ICAR Forum 2018: Main conclusions

9 October 2018 — Adina TUDOR, Andreea RADU
The 15th edition of ICAR - The International Catastrophic Risks Forum, taking place in Bucharest, Romania, on 9 October, touches issues of paramount concern.

Main topics include the industry's ability to cope with the evolving risk exposure to extreme weather events, impact of the NatCat risks on other business lines, such as life or health insurance -, technology's solutions to support both underwriting, as well as loss adjustment activities in property insurance.

The Forum is organized with the official support of MAI - The Romanian Ministry of Internal Affairs. PAID Romania supports the event as Strategic Partner, while JLT Re is the Official Partner of the event. SAFETY Broker and MARSH Romania are Partners of the event. ICAR 2018 is supported by EUROLIFE ERB Asigurari.

Prof. Dr. Peter HOEPPE, Chair, Munich Climate Insurance Initiative & Adjunct Professor, Institute of Catastrophe Risk Management (ICRM) at Nanyang Technical University (NTU) Singapore

- Loss events worldwide in 2017: 710.
- There is a clear trend: since 1980s we have started to identify, globally, more events which cause relevant losses and many of these events are generated by weather events (floods, wildfires, droughts).
- There is clear evidence from scientific studies which indicates that global warning intensifies hurricanes. Another factor that contributes to this phenomenon: the increase of sea levels. A LLOYD's study indicated that the approximately 20 centimeters of sea-level rise at the southern tip of Manhattan Island increased Superstorm Sandy's surge losses by 30% in New York alone. Further increases in sea-level in this region may non-linearly increase the loss potential from similar storms. Catastrophe models that dynamically model surge based on current mean sea-level already factor this increased risk into their projections.
- 2017: most of the high losses occurred in North America.
- Relevant disasters in Europe in 2017: Unusually low temperatures in April caused billions (Euro 3.3bn, only Euro 600 insured), in damage to European farmers since their crops had already grown robustly in an otherwise warm spring. Depending on the region and particular fruit, harvests were up to 50% smaller than usual.
- Such events may occur more frequently in the future as a result of climate change: plants in certain regions are beginning to sprout earlier in spring, while the threat of frost often does not diminish to the same extent, so that the risk actually increases.
- 2018: Thunderstorms, heat and drought in Europe. Unusual weather pattern in central Europe in May and early June. In Germany and France, a series of very slow-moving thunderstorms formed in warm, moist air masses, triggering flash floods in many places (Euro 1.6bn, insured losses Euro 900m).
- Northeast Germany, Denmark, Poland, Scandinavia, the Baltic States and the Balkans were experiencing very high temperatures and extremely dry weather -> grain harvest has been very poor in many of the affected regions.
- Reason for both phenomena was a stable weather pattern featuring a blocking high-pressure area over Scandinavia and an expansive low-pressure system stretching from western to central parts of Europe.
- Climate model studies show that one future effect of the increase in temperature will be more frequent periods of heat and drought, along with more intensive convective rainfall.
- A higher frequency of changes in temperature: globally, the number of local record breaking monthly temperature extremes is now on average 5 times larger than expected in a climate with no long-term warming.
- Regional differences: summertime records, which are associated with prolonged heat waves, increased by more than a factor of 10 in some continental regions including parts of Europe, Africa, southern Asia and Amazonia
- On average there is an 80% chance that a new monthly heat record is due to climatic change.
- Western and Northern Europe have been affected by the increasing temperatures (July 2018).
- Heat records in 2018: Algeria: Ouargla 51.3 degrees Celsius; Tunesia: Tozeur 49.2 degrees Celsius; Turkmenistan: Turkmenbashi 45.6 degrees Celsius; Los Angeles: 43.9 degrees Celsius; Portugal: Record heat wave, temperatures > 45 degrees Celsius; Lisbon 45.0 degrees Celsius (August 4); Japan: Kyoto 39.8 degrees Celsius, Kumagaya (close to Tokyo) 41.1 degrees Celsius; Ireland: Shannon 32.0 degrees Celsius; Scotland: Glasgow 31.9 degrees Celsius;
- Most expensive hail event in history has occurred in Germany: Hail Event on July 27/28, 2013. Diameters of up to 11 cm, losses of 3.6 billion euros (2.8 billion euros insured losses).
- There is clear evidence that convective storms are increasing in frequency. Losses have gone up.
- "Rising variability in thunderstorm-related U.S. losses as a reflection of changes in large scale thunderstorm forcing": Sander et al., Weather, Climate and Society, 2013 - the study indicates that the increase in humidity is driving larger variability and intensity of convective events in the U.S.
- "Modeling of convective storm hazard occurrence, taking convective initiation explicitly into account": Dissertation by Anja RAEDLER, 2018 - detection of an already existing trend to more thunderstorm related loss events in Europe (exception southwest Europe). Model results show further future increases of hazards caused by convective events in central and eastern Europe.
- Current climate developments: first 8 months of 2018 have been the 4th warmest since records started in 1880. The last 4 years (2014, 2015, 2016, 2017) have been the warmest four years on record. Seventeen of the eighteen warmest years on record occurred in the period 2001-2017.
- In conclusion: 2017 has set new records for total and insured losses caused by weather extremes, dominated by hurricanes and wildfires in the US.
- The long term global loss data show a clear trend to more frequent loss events and higher losses - the loss level of 2017, however, is a clear outlier.
- Climate change is one of the drivers to higher weather related losses especially for tropical storms as well as for convective and heat related events.
- Until now the losses in 2018 have been well below the long term averages even though many new extreme weather records have occurred.
- The record loss year 2017 cannot be characterized as the new normal, but the insurance industry has to take into account a general trend to higher losses caused by weather extremes on the long run.

Raed ARAFAT, Minister, Secretary of State, MAI-Ministry of Interior
- Climate change brings new challenges for the Romanian Emergency Authorities,
- We must make sure that the Romanian populations will not be left without shelter or the minimum living conditions and requirements as a result of climate change and disasters.
- Romania was impacted by climate change as well: the medium temperature increased by 1.96 degrees Celsius between the years 1901 and 2015. Droughts increased after 1981. We have started to witness violent storms.

Valentin IONESCU, Director, ASF - Financial Supervisory Authority
- Natural catastrophes continue to represent an interest theme for the authorities, since their can have a very powerful impact on the lives and assets of citizens.
- NatCat insurance products represent a very efficient way of managing catastrophic risks and of reducing the impact of natural disasters on the local economy and decreasing the time needed to recover after a disaster.

Adrian MARIN, President, UNSAR
- The Romanian market is the 4th largest property insurance market in the ECE, but it is almost 6 times smaller than the one in Poland, and half the size of the Hungarian market.
- Its potential, but also the protection gap in Romania are visible if we look at the financial results and the statistics.
- In the first semester of 2018, the Romanian insurance market reached a total of 5.04 billion RON (1.08 billion euros) - non-life and life. Despite the decrease reported on the MTPL segment, a positive evolution on the voluntary insurance segments was reported, which proves the efforts made by insurers to ensure that other business segments will have a sustainable development.
- As far as the property segment is concerned, this represents 15% of the total general insurance market in Romania. From the total premiums reported on the property market, 38% represent premiums on the household insurance segment - both mandatory and voluntary household insurance policies.
- The household insurance policies reported a slight growth, but it is not enough to increase the penetration degree of this insurance segment.
- As far as paid claims are concerned, Romanian insurers paid 30.5 million RON in the first 6 months of 2018 on the household insurance segment. We are witnessing an increase in damages caused by extreme weather events and floods - we have reported 6,000 damages made by storms and 2,500 damages caused by extreme weather events in June and July 2018, on the voluntary household insurance segment alone. 
- Romanians are becoming more and more exposed to these types of risks and the protection gap in the country continues to be large, as indicated by a 2017 analysis made by one of the largest brokerage companies in the world.
- Financial education is very hard to accomplish and it is very hard to see quantifiable results when trying to increase the financial literacy. We are all responsible for the financial education of the consumers. UNSAR has been involved and continues to be involved in various financial education campaigns.
- Financial education allows consumers to choose the insurance products which best cover their needs.

Nicoleta RADU, CEO, PAID Romania
- The increase of the insurance penetration degree for the mandatory household insurance policies is a priority for PAID Romania. However, we all agree that it is very difficult to communicate about the utility of this insurance policy to the people who can actually benefit from it.
- The Romanian insurance market, as a whole, is facing a trust issue, due to certain failures of some companies: ASTRA and CARPATICA are still remembered by the consumers.
- The Romanian market is also facing a financial education problem, accentuated by the Romanian educational system, which does not currently include courses dedicated to financial aspects. However, we have also observed a lack of information among the local and central authorities: they do not want to be involved in actions we implement.

- FLOOD Re is a joint initiative between the UK insurers and the UK Government. We are expected to exist as an entity and be active for 25 years.
- FLOOD Re's purpose is to promote and enable the availability and affordability of flood insurance for eligible homes and manage over its lifetime the transition to an affordable market for household flood insurance where prices reflect the risks of flooding.
- Insurers pay an additional premium to FLOOD Re for the flood risk covered in their policies. The insurer passes the flood risk to Flood Re. The process of buying and making a claim on home insurance is unchanged for the clients.
- FLOOD Re covers the following properties: eligible properties include properties insured in the name of individuals, which have a Council tax band (All Council Tax bands covered), are held for residential use, are insured on individual basis, are occupied by policy holder or immediate family some of the time or unoccupied; FLOOD Re does not cover: Homes built on or after 01 January 2009, Small businesses (business rated), Buildings cover for leasehold premises 4 or more units.
- 4 out of 5 households with previous flood claims have seen a price reduction of more
than 50% after the introduction of FLOOD Re: home insurance became more affordable.
- Currently, 90% of the home insurance market in UK offer the FLLOOD Re scheme.
- Year 2 results for FLOOD Re: Gross written premium of 32 million pounds, 134 million pounds profit before tax, 425% solvency capital ratio.
- FLOOD Re is ensuring future affordability for customers: premium reduction (real terms) in April 2018 - no inflation increase.
- FLOOD Re's final purpose: to secure a future of affordable flood insurance.
- 5.3 million UK households are at risk of flooding.
- FLOOD Re aims to: 1) reduce the risk of flooding, 2) reduce the damage and cost of flooding, 3) achieving an effective market.

Angelika WERNER, Expert Atmospheric Perils, Property Underwriting EMEA, Swiss Re:
- Changing Risk Landscape: insurers need to prepare for future risks. "There is no silver bullet that will work in all cases."
- Current macro trends: 1) Longevity - Increasing pressure on insurance - and pension schemes, 2) Smart Cities - Optimal use of resource and infrastructure, 3) Digital Life - Whole life digitally organised via broking platforms, 4) Ecological Collapse - Overpopulation, climate change, pollution and waste of natural resources, 5) Protectionism - Overpopulation, migration and globalisation.
- Climate Change in Eastern Europe: Gradual temperature increase, Increased drought and brush fire risk, No clear trend in precipitation amounts or extreme rain events etc.
- The protection Gap exists in Eastern Europe: CEE insurance penetration is approximately 2.5% (EU average 7.4%). Moreover, the per capita insurance spent in the region is ten times lower than EU average. The wages are generally low, so there are sufficient resources to buy insurance, and the region is also characterized by low financial education, as well as low risk awareness and trust in the financial industry.
- Digital evolution is changing the consumers: 60-80% of the private consumers use digital channels, there is a differing data security perception among different consumer generations, there is a "Blind Trust" in digital systems.
- We need to understand new technologies and their risks - telematics, smart homes.
- Understanding the consumer is key: we need to understand our consumer, to have flexible and simple products, to see what the consumer really needs.
- As an industry, we need to stand up and change our ways.

Dr. Laurent MARESCOT, Senior Director, RMS
- Flood risk is subject to tight relationship with build environment: urbanization leads to quicker catchment response in our river systems. If drainage is not carefully designed, this can lead to an increase of surface water urban flooding. Large IND risks are often close to water (very useful for production supply), hence leading to intrinsic correlation between exposure and risk. Community level permanent and temporary defences can have a large impact in reducing risk, so it is very important to account for them.
- RMS New Flood Model (2016-2018): RMS launched a new flood model covering 15 countries in Europe.
- Flood is not similar to an earthquake: it does not take only a few seconds or minutes, it can evolve throughout multiple days.
- Using such a flood model, we can assess the risk of flooding from disasters we didn't observe in the past, we can define spatial correlations more accurately than based on a few observed events (across the entire continent), we can explore the impact of climate trends on flood insurance risk, we can assess the cost/ benefit of increasing flood defences along rivers and we can understand the impact of varying the hours clause.
- RMS flood model design for total resilience management: it includes financial resilience (insurance) as well as physical resilience (defence).
- FLOOD Re in UK is using RMS' model to investigate both property and community level flood mitigation measure, so that FLOOD Re and the overall insurance sector can discuss and influence EA plans and spending, based on quantitative numbers, rather than having EA investing in areas that are good political pressure, but not beneficial for households and more in general economy and society in UK.
- Romania has an area of 237,391 square kilometers, with 97.4% of it being located in the Danube River Basin. Risks in the country include: severe flash flooding, snow-melt driven flooding, steep topography which determines flood-induced landslides.
- Traditionally, cat models have been used to extend the view beyond history. New technologies allow for new generation of models, which offer realistic and detailed temporal & spatial representations of flood risk, a key peril in Europe.

Carlo TOZZI SPADONI, Co-Founder, Insurance Engineering Services:
- Climate change brings new risks or an increase severity and occurrence of risks.
- Once considered to be occurring randomly and seldom, floods are becoming a usual pattern for Property Claims not only in tropical areas but also in mild climates. Most European Countries have been recently affected by such claims (France, Germany, UK, Poland, Italy, etc.);
- Water Bombs: this kind of events - concentrated rainshowers in a limited area saturating rainwater drainage systems (private & public) are creating severe localized floods - have become more and more common;
- Snowfalls: while there's less snow in the mountains, there are sudden concentrated snowfalls even in non alpine regions which pile up a huge load on structures beyond their structural resistance and causing serious losses;
- Hailstorms & Tornados: even in the Med we're now facing situations which were once only met in the Caribbeans and/or South-Eastern Asia/Pacific Region, causing huge losses along wide areas;
- Other Events: while a correlation with climate change has not (yet?) been established, there are other occurrences which may be - directly or indirectly - be affected, including: 1) Corrosion induced by air pollution (NOx, SOx, CO2, O3, etc.), 2) Increased average temperature and peak heatwaves. This is particularly affecting public, possibly non-insured, assets (woods, mountain areas, etc.) with huge recent losses in California, Portugal, Italy, etc.
- Natural disasters, according to leading Reinsurers' data, are growing linearly (see graph on the right), whereas man-made disasters have peaks but have a more constant trend.

Roxane MARCHAL, CCR Research Fellow Technical Studies Public Reinsurance, NAIAD project team member, CCR:
- Insurance is or has to be the key for prevention.
- CCR - Caisse Centrale de Reassurance, together with Meteo France, launched a study focusing on the impact of climate change.
- This study gives a measure of the climate change impact over natural catastrophes in France. There was reported a significant impact (+35% for the climate alone). Population dynamics will amplify these impacts.
- Future prediction is a very difficult exercise.
- This result could give orientations for prevention policies.
- Reinforce the need for solidarity and mutuality in order to share the risk


Prof. Dr. Peter HOEPPE, Chair, Munich Climate Insurance Initiative & Adjunct Professor, Institute of Catastrophe Risk Management (ICRM) at Nanyang Technical University (NTU) Singapore:
- Climate is a statistical thing - by calculating the statistics, we can figure out how the context is changing. The first thing we must do is to identify these changes and, based on this, we identify what we can do. The first approach is to extrapolate the detected trends in the following years.
- We have to increase our knowledge, we need to get in touch with scientific institutes, with institutes which research loss protection. The European insurance industry needs to get together and fund such institutes.
- It is in our interest that insurance products remain affordable.

Dr. Laurent MARESCOT, Senior Director, RMS:
- We use information and data to calibrate the risk models. What could basically bring the story to the next level is the quality and the quantity of the information collected.
- The risk models are difficult to calibrate if we don't have data.
- Very often, information is collected, but not transferred across companies.
- The technology could help a lot in terms of collecting more accurate data.

Angelika WERNER, Expert Atmospheric Perils, Property Underwriting EMEA, Swiss Re:
- Today, I have learned a lot about the PAID Romania scheme. I believe it should include windstorm risks as well, it would help increasing the consumers' trust. Because at the moment, the consumer has to buy a mandatory NatCat insurance policy, but he doesn't understand that the windstorm risk, for example, is not covered. This situation creates unnecessary friction: the policy should include windstorms as well.
- We need to learn how to build products which are easier to understand by our clients.
- Earthquake is a peril which we understand rather well and we can estimate rather well.
- Insurers must not lag behind when it comes to the development of products -they should be delivering new products based on the new developments in the ever-changing context.

Carlo TOZZI SPADONI, Co-Founder, Insurance Engineering Services:
- When dealing with commercial risk, you deal with professionals, with qualified people. When dealing with retail/ consumers - it is a totally different scenario and it changes a lot from country to country.
- Here, in Romania, you did a great job with PAID - in Italy we do not have a PAID scheme and we are behind. When we have losses, we pay them out with taxpayers money.
- In the end, everything is based on trust. If you have told people that they are insured against natural catastrophes, but when they are hit by a disaster such as a windstorm and you tell them they are not insured, this certainly does not help with improving trust.

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