Catastrophe and weather risk insurance: enabling insurance markets to work

Transcription

1 Global Insurance Conference 2011 Developing Insurance in the Face of New Challenges Catastrophe and weather risk insurance: enabling insurance markets to work Eugene N. Gurenko, World Bank June 1-2, 2011 Program Summary

2 Underlying market development problems Low market penetration for catastrophe insurance and parametric weather risk products 0.1-5% of population is insured. Lack of underwriting and pricing skills for such complex products in local insurance companies. Impaired access to reinsurance for local companies due to inadequate pricing of risk and small volume of GPW. Unchecked price competition in the absence of risk-based solvency requirements. Poorly managed net risk retentions by insurance companies. Low awareness of catastrophe risk by consumers. Misguided expectations of government post-disaster assistance. Lack of articulated government policy with regard to disaster compensation. Under-developed weather monitoring infrastructure and deficient weather data bases.

3 National compulsory catastrophe insurance pools: a silver bullet or a practical impossibility? Most countries are too small to make national disaster pools meaningful. Compulsory insurance requirements are typically perceived as another tax and provoke major political opposition. Introduction of such schemes requires years of national consensus building. Enforcement of compulsory requirement may be ineffectual. High risk of political hijacking with devastating consequences for solvency and financial sustainability. Considerably start-up costs

4 World Bank approach to developing catastrophe and weather risk insurance markets Three Pillars of Market Development Insurance market development Risk models Pricing tools Underwriting tools Product development Reinsurance support Alternative distribution channels Weather measuring equipment Regulatory framework Regulatory catastrophe risk models Preparation for Solvency II Development of model cat risk regulations Development of on-site and offsite cat risk supervision tools Government policy Consumer education Explicit postdisaster compensation policy Linking mortgages with cat insurance Insuring government assets or social obligations Using insurance for fiscal risk transfer Incentives for insurance Development of a mass retail market for catastrophe and weather risk insurance products must simultaneously address all three bottlenecks

5 Case study: Europa Reinsurance Facility Ltd. A non-profit catastrophe reinsurance company owned by countries and supported by the World Bank and numerous international donors. Assists member states to develop domestic catastrophe and weather risk markets through design of tailored risk transfer products, supporting market infrastructure, regulatory framework and access to efficiently priced reinsurance. It s sole objective is to increase the level of catastrophe insurance coverage among government agencies, homeowners, farmers, SMEs and any businesses exposed to weather risk and geo-hazards in member states. Covers weather related perils (flood, drought, freeze, and hail) and geohazards (earthquake and fire following) Provides reinsurance support to a range of newly designed catastrophe risk products. Managed by an independent insurance services company with dedicated and highly experienced professional staff. Independent professional Board of Directors. Risk-based regulatory environment for catastrophe risk. Clearly defined exit strategy for governments. Open to all countries (so far in Europe) current members (Albania, Serbia, FYR Macedonia with several others in advanced discussions)

6 Europa Re: project implementation milestones Established under the Swiss Law in World Bank provided financing to Albania, FYR Macedonia and Serbia for membership contributions. Raised donors funds for preparatory technical work - $10 million. Retained a premier risk modeling company AIR to develop high resolution flood and quake country specific risk models to be used for risk pricing and insurance supervision. Created country working groups (consisting of government and industry representatives) to develop conducive regulatory, legal and policy environment for catastrophe and weather risk markets. Launches regulatory assistance programs (covered by donors) to develop risk-based regulatory tools (internal risk models, risk maps, regulations, etc.). Commences work on web-based underwriting platform to support sales of standard adequately priced catastrophe and weather risk products in member states. Will soon commence the work on a public information campaign.

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