Insurance that pays out without proof of loss? Dr. Alexander Pui Nat Cat Manager (APAC) Swiss Re Corporate Solutions

Transcription

1 Insurance that pays out without proof of loss? Dr. Alexander Pui Nat Cat Manager (APAC) Swiss Re Corporate Solutions

2 Natural Catastrophe Losses in Asia (1970 present) 2011:Thai Floods, Tohoku EQ, Christchurch EQ 1995 Kobe EQ 2004 Indian Ocean Tsunami Widening Protection Gap ICRM Symposium August

3 Lessons from the Thai Flood 2011 Total economic losses from Thai Flood 2011 US$bn 45 Contingent business interruption (CBI) No insurance purchased Gaps in insurance coverage Business continuity expense (BCE) Result in 30 Denial of access 15 Insured losses Uninsured losses Total economic losses ICRM Symposium August 2018

4 Outline What is Parametric insurance and its key features? Practical Examples of Parametric Insurance Solutions Important Structuring Considerations Haze Insurance : A novel local market risk solution in development ICRM Symposium August

5 Definition of Parametric Insurance and Key Benefits Payout is predetermined and based on a pre-defined index Not based on actual claims reported Fast payout, less uncertainty and straightforward settlement process HOW IT WORKS BENEFITS ICRM Symposium August 2018

6 Parametric insurance compliments traditional indemnity Inadequate capacity Emergency expenses Sales/ Promotion Non Damage Business Interruption Applications of Parametric insurance Bridge protection gap Contingent Business Interruption ICRM Symposium August

7 Parametric Insurance vs Traditional Indemnity Traditional Indemnity Parametric Insurance Trigger Loss or damage to physical asset Event where parameter / index exceeds pre-defined threshold Recovery Reimbursement of actual loss sustained Pre-agreed payment structure based on event parameter/index value. Broad use of funds possible Basis Risk* Loss Assessment & Payment Policy conditions, deductibles and exclusions Months to several years depending on complexity of loss Correlation of chosen index and structure with actual exposure Very transparent and payment within 30 days Term Usually annual, multi-year difficult Single or multi-year (up to three years) Structure Standard products and contract wordings Customized product with high structuring flexibility (single trigger, multi-trigger) ICRM Symposium August

8 Regulatory Burden Risk Taker Trigger Type Parametric is not limited to Cat Bonds Risk transfer Indemnity Parametric Traditional (re)insurers Capital markets Traditional (re)insurers Capital markets Lower Lower Lower Higher ICRM Symposium August

9 Example of a Parametric Solution : Cat in the Box A Typhoon Cat-in-the-box cover pays out when a typhoon s track is within a pre-defined box the typhoon s intensity within the pre-defined box is at, or beyond a pre-defined threshold Sample Structure CMA Intensity Category Wind* % of Event Limit Severe Tropical Storm m/s 0% Typhoon m/s 25% Severe Typhoon m/s 60% Super Typhoon 51.0 m/s 100% * Two-minute mean maximum sustained wind near the TC center ICRM Symposium August

10 Example of a Parametric Solution: Intensity based Cover (1) RMS HWind Event Footprint for 2017 Hurricane Irma ICRM Symposium August

11 Example of a Parametric Solution: Intensity based Cover (2) Intensity Range (1-min mph) Payout (% of Site Limit) < % % % % % Looks up Intensity at nearest grid point ICRM Symposium August

12 Important Structuring Considerations How much capacity sought? Triggers as water tight as possible Risks associated with 3 rd party reporting Minimise basis risk Historical Events Validation Deep understanding of underlying hazard Counter-factual Analysis ICRM Symposium August

13 Haze Insurance a novel local market risk solution in development Addresses regional protection gap (2015 event led to USD 15bn losses World Bank) Product envisioned as a parametric product to cover Non Damage Business Interruption (NDBI) Risk model developed in collaboration with atmospheric chemistry group at Harvard University. ICRM Symposium August

14 Using the GEOS-CHEM model to develop view of risk The GEOS- CHEM atmospheric transport model helps to better understand the haze phenomenon, including: Its evolution into the future Hind casting haze concentrations in Singapore as far back as satellite imagery allows. ICRM Symposium August

15 GEOS-CHEM re-simulation of the 2015 haze event GEOS- CHEM simulation of Haze concentrations during the 2015 Indonesian Forest Fires. ICRM Symposium August

16 ICRM Symposium August

17 Legal notice 2018 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation. ICRM Symposium August