Insuring against natural hazards

Transcription

1 Insuring against natural hazards Insuring against hydro- geomorphological risks and disasters G. BRUGNOT, Cemagref 27/09/00 1 Which natural risks we will consider We will mainly concentrate on : Floods Gravitational movements Earthquakes We will exclude Storms (not always easy to separate from floods) Forest fires Consequences of extremely high temperature, including heat waves,, droughts, insect infestation Snow storms, hail, icing (roads, power lines) BUT we have to keep in mind that : Statistics and insurance policy don't always establish a clear difference d between phenomena Nature itself creates multi-hazard disasters, as earthquake + tsunamis or storms + heavy rain + floods + landslides OSE 2

2 Naturals disasters effects: long-term trends EM-DAT source (World ) Number of disasters reported: increasing => totnumnatdis.pdf Fatalities: decreasing => totdeathnatdis.pdf Total number of people reported affected by natural disaster: sharply increasing => totaffnatdis.pdf Total amount of reported damages: increasing => totdamnatdis.pdf Remark: All natural disasters Recent flood disasters: Central Europe (2000) : about 15 b damages Indemnification Gard (2002) and bas Rhône (2003): over 1 b damages each MunichRe source => MunichRe insured losses.doc not recorded: Flood, Mississippi, 1993, 18 b$ OSE 3 Some comments about natural hazard trends Rich countries: Decrease of fatalities Sharp increase of economic damages Important cultural differences regarding insurance coverage: Germany: "insurance friendly" Japan: "insurance adverse" (Kobe, 1995: 3% of losses covered by the insurance market) USA and UK: in the middle France: no choice (government managed system) Poor countries Increasing level of human and economic damages No insurance coverage, except new NGO schemes: call on international solidarity in case of disasters OSE 4

3 Specific problematic of assurance against natural hazards: Natural hazards as seen by insurers A great deal of minor high-probability events = what they like (e.g. traffic accidents) A small number of disasters = what they hate (e.g. terrorism) Risk coverage implies Risk can be identified Risks are not correlated A probability value can be affected to any identified risk Insurance coverage for different hazard Hydrological hazards: theoretically possible, available in some countries Geomorphological hazards: difficult, not frequent OSE 5 The dilemma of extreme disasters Segmentation of the market: Accidents: losses < 20 m$ => Assurance Catastrophe: 20 m$ < losses < 5 b$ => Re-insurance Cataclysm: losses > 5 b$ =>????????? : Andrew + Northridge = 36 b$ insured losses = 9 American companies knocked out. American stock markets = b$!! Concept of creating a "catastrophe market" e.g. bonds: no disaster = high return disaster = no return Updating practices of Sumer and Genoa (insuring for long distance commercial voyages) OSE 6

4 Pathology of insurance Moral hazard: if insurance coverage is very cheap, prevention is not encouraged France (all natural hazards except storm - as a matter of fact, premiums are assessed on a flat rate basis) Adverse selection: if insurance coverage is too expensive, many households are not insured Great Britain (floods and storms) and, in some respect, USA OSE 7 Insurers, governments and natural hazards As any business, insurance needs government intervention: e.g. insurance against traffic accidents vs regulation of traffic conditions and car equipment (technical standards) This is particularly true in the case of natural hazards Land planning Technical standards Planning and funding of defences (dams etc.) Except in the case of technical standards, these measures are often under the responsibility of local governments (Cantons, Laender, Regioni/Provinzie etc.) This joint action is not going on very smoothly OSE 8

5 Information: the basis to everything? One common reason why very diverse national systems don't work properly: Lack of information Asymmetric information Improvements rely upon: A better knowledge of hazards (science) Ambitious programmes of hazard mapping whose results are widely disseminated (GIS, Internet) Information is the groundwork for public debate and political decision An inbred contradiction: a "veil of ignorance" is a prerequisite for solidarity, i.e. for insurance to be possible OSE 9 The French system: CatNat Any policyholder will receive indemnification, whatever the frequency and magnitude of the hazard Any policyholder pays a "natural-hazard tax", currently 12% of all premiums Payment is related to the frequency of the phenomenon (theoretically 1/10 and less), the situation of "natural disaster" being stated on the level of the commune The government is the last resort re-insurer (CCR) Répartition des arrêtés de catastrophe naturelle en fonction des phénomènes ( ) Nature Inondations Sécheresse Effondrement Glissement Avalanches Total de terrain Nombre d'arrêtés % Nombre de communes OSE 10

6 Assessment of the French system Positive aspects: Damages are quickly compensated, Insurers have no special interest in delaying and contesting the claims (The government compensates and they receive a fixed percentage for management costs) A high proportion of households is covered (95 %) Negative aspects: No official statistic data No incentive to prevention (moral hazard) Some properties not insured: public properties (local governments..) small companies no international reinsurance (earthquakes) 05 September 2000' law: deductible increased if disasters "are too t frequent" in a given "commune" (over 15 in 20 years in some cases) OSE 11 Risks The British system Storms and floods + subsidence Central government (Environment Agency): Guidelines (Planning Policy Guidance) Hazard mapping (Flood maps on the Net =>Ho Homecheckpro) Land planning: Local Authorities and developers Insurance: an agreement between the state and insurance industry (2002): Insurers provide coverage at a "reasonable cost" (premiums may be differentiated) Increase in state funding for defences Insurance "almost" compulsory (else no access to mortgages) OSE 12

7 Assessment of the British system Positive aspects: Information on natural risks conveyed through the level of insurance premiums (currently no significant differentiation) entiation) hazard maps (flood) Local governments have responsibility for land planning (but limited powers) and defence building Debate over climate change Negative aspects: Poor household not insured (adverse selection) No formal co-ordination ordination between government and insurance policy Insurance turning as a de facto regulator? Strong reliance on structural measures with little public debate (see the Netherlands). OSE 13 The US system A public operator: FEMA: Federal Emergency Management Agency Covers floods, earthquake and forest fires Two legs: NFIP : National Flood Insurance Program CRS : Community rating system Concept: NFIP provides insurance to communities entering the programme. These communities have to submit to NFIP requirements Main features : Flood Plain Managers have a large autonomy Optimization of preventive measures, using economic calculations Mapping widely used as an information tool NFIP maps Flood Insurance Rate Maps (FIRM) OSE 14

8 Assessment of the US system Positive aspects The programme is not mandatory Optimization of prevention measures among a set of possibilities: collective defences individual defences (flood proofing) buying out very exposed properties Negative aspects The programme is not mandatory 50 % of households/companies insured? OSE 15 The Swiss system (19/26 cantons) Insurance against natural hazard is: compulsory (buildings) a cantonal monopoly Covers storms, earthquakes, floods, landslides, avalanches There exists an inter-cantonal re-insurance system there is a limit to claims Insurance of contents is private A large part of the premiums is invested in prevention (one third) OSE 16

9 Assessment of the Swiss system Positive aspects A high level of efficiency (ratio compensation/premiums) Brussels' competition fundamentalists don't like it Negative aspects Brussels' competition fundamentalists don't like it In 1992, Germany had to dismantle such a system as it existed in some Laender. OSE 17 Are solidarity and prevention absolutely incompatible? Solidarity FR CH GB USA DE? Prevention OSE 18

10 What would an ideal system be? It must be adapted to traditions and culture: The Swiss system is 80 years old No ideological bias should prevail It must promote: Solidarity Risk awareness through information It must convey appropriate funding to prevention OSE 19