HITTING THE POOR NATURAL DISASTERS August 2010 Angelika Wirtz & Thomas Mahl

Transcription

1 HITTING THE POOR NATURAL DISASTERS August 2010 Angelika Wirtz & Thomas Mahl

2 Agenda Munich Re NatCatSERVICE database Analyses Global view Comparison of continents Natural disasters in different economies Natural disasters in the insured and non-insured world Options and Solutions Insurance / Microinsurance / Public Private Partnerships

3 2 Risk management Three options to deal with natural exposures Dealing with the impacts Possible strategies t Risk Before the disaster event we deal with the risk, after the event we can only deal with costs. Risk Management either.... or Cost financing =.. Cost bearing Risk bearing Risk transfer 3

4 2Risk management Risk management moving from passivity to action Dealing with the impacts Possible strategies t Ex-ante Ex-post Ex-ante and ex-post distinguish each other by risk management awareness. before disaster during disaster after disaster t Moving from an ex-post to an ex-ante solution implies a development of governmental risk management process. Risk Management Rescue and relief Rehabilitation and reconstruction 4

5 3 Risk Financing Catastrophic risk financing levels Different impacts/scales/products Micro-scale focus: Microinsuance -individual health, life (funeral) -individual property (home, cattle) Meso-scalescale focus: Derivatives and Index -weather, drought -mostly in the developed world/usa started in Aftrica, Asia Macro scale focus Cat Bonds -EQ, windstorm, flood Pool Solutions 5

6 3 Risk Financing Catastrophic risk financing levels Government - insurer of last resort Probability % Insured Insurance Reinsurance Capital market Government low significant high severe catastrophic 6

7 3 Risk Financing Public private partnership 1. 7 Public Responsibility Private Responsibility Disaster Contingent loans Donors Risk Management Agency Response Capacity, Mitigation Incentives Government Postdisaster Subsidized loan and Grant Facility Private Reinsurance/Cat Bond Market Pool/consortium etc Insurers, Property Lenders Donors Lifeline infrastructure,, the poor and disadvantaged Small business, cash farmers Middle class housing

8 Macro Scale 8

9 4 Macro Scale Ex Ante versus ex-post loss financing Natural Disasters Example: Ex-ante vs. Ex-post Ex-ante risk financing by insurance Costs pre-event event Premium payment causes opportunity costs - Benefits post-event Funds available immediately (2-6 weeks) Low covariant risk as risk is transferred out of the country Financial and economic stability (+socioeconomic) Ex-post loss financing Costs post-event Limited up to Retention Instability of foreign financing Time lag and delay in financing reconstruction Opportunity costs of diverting Long-term developmental impacts (if financing gap) borrowing increases debt (inflation, interest rates, etc.) - Incentive for mitigation Yes No Additional Active strategy t Passive strategy t Risk of insurer going bankrupt Controversial for international donor Avoidance of diversion of government community demanding for more exante resources from other important objectives initiatives 9

10 4 Macro Scale Example of government cover ( CCRIF) Background High exposure to a variety of adverse natural events Limited economic resilience to disasters because of small size and limited borrowing capacity Dependence on financing from international donors to finance postdisaster needs Limited access to insurance and reinsurance markets, and limited resources to do so The primary objective of this facility is to provide immediate liquidity to the affected country after a major natural catastrophe Rapid, simple and transparent assessment of policy payout amount Diversification of risk and better access to markets through pooling across the region Highest standards of governance and operations and lowest possible operational costs for Facility Objectives 10

11 4 Macro Scale The structure of CCRIF Island 1 Cat swap deal with World Bank Island 2 Island 3 Insurance premium Reinsurance premium participation fee 28,6% Agg 70 xs 50 Island 4 Insurance policies on parametric basis CCRI Captive Reinsurance on Aggregate XL basis Agg 25 xs 25 Agg 15 xs 10. Insurance payout Reinsurance payout Island n 11

12 4 Macro Scale Insurance Policies on parametric trigger basis Coverage choices by clients Three variables are chosen by each country separately for each peril Attachment point (in index units) Exhaustion point (in index units) Insured Share Insured share is limited to a maximum of 50% Attachment cannot go below 20-yr return period, which allows for Facility to act as a true Cat insurer Exhaustion cannot go above 150-yr return period; this ensures that the parametric index works effectively (above this return period, basis risk becomes unacceptably high) 12

13 4 Macro Scale Insurance policies on parametric trigger basis Example hurricane Ivan payout for Grenada 13

14 4 Macro Scale Insurance policies on parametric trigger basis Example hurricane Ivan payout for Grenada i n Hurricane_Index = = β α [ weight (max(0,( G 22.5)) ] where : weight G i i i= 1 = weight at calculation point, i = peak gust wind speed at calulation point i in m/s i i D (closest dist to track, km) M (max 1-min wind on track, km/h) T (forward speed, km/h) R (radius to max wind, km) S (calc max 1-min wind at site, km/h) GRD GRD F (friction G (calc gust wind W (site B (index param A (index parameter factor at site) speed at site, m/s) weight factor) beta) alpha) GRD GRD Country Index Value Estimated Loss Grenada $ 179,317,000 14

15 4 Macro Scale Catastrophe insurance solutions Catastrophe Insurance solutions Wrap-up Pools are important features of the risk management scheme e for countries with a high exposure e to NatCat risks s The design of the individual solution (legal framework, institutional structure, terms and conditions, risk financing strategy etc.) is the crucial point of success Peak risks are borne by reinsurance companies a PPP combination of a pool and a sovereign cover is advisable for vulnerable countries 15

16 Meso-scale 16

17 5 Meso scale Value Chain MFI Insurer/ Secondary Cooperative Reinsurer Micro enterprises Consumer requiring risk coverage Agents 1. Sales Channel (Trusted by the poor) 2.Risk Awareness 3. Cash management 1. Sales channel - MI products 2. Credit Portfolio protection 3.Product development 1. Risk Carrier 2. Product development 3. Training of Agents 4. Literacy awareness campaign 1.Risk Carrier 2. Train the Trainer 3. Actuary support 4. Risk modeling 5.Product development 17

18 5 Meso Scale Micro-insurance Systemic Risks ( Natural Catastrophes) Loan MFI Debt Service Group of Micro -debtors Social collateral Systemic Risk protection-group protection 18

19 5 Meso Scale Impact of natural catastrophes Members balance sheets Credit default If provision is sufficient If provision is insufficient Provision for Doubtful Debts Provision for Doubtful Debts BAD DEBTS BAD DEBTS Provision for Doubtful Debts Gross Loans Outstanding Outstanding Net Loans Liabilities After a Natural Catastrophe Gross Loans Outstanding Net Loans Outstandin ng Liab bilities Gross Loans Outstanding Net Loans Outstanding Lia abilities Gross Loans Outstanding Other assets Liabilities Equities Other assets Equities Other asset s Equities Other assets Equities Provision of Doubtful Debts Expenses Retained Earnings Equities Bad Debts Expenses Retained Earnings Equities

20 5 Meso Scale Portfolio protection of cooperatives/mfis Services provided: Loans, Insurance (life, Non- life) Payments, Membership fee, Interest, Loan repayment MESO-Level MICRO-Level MFI/ Cooperative M M M M M M Secondary cooperative MFI/ Cooperative MFI/ Cooperative MFI /Cooperative M M M M M M M M M M M M M M M M M M Scope: Meso/National-Solution MICRO/regional-Solution

21 5 Meso Scale Product concept Annual recurrent payments Disaster recovery payments Annual reinsurance premium Reinsurance payments in case accumulated payout exceeds retention Independent Consultant Secondary Cooperative Disaster recovery payments subject to qualifying event/ trigger (to be defined) Aggregators Aggregators Aggregators Aggregators

22 Micro-scale 22

23 6 Micro Scale Risk Identification What are the main problems people face in Jakarta? Some statements from our Jakarta focus group discussions: Evacuation is stressful! Interruption of social life! Extreme floods are our biggest threat! Rising food prices! Damage to our property/house! ouse Sudden health expenditure! (Malaria, Dengue) Loss of valuable items! (motor bike, TV, radio) Can not pay the school fee! Dependant on external help! (not guaranteed) Borrow money from e.g. relatives Loss of food stock! (e.g. rice) Mutual help is not possible, as everybody is affected! No or less income! (no or little paid work) 23

24 6 Micro Scale Risk identification Important Aspect Participation Low income households h express thoughts, ht specific needs 24

25 6 Micro Scale Risk analysis Schematic situation at the Manggarai gate Micro Level Approach UPSTREAM Ciliwung Area with the hut of the Gate keeper = the bridge (on the photo) Position der Messlatte X = Manggarai Flood Gate (Photo) DOWNSTREAM WBC (Western Banjir Channel) after the bridge to the left is actually another part of Ciliwung Banjir Canal

26 6 Micro Scale Risk evaluation Trigger Development Micro Level Approach Level Measurement at Manggarai Gate 26

27 6 Micro Scale Risk evaluation Trigger development Micro Level Approach Water Level Measurement at Manggarai Gate PINTU AIR MANGGARAI > 950pp Siaga I at Manggarai: 950pp Microinsurance In Indonesia 27

28 6 Micro Scale Risk evaluation Trigger definition gg Micro Level e Approach Data Quality Check Data collection: copies of the Flood Gate Keeper s Book Water Levels at Manggarai Flood Gate ( ) Data Source: Ministry of Public Works Computerize Data: Maximum Water Level of each day (cm) 23 years x 365 days 8395 data

29 6 Micro Scale Risk evaluation Exposure analysis Schematic: Main Rivers Area of Pilot Kelurahans X = Manggarai Flood Gate KEM Kebon Manggis PEG Pegangsaan N District: TEBET MG Manggarai BD Bukit Duri KB Kebon Baru MD Menteng Dalam MS Manggarai Selatan TT Tebet Timur TB Tebet Barat District WBC (Western Banjir Channel) TEBET MD PEG X MG MS TB TT CK Cikoko PE Pengadegan RJ Rawa Jati KEM BD KB CK PE RJ Ciliwung CI BE KM District JATINEGARA BC CA B CBU RB CC CBS CM Cipinangi Sunter District: JATINEGARA KM Kampung Melayu BC Bidara Cina CC Cipinang Cimpedak B Balinmester RB Rawa Bunga CBU Cipinang Besar Utara CBS Cipinang Besar Selatan CM Cipinang Muara CA Cawang CI Cilitan BE Belekambang 29

30 6 Micro Scale Risk transfer Insurance solution Flood protection card Client buys Flood Protection Card (until Oct. 2009) Price Rp. 50,000 Wet season Not triggered:flood water did not reach 9.50m at Manggarai Flood Gate Case I: Not triggered NOT TRIGGERED 9.50m Not Case II: Triggered Price Rp. 50,000 DRY SEASON TRIGGERED triggered: No payout Triggered:flood water reached/ exceeded 9.50m at Manggarai Flood Gate WET SEASON 9.50m Pay out Rp. 250,000 April 2009 Oct March time payout per card 30

31 6 Micro Scale Training & Marketing Insurance literacy campaign Make the function of insurance understandable! 31

32 THANK YOU Thomas Mahl & Angelika Wirtz