Future Pathways. Fresh perspectives from actuaries of the future. Auckland, 9 March 2012 Wellington, 12 March 2012

Transcription

1 Future Pathways Fresh perspectives from actuaries of the future Auckland, 9 March 2012 Wellington, 12 March 2012

2 Future Pathways Fresh perspectives from actuaries of the future General Insurance Clinton Freeman, Vero am egal, ACC

3 Agenda Catastrophes What do we mean exactly? How do we model them? Why do actuaries care about them? What should we plan for in NZ? Natural disaster insurance for the future Possible adjustments to EQC Two overseas examples: California and Japan Personal injury: ACC s ability to endure a catastrophe

4 Catastrophes what do we mean? Catastrophe An event in which a society incurs, or is threatened to incur, such losses to persons and/or property that the entire society is affected and extraordinary resources and skills are required, some of which must come from other nations. (Drabek 1996) Disaster Accidental or uncontrollable events, actual or threatened, that are concentrated in time and space, in which a society undergoes severe danger and incurs such losses to its members and physical appurtenances that the social structure is disrupted and the fulfilment of all or some of the essential functions of the society is prevented. Incident Emergency Disaster Catastrophe

5 Were these catastrophes? Japan EQ & Tsunami (2011) Kyodo News Christchurch Earthquake (2011) mandm.org.nz WTC Collapse (2001)

6 How do we model them? EVENT ET HAZARD VULNERABILITY EXPOURE FINANCIAL ANALYI Nat-Cat models RM, EQECAT, AIR Earthquake, Flood, Windstorm I N U R E D L O

7 How do we model them? EVENT ET HAZARD VULNERABILITY EXPOURE FINANCIAL ANALYI I N U R E D L O

8 How do we model them? EVENT ET HAZARD VULNERABILITY EXPOURE FINANCIAL ANALYI I N U R E D L O

9 How do we model them? EVENT ET HAZARD VULNERABILITY EXPOURE FINANCIAL ANALYI NAA I N U R E D L O

10 How do we model them? EVENT ET HAZARD VULNERABILITY Damage Ratio (% um Insured) EXPOURE Vulnerability curve for 1-storey house 100% 80% 60% 40% 20% 0% FINANCIAL ANALYI Windspeed (m/s) I N U R E D L O

11 How do we model them? EVENT ET HAZARD VULNERABILITY EXPOURE FINANCIAL ANALYI I N U R E D L O

12 How do we model them? EVENT ET HAZARD Annual Exceedance Probability VULNERABILITY Exceedance Probability Curve 10% EXPOURE 8% FINANCIAL ANALYI 6% 4% 2% 0% Loss ($ million) I N U R E D L O

13 What can actuaries do with the model output (EP curves)?

14 Nat-Cat models and NZ Wellington Earthquake Wellington Fault return period 900 years, last event 300 years ago. Nat-Cat model limitations Multiple events Liquefaction Fire following earthquake

15 Nat-Cat models and NZ Auckland Volcanic Eruption Rangitoto only 600 years old Eruption clusters about 3,000 years apart Evacuate area equivalent to southern half of isthmus Nat-Cat model limitations Volcanic eruptions not modelled!

16 Nat-Cat Models Model only provides one view Appreciate uses and limitations of nat-cat models Heavily dependant on data quality (otherwise default values)

17 Future of Nat-Cat insurance in NZ

18 Future of Nat-Cat insurance in NZ Ideas for an improved EQC Different combination of pricing and coverage to ensure that EQC will be financially sustainable in the future Levies will need to increase in order to maintain the current level of cover and replenish the Natural Disaster Fund ubsequent tripling of rates from $0.05 to $0.15 per $100 of cover Increase in maximum premium from $69 to $207

19 Future of Nat-Cat insurance in NZ Recommendations from EQC in the Briefing to the Incoming Minister (Dec 2011) Removal of residential contents cover Currently limited to $20,000 A small proportion of payments, costly to administer Differential pricing By building size By construction type By location Automatic adjustments for levies and caps

20 Comparison: California Earthquake Authority (CEA) Created in the aftermath of the 1994 Northridge earthquake the costliest in U.. history A publicly managed, privately funded insurer Insurers choose either to offer CEA s policy or manage the EQ risk themselves CEA s liability is not backed by the state bail outs not likely In extreme cases policyholders may not be indemnified for the entire amount of covered losses Current claims-paying capacity over U$9b

21 Comparison: California Earthquake Authority (CEA) An example of differential pricing

22 Comparison: Japan Earthquake Reinsurance Co. (JER) Established following the 1964 Niigata quake Quasi-governmental company Customers who purchase residential insurance can elect to purchase EQ cover as well All EQ insurance is ceded to the JER JER is reinsured by both the private sector and the Japanese government Coverage structured such that the government assumes an increasing share as total losses increase EQ limit is half of the standard residential limit

23 Comparison: Japan Earthquake Reinsurance Co. (JER) Differential pricing By location By structure type (wooden/non-wooden) Claims classified by level of severity ize of claim between... of insured value 3% and 20% 20% and 50% 50% and 100% Classification Payment Partial Loss Half Loss Total Loss 5% 50% 100%

24 Personal Injury: ACC Impact of the Canterbury quakes Number of reported claims: 10, deaths, 8 serious injury claims Cost to cheme: $37m - $52m (present value) Total invested assets over $18b at 30 June 2011 ACC expects to be able to meet claims costs resulting from future catastrophes Does not carry reinsurance, post-funds catastrophic losses

25 Appropriate use of models and their results Models are only as good as their assumptions Recognise limitations where they exist Evaluate results with a healthy dose of skepticism Models require educated users judgment is key

26 Contact Details / Questions Clinton Freeman, Vero Clintonfreeman@hotmail.com am egal, ACC sam.segal@acc.co.nz Feel free to contact us with any comments/questions!