Climate risks have always produced high impact events, causing material and human losses that often have remained in collective memory as reference points; yet, in the recent years their catastrophic nature became increasingly threatening for the communities' resilience. By comparison, cyber risks are just emerging, but they are demonstrating already a potentially catastrophic impact which still needs to be better understood and assessed.
One of the main common elements in this comparison are the insufficient preparedness and public action taken to mitigate them, as well as the significant insurance coverage gap. In both cases, the insurance industry may play a significant role not only in covering financial losses, but also in helping public authorities and other interested bodies to better asses and manage risks.
"IIF 2019 - PROPERTY INSURANCE - the 2 CAT Cs: climate and cyber" is supported by VIENNA Insurance Group as Official Partner.
Below you can find the main statements of the conference.
Luke WATTS,
Head of Enterprise Risk Management, RSA, UK
- Year 2018 set a new all-time record for carbon emissions. The emissions went up 2.7% in 2017, and over 50% up on 1990s, despite pledges at U.N. efforts of a generation have not yet 'moved the dial'.
- Profound cuts to emissions defy current economical models. They suggest major changes to energy industry, freight or heating, changes sustained and extended year by year, from 2020 to 2070.
- Research indicates that 3-4 degrees Celsius warming is passing, most likely, irreversible tipping points. Most people don't yet realize how bad this risk is. There is a risk of >5 degrees Celsius warming, which would be catastrophic for all humanity.
- There are a few different scenarios - one of them is the physical Risk Scenarios - evolve gradually.
- The physical path for next 10-20 years is already set. This is due to lags in the system, whatever we do now. Physical trends are strongest for water risks: intense downpours, tropical storms, river floodings, droughts and associated wildfires.
- Priorities to reduce consumption: USD 100/tone carbon price, end fossil fuel subsidies, general decarbonization and withdrawal from coal and gas plants energy sources, electric powered vehicles, reduced food waste at all stages, veganism, reusable construction materials, forestation.
- Warming is on track to reach 1.5-2 degrees Celsius in the next 2-3 decades. Effects are likely to include:
- more and stronger heatwaves, drought years (especially in SW USA, Mediterranean and Southern Africa);
- downpour and river flood damage will double in the following years, tropical storm deluge have become more and more common;
- winds: slightly fewer cyclones, but more powerful, and expanding away from equator.
- The sea-level rise threatens USD 11 trillion of coastal property.
- Geographic range of diseases will expand, such as malaria, yellow fever, Lyme disease.
- Insurability and affordability will be of increasing concern with exposure management, loss prevention and adaptation being key to the response.
- Responses need to be well designed, proportionate and responsible - weather and exposure data, modelling and underwriting will become even more important.
- Any risk pools need to be well designed, to not foster the wrong risks or unwise development.
- The insurance industry needs to continue to invest in hazard models to inform civic and infrastructure planning, and adaptation measures and to advise on standards, building codes, government policy and other preventative measures.
Laurent MARESCOT,
Senior Director, RMS, Swizerland
- One of the main risks for Europe is related to inland flooding, where we will see a virtually certain shift in temperature distributions and increase in hot spells. At the same time, we will see a likely increase in frequency of heavy precipitation events.
- There is a strong non-linear relationship between changes in precipitation and losses. For instance, a 3% change of precipitation can lead to a 6-12% change in losses for insurance industry.
- Flood defense is crucial. In the future we can see that an 1 in 200 years event will be more frequently.
- The CAT model designed for total resilience management is composed by financial resilience (insurance) and physical resilience (defense).
- CAT models are designed to cope with uncertainty, also when arising from climate change. Beyond risk transfer, CAT models can be used to get a more complete view into total society resilience.
Nicoleta RADU,
CEO, PAID, Romania
- Romania: one of the European countries significantly exposed to natural disasters, especially earthquakes and floods, which cause loss of life and damages with major social and economic impact.
- PAID was formed by the association of insurance companies from Romania, in order to provide Romanian homeowners with compulsory home insurance, in accordance with the provisions of Law no. 260/2008. PAID was officially established on 5th November 2009 and it is the only pre-event established pool.
- The risks covered by PAID are selected taking into account the specific of Romania: Vrancea - main seismogenic zone, responsible for over 90% of all earthquakes in Romania, releasing over 95% of the seismic energy, approx. 30% of the national territory exposed to the floods risk and about 800,000 ha and 50,000 household exposed to landslides.
- PAID's solvency ratio in 2018 is of over 206%.
- PAID reinsurance program is the largest single territory buyer reinsurance program in the CEE, with a 71% higher than the Solvency 2 level. The biggest cost of the company is related to this program. PAID is working at developing a model, in order to reduce the cost.
- PAID's portfolio is well spread throughout Romania, with only 24.5% of exposure located in Bucharest & Ilfov area. It is important for the used earthquake model to capture well all the correlations and interdependencies between regions.
- PAID Romania makes continuous efforts to increase the quality of its activities, focusing on qualitative growth achieved through partnerships with prestigious institutions, associations and companies, such as: The Technical University of Constructions, The National Institute for Earth Physic, TERRASIGNA and others.
- Organizing educational and informational campaigns represents one of the activities through which PAID Romania aims to increase Romanians' awareness regarding the role of the mandatory household insurance policy for their financial protection. On 4 March 2019, the company launched a new initiative, based on an ample media project, taking place in multiple stages throughout the year.
Alejandro ALDECOA,
Operations Director, Consorcio de Compensacion de Seguros, Spain
- CCS - Consortio de Compensacion de Seguros is not a competitor to the market, but complements the private insurance market.
- CCS does not grant aids or subsidies; compensation is payable under an insurance contract in return for the payment of a premium (surcharge) by the insured. The risk is not transferred to the reinsurance market.
- The different role of the market (standard risks) and CCS (extraordinary events) provides remarkable stability to the insurance industry.
- If the levels of risk were to change due to climate change, the system is ready and capable of making the necessary adjustments in the coverage, by modifying thresholds, by adding new "extraordinary risks" and by adjusting surcharges.
Mathieu HALM,
Head of Retrocession & Strategy, CCR Re, France
- The average annual loss in current period, caused by floods, in France is of over EUR 681 million, while the CCR estimation is that in 2050, this value will represent EUR 942 million. The hazard effect will be of 38%.
- Generally speaking, climate change will significantly impact the country as the hazard will increase damages by 35% and vulnerability modification by 15%. Nearly all the country will be affected, especially the west part of France. Inflation is a big unknown, but should be in theory compensated by premium collection.
- What should we do: Make our societies more resilient to large events. Risk management is more efficient when it is shared by all related private and public parties. Adaptation can reduce the global burden of potential loss and help the most vulnerable.
- We should reinforce the need for solidarity and mutuality in order to share the risk.
Klime POPOSKI,
President, Insurance Supervision Agency, Macedonia
- Insurance penetration in Macedonia is of 1.5% from the GDP.
- Just 4% of the non-life premiums in Macedonia represent the CAT risks.
- The parametric index based agricultural product was just introduced, offered by EUROPA Re. All agricultural risks are covered.
- The Government will probably buy this year sovereign debts through EUROPA Re, in order to compensate the budget funds needed to cover the claims.
David FLANDRO,
Global Head of Economics and Franchise Risk, Guy Carpenter
- The cyber insurance market represents about USD 3 - 5 billion, with a lot of area to growth.
- High-profile losses and increased risk awareness, with a growing number of companies looking to their insurance carriers for effective and innovative risk transfer solutions to mitigate today's and tomorrow's risk landscape. Companies that do not have cyber insurance, often cite cyber-related losses at other organisations, as a trigger to purchase cover.
- Greater regulatory security. Currently, around 90% of all cyber insurance products bought globally are thought to be purchased by American companies, due in large part to existing data protection regulations in the Unites States. New laws in other jurisdictions, which will make it compulsory for companies to report breaches to authorities and penalize them financially with fines for non-compliance, such as General Data Protection Regulation (GDPR) in Europe or the Privacy Amendment (Notifiable Data Breaches) Bill in Australia, are therefore likely to lead to considerably more demand over the next year or two, particularly outside the US.
- Increased supply of insurance capacity, with an ever-growing number of insurers looking to enter the cyber market. This competitive environment is more likely to see more favorable terms being offered to organisations over the next few years.
Danielle SMITH,
Cyber Expert, RMS, Swizerland
- WannaCryptor event highlighted the issue of equipment software latency (i.e. that machines and sub-networks within organizations may rely on specific versions of operating system that render them vulnerable). In these cases, although the majority of systems within organizations ran more up-to-date operating systems, certain departments and activities were maintaining the older versions that contained vulnerabilities. Machines, such as medical MRI scanners and X-Ray machines, that were certified on Windows XP and Windows 8, maintained on those operating systems, were among those that were crippled by the attack. Businesses reported substantial losses from lock-outs of systems around the world, such as manufacturing processes, dispatch and ordering systems, gas pump payment applications, and telephone exchange equipment - National Audit Office (2017).
- May 12, 2017: Malware attack via file-sharing network protocols, locking computers and servers, infected users of outdated Windows XP and 8 OS.
- There were 300,000 infections across 150 countries (0.1% of 400m Windows computers running 8 OS).
- 85% of Windows 8 users protected by Microsoft patch MS17-010 issued two months earlier, on March 14, 2017.
- Propagation stopped after four days by a researcher finding a kill-switch in the software.
- Total direct costs and indirect business disruption losses around half a billion dollars.
- We used the WannaCry event to develop counterfactual scenarios.
- "What-if" scenarios used - Kill-switch had not been triggered and attack had occurred before availability of MS17-010 patch for Windows 8.
- Removing the Kill-Switch could have resulted in losses of USD 3-6 billion.
IIF 2019 PROPERTY VIDEO footage available on xprimm.tv
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