2015 International Workshop on Typhoon and Flood- APEC Experience Sharing on Hazardous Weather Events and Risk Management.

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1 2015/05/27 Taipei

2 Outlines The typhoon/flood disasters in Taiwan Typhoon/flood insurance in Taiwan Introduction of Catastrophe risk model (CAT Model) Ratemaking- Using CAT Model Conclusions 1

3 The Statistic of Casualties-induced by Typhoon/Flood from 1958 to 2012 Death Missing Wounded Flood 2500 MORAKOT Nnumber of person Year 2

4 The number of building damaged by Typhoon/ Flood from 1958 to Seismic code was introduced into Taiwan building code Entirely Collapsed Partially Collapsed Number of Bldg.(Household) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Flood YEAR In the early of Taiwan, most of buildings were low wind-resistant and floodresistant capability. A lot of buildings were destroyed by typhoon or flood event. 3

5 The number of building damaged by Typhoon and flood in 1990 to 2012 Number of Bldg.(Household) 3,000 2,500 2,000 1,500 1, Entirely Collapsed Partially Collapsed TORAJI & NARI BILIS HERB 72 Flood & AERE MORAKOT YEAR In the recent years, the landslide and debris-flow are major factors to cause damage of building during typhoon or flood events in Taiwan. 4

6 Typhoon/Flood Insurance in Taiwan

7 Typhoon/Flood Insurance in Taiwan In Taiwan, TY/FL insurance is an Extended Coverage of Fire insurance. The insured has to buy a fire insurance policy and then buy an endorsement of TY/FL insurance to get TY/FL coverage. The losses induced by landslide or debris-flow (mud-flow) are excluded from TY/FL insurance in Taiwan now. 6

8 Total Sum Insured (TSI) of TY/FL Insurance in Taiwan 31 Times (2001 vs. 2012) Typhoon Nari (2001) 7

9 Spatial distribution (Zip code) of TSI TY/FL Insurance in 2013 The most exposure of the typhoon/ flood insurance are concentrated in the western part of Taiwan, especially in the science and heavy industrial parks. 8

10 Gross Written Premium(GWP) of TY/FL Insurance in Taiwan NT$3.2 billion 9

11 Overall Rate of TY/FL Insurance The premium rate of Typhoon/flood insurance in Taiwan was decreased year by year. It s caused by the vicious competition between the property insurance companies. 10

12 TY/FL Insurance Losses in Taiwan Typhoon Nari (2001) NT$9.3 billion Typhoon Morakot(2009) 11

13 Current Rate Plan of TY/FL Insurance In Taiwan

14 Current Rate Plan of TY/FL Insurance ZONE Insured Target Base Rate( ) Structural Grade A B C County Level base Zoning of Typhoon/Flood Insurance I Building Content Low rate II III Building Content Building Content High rate ZONE I II III 13

15 2015 International Workshop on Typhoon and Flood Current Rate Plan of TY/FL Insurance Zoning of Typhoon/Flood Insurance Flood Map + Land Use Map It seems that WIND is a major concern and not WATER? The zoning of building Windresistant design Low wind speed design High wind speed design ZONE I II III 14

16 Current Zoning is Inconsistent With Real Risk Current Zoning of TY/FL Insurance Frequently Flooded Area Source: Water Resource Agency 15

17 Major Problems of current TY/FL insurance in Taiwan? The current zoning and premium rate of TY/FL insurance are inconsistent with the real TY/FL risk now. Based on the experience, not scientific information. The environment is different. The county level zoning is too large to discriminate the typhoon/flood risk. Using CAT model to establish a more reasonable rate plan 16

18 Catastrophe Risk modeling -TY/FL Risk Model

19 The Framework of Catastrophe Risk Model Catastrophe Event Module Average Annual Loss, Loss Exceeding Probabilities, Loss scenario. Event ID Annual Occurrence Rate Event Parameters (Magnitude, ) Mean of Event Loss CV of Event Loss # #... Event Table # # bn 0.35 Event Loss Table 5.8 bn bn 0.93 Event Parameters Hazard Module Location of properties Hazard Intensity Characteristics of Properties Vulnerability Module Damage Ratio Event Losses Financial Module Financial Conditions Exposure Module 18

20 Flood risk model Portfolio data Exposure Module Limit $ Loss Loss Deductible Define Rainfall Evens Calculate inundation depth and extent Calculate Damage Calculate financial loss Stochastic Events module Hazard Module Vulnerability Module Financial Loss Module 19

21 Wind risk model Portfolio data Exposure Module Limit $ Loss $ Loss Loss Deductible Define Event Calculate Wind Speed Calculate Damage Calculate financial losses (bldg, content, BI) Stochastic Event Hazard Analysis Vulnerability Analysis Financial Loss Analysis

22 AAL-Average Annual Loss Event ID Annual Occurrence Rate # #... λi # Mean of Event Loss CV of Event Loss 11.2 bn 0.35 L i CV L i 5.8 bn 0.42 # bn 0.93 AAL = λil { } 2 2 i σ = Li (1 + CVL ) λ i i i i 21

23 Ratemaking- Using CAT Model

24 Concept of Money In = Money Out for Rate Plan Money IN Money OUT Investment Income Post event Assessments Premium Balance Profit Operating Expense Risk Financing Cost Loss & Loss Expense 23

25 Ratemaking Using Catastrophe Risk Model CAT Model Money IN Money OUT Projected Portfolio AALs of different type of standard risk at different Geo Unit Pure Premium Loss & Loss expense CAT Model Projected Portfolio Balance Portfolio AAL or PML 24

26 The Flow of Catastrophe Ratemaking Define Risk Factor Define basic Territory (Building Type Height Level (County, Town, Built Year..) Village) Calculate the risk for each type of risk in each basic territory unit by Cat-Model Forecast portfolio (AAL, PML) by Cat-Model Calculating Territory Rate (Consider the weighted AAL of each basic territory unit ) Decide the territory based on the risk of each basic territory (e.g. Natural break, 3 territories) Balance between portfolio loss cost and premium => Off Balance Factor Adjust the rate by Off Balance Factor => Rate plan Discussion and Modification 25

27 Rate Plan Zone Selecting (1) Classify by estimated risk distribution (2) Classify by existing hazard maps Simulated Risk Unit Wood County Source for dividing zones Weighted AAL of each town Steel Reinforced Concrete Masonry Zip (1) Simulate the AAL of each building type (risk unit) in each town (zip) (3) Sum Up Zip 983 Zip 103 Zip 100 (4) Divide towns into different zones (2) Reinforced Masonry Reinforced Concrete Steel Wood Weight by the distribution of sum insured among the towns in the portfolio A practical (or projected) insurance portfolio Masonry Practical Portfolio Zones Territory of Flood risk Territory of Wind risk 26

28 Decide the Territory of FLOOD Risk Land-use Map Flood Maps Exposure Map- Zip Code Sum Insured The land-use map, flood maps, and exposure map are overlapped to calculate the ratio of area and exposure value prone to the threat of flood. And then classification methodology can be apply to decide the territories of flood risk based on the calculated ratios. 27

29 Decide the Territory of WIND Risk Wind design code-taiwan Building Code Wind Hazard Map (50 years) 28

30 Rate Plan Rate Computing (5) The AAL of each unit in each town (Zip) Reinforced Masonry Reinforced Concrete Steel Wood Masonry Zip 983 Zip 103 Zip 100 Weight by the distribution of sum insured among the zones in the portfolio The actual (or projected) insurance portfolio Sum up (6) The weighted AAL of each unit in each zone Reinforced Masonry (7) (10) Sum up and multiply by an adjustment factor f Compute the weighted AAL for each unit Reinforced Concrete Steel Wood Masonry Zone 4 Zone 3 Zone 2 Zone 1 Compute the zone rate for each unit Multiply by the computed factor f and divide by the total sum insured of the portfolio (8) AAAAAA pppppppppppppppppp SSSSSSSS pppppppppppppppppp Compute factor f (9) The premium rate of unit-zone Premium Rate in Different Building Classes ( ) Zone Reinforced Reinforced Masonry Concrete Steel Wood Masonry

31 Ratemaking Results of a Hypothetical Sample (for content only) Territory Rate TSI (NT$ billion) # of Town (Basic territory) , , ALAE=0.03*AAL; Risk Load Factor=0.15 ALAE: Allocated Loss Adjusted Expense 30

32 Conclusions The zoning of current Typhoon/Flood insurance rate plan is quite inconsistent with the real spatial distribution of Typhoon/flood risk in Taiwan. A CAT model, which incorporated five modules, i.e. exposure module, event module, hazard module, vulnerability module, and financial module, have been developed to assist to make a more scientific and reasonable rate plan of typhoon/flood insurance in Taiwan. The concept of financial balance was also used to make the rate plan with financial robustness. The new reference rate plan will be issued in this year in Taiwan. In the current state, the effect of climate change has not been thoughtfully considered in the model. It should be considered in the future to make the rate plan more reasonable. 31

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