
- One of PAID Romania's objective is to create a stable and solid financial reserve
- PAID Romania also aims to increase Romanians' educational degree and their understanding regarding the role of a mandatory household insurance policy
- PAID Romania: very solid reinsurance program, a Solvency rate higher than 200%, a combined ratio of 83% at the end of 2018
- For 2019 and the next years, PAID Romania's objectives include: optimization of the reinsurance program, increasing the penetration ratio, continuous consolidation of capital, implementing various communication campaigns in order to increase the Romanians' awareness regarding the importance and role of the PAD policy, the implementation of the mass claims plan
- 60% of the houses in PAID's portfolio are built after 1977
- Penetration degree of the mandatory household insurance policy in Romania: 19.03%
- The reinsurance program of PAID Romania has a capacity of EUR 900 million; it is offered by 70 reinsurers
Menekse UCAROGLU,
President of the Board, IUC, Turkey
- The Turkish Natural Catastrophe Insurance Pool is a state project managed by a private company - the managing company changes every 5 years; Currently, EUREKO is managing the Pool, winning the position for the second time
- 9 characteristics of compulsory earthquake insurance cover in Turkey:
- It is a state insurance policy
- It is very easy to obtain
- The premiums are very low and can be afforded by everyone
- Discounts options are offered as well
- "Hello TCIP" - a call center which allows for a very rapid and simple opening of the claims file
- The loss assessment is done very fast (they are now using drones as well)
- The loss is indemnified on the shortest time possible
- The slogan: Life turns back to normal as quickly as possible
- Earthquake will pass and life will go on
- Consumers receive a renewal discount and a building discount
- 90% public awareness regarding TCIP brand and product recognition
- Operational cost for TCIP: less than 2%
- Since the beginning of January 2019 until today: 18 earthquakes in Turkey; 257 claim files opened, TL 753,113 claims paid by TCIP so far in 2019
- In total, since 2015 to 2019 (May), TCIP paid claims totaling TL 187.9 million for damages generated by earthquakes
Alejandro Izuzquiza Ibanez de ALDECOA,
Operations Director, Consorcio de Compensacion de Seguros, Spain
- Consorcio de Compensacion de Seguros - CCS is an insurance cover scheme, founded in 1954
- CCS is a public entity attached to the Ministry of Economy and Business and linked to the Spanish Insurance Supervisory Authority
- CCS is a multi functional institution because it deals with the insurance of natural catastrophes, but also insurance against terrorist attacks in Spain and other risks. CCS provides compulsory MTPL for those drivers who were rejected by the insurance companies in the country. CCS is co-insurer and reinsurer of the Agricultural Insurance Scheme and is the liquidator of insurance undertakings and IGS
- Extraordinary risks as a whole are covered by the CCS and there is no separate cover of one single risk or a group of risks
- There is a crucial collaboration between the insurance undertakings and CCS - because the undertakings are issuing the policies and collect the premiums for CCS as well
- Terms of insurance compensation: the same sum insured, the same person and same property than those in the policy are paid in case of an event
- CCS handles the claim entirely with its own resources, in case of an event; the claim is reported via call center or via CCS' website
- In case of severe windstorms, CCS cannot act immediately (CCS can act immediately in other cases, for example in case of an earthquake).
- Damages by wind are not covered automatically by the CCS. The following distinctions must be made:
- Winds over 120km/h: cover by the CCS
- Winds of or below 120 Km/h but over the threshold established in the insurance policy: cover by the insurance company
- Winds not covered by the CCS nor by the insurance company
- Delimitation of the areas with wind speed above 120 km/ h:
- The State Weather Agency studies the wind records (State Weather Agency's and Autonomous Communities' anemometers) and the areas of influence of the winds (wind maps sectioned by speed of the winds).
- CCS's agreement: list of municipalities (complete) affected by winds over 120 km/h is published on the CCS's website and communicated to the Spanish Association of Insurance Undertakings.
- Particularities of the procedure:
- The insured reports damages by wind: to the insurance company.
- Assessment, claims handling and payment: by the insurance company.
- Final reimbursement of the compensation: by the CCS to the insurance company if the area is finally included in a list of municipalities affected by winds over 120 km/h.
- The CCS is an insurance scheme. It does not grant aids or subsidies; compensation is payable under an insurance contract in return for the payment of a premium by the insured
- CCS is backed by the state guarantee:
- No maximum loss that the CCS will pay.
- Should claims exceed the reserves, the CCS can, in turn, draw funds from the Government to enable CCS to meet its obligations in full.
- The reserves have never been exhausted.
- The State guarantee has never been applied for the time being.
- Reserves: EUR 8 billion.
- Recent significant events for which CCS paid claims:
- Windstorm "KLAUS" (2009): 276,000 claims, EUR 500 million paid claims
- Earthquake LORCA (2011): 33,000 claims, EUR 485 million paid claims
- SOUTH - EAST Floods in 2012: 32,000 claims, EUR 215 million paid claims
- Windstorm STORM "KURT" (February 2017): 58,000 claims, EUR 75 million paid claims
- The private-public partnership is a key to success. CCS is not a competitor to the market, it complements the private insurance market. The different role of the market (standard risks) and CCS (extraordinary events) provides remarkable stability to the insurance industry
Codrina ILIE,
GIS/Remote Sensing Scientist, Terrasigna, Romania
- Terrasigna developed and implemented a broad range of services for a wide range of clients including public authorities in Romania, International Financial Institutions (World Bank, InterAmerican Development Bank) and national space agencies (NASA, ESA, DLR).
- The countries where Terrasigna demonstrated its expertise include challenging environments such as Bolivia, Haiti, Columbia, Mexico and Panama
- Globally, the number of catastrophic events had been rising globally
- Our changing climate triggers extreme events in an alarming faster rate worldwide
- Earth observation is the gathering of information about planet Earth's physical, chemical and biological systems. It involves monitoring and assessing the status of, and changes in, the natural and man-made environment. (Group of Earth Observation)
- Earth Observation (EO) represents one of the new technologies which can support re/insurance companies, because:
- it offers qualitative and quantitative information for large areas that are mostly difficult or very costly to obtain through traditional methods;
- the temporal resolution is very high (open data Sentinel 2 - 5 days for Romania)
- the data structure is highly suitable for data mining processing as well as machine learning algorithms for information extraction.
- the satellite sensors are especially built as to continue ended missions creating data archives that extend over decades
- Three ways through which EO can offer a technological edge to the re/insurance industry:
- Risk modelling - EO allows for a calibration of risk models and refinement of hypothesis; it offers input for digital models (such as digital elevation maps)
- Event footprint - EO allows for a comprehensive vision of the affected area and for first estimates of the extent of the damages
- Parametric products - EO allows for computation of indexes based on image analysis; provision of informative maps for farmers
Florentina NANU,
Managing partner Business Development Group, member of NAIAD consortium
- NAIAD aims to:
- Develop methods to assess the role of Nature Based Solutions (NBS) in mitigation of water related risks and climate change impact -e.g. hydro-economic models
- Assess and demonstrate NBS based strategies to manage flood and drought risks at 9 demo sites across EU
- Explore the capacity of private and public decision makers to integrate NBS in risk management and planning strategies
- In Romania, NAIAD is working on the lower Danube demo case, evaluating risks in the region (draught, floods)
- NAIAD is a co-development project focused on understanding end-user specific challenges, to better focus and fine tune the solutions, making it more robust, replicable and transferable.
- Exchange of information and better understanding of bio-physical environment, enables better responses, predictions and therefore forecasts in case of natural hazards, is opening business opportunities for the insurance sector to develop new products or upgrade existing ones.
- Around 90% of natural hazards are water related.
- Costs of floods in EU are estimated at approximately 5 Billion EUR/year and predicted to increase fivefold till 2050.
- Gathering forces to improve resilience is the secret to respond to the increasing weather-related risks
- Nature-based solutions for risk mitigation - could represent a solution
Interactive panel
Florin GOLOVATIC,
Director, ASF
- The purpose of PAID was to ease the burden on the state budget in case of a significant NatCat event
- We are currently in discussions to introduce an additional risk covered by the mandatory household insurance policy - storm. This additional risk would have the role to make the product more attractive to the general public. We are thinking of allowing the client to select 3 out of 4 risks when buying the PAD policy. If, after introducing the additional risk, there is the need to adjust the mandatory household insurance policy's premium, this will be done.
- I would not say from the beginning that adding this fourth risk would lead to an increase of premiums. If an adjustment of the tariff is needed, it will be done
- PAID has a sound solvency position. The fact that they have managed to have this reinsurance program is a very good thing
Eugene GURENKO,
Lead Insurance Specialist, World Bank
- PAID Romania's rates are not risk based. However, the claims are increasing and the risk exposure is increasing
- In my opinion, in the case of PAID Romania, it is cheaper and better to add an extra peril (such as storms, for example) instead of making people choose 3 perils out of 4 perils when buying a mandatory household insurance policy.
Nicoleta RADU,
General Manager, PAID Romania
- The gap between insured losses and economic losses is increasing
- I am proud that Romania decided, 10 years ago, to set up a scheme to help the vulnerable population, offering people access to an accessible insurance product which protects them financially in case of a disaster
- We managed to build a strong and very reliable company in these past 10 years
- Witnessing the impact of climate change in Romania, the stakeholders considered necessary to protect the population against these perils as well. We are now discussing, together with the authority, to introduce the fourth risk covered by the mandatory household insurance policy - the storm (n.red - in Romania, the mandatory houseold insurance policy is currently covering three NatCat risks: earthquake, floods and landslides).
- The problem is that absorbing a new risk in the same policy might be very difficult to model - we cannot evaluate the impact of this new risk
- Storms don't have such large impacts as a natural catastrophes, but they are more frequent - there is the danger of spending all our money on paying for this new risk. A solution might be to make an adjustment of our tariff
- Without proper enforcement of the law, it is very difficult to increase the penetration degree of the mandatory household insurance policy
Bruce SAMPSON,
Managing Director Reinsurance CEE, GUY Carpenter, UK
- In terms of climate change - and I think we are all seeing an impact, an increase in claims and in severity - I think we are still in a soft cycle in the reinsurance industry.
- At the moment, we are comfortably absorbing all these losses, we are still having an overcapacity in the market which allows us to absorb the losses
- From PAID's position: the penetration is still an issue. The scheme's protection role is based on increased penetration.
Evgeny POTOKOV,
SCOR
- As a global reinsurance company, for SCOR, diversification is highly important, in order to have resilience and shock-absorbing capacity
- The S&P rating of SCOR has been increasing constantly in the past years, from BBB+ to AA-
- The link between greenhouse gas emissions and global warming is clear. On the other hand, the link between global warming and extreme events is varied, depending on peril and region
- However, in general, climate change impacts on extreme weather events will imply greater risks for people, assets, economies and ecosystems - this is why we need to be very active on this field and to work with our NatCat models and to be up-to-date
Michael THEILMEIER,
Re/Insurance Expert
- The impact of climate change is really picking up: we have a higher frequency of losses, higher severity of events. A higher margin of safety will be needed
- The models used for risk assessment and evaluation are inaccurate. For example: Harvey, Irma and Maria Hurricanes - the models were so wrong when it comes to estimation of losses in this particular case. This case shows that models are wrong, that they are only rudimentary. This illusion about models is very dangerous. This suggest that a new margin of safety will be needed
- Interest rates and the capital markets - these are two elements we need to watch closely
- PAID's core was an event which has a very rare occurrence - earthquake, which is a very rare event. The only way to increase the penetration rate now is to make the coverage more visible, to convince people to use this coverage through a new risk.
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