To Cede or Not to Cede

Transcription

1 To Cede or Not to Cede Copyright Ambiental 2015

2 A Recurring Phenomenon the new normal UK Northumberland Cumbria Cornwall UK & Ireland UK UK 55,000 homes flooded. 13 fatalities properties flooded. Worst floods in 55 years. 4 fatalities. 350 properties flooded. Wettest summer in 100 years. 9 fatalities. Widespread flooding South-west and Thames. 7 fatalities. Widespread flooding Northern England and Scotland Estimated damage: 3Bn Estimated damage: 10M Estimated damage: 100M Estimated damage: 6M Estimated damage: 1Bn Estimated damage: 1Bn Estimated damage: Unknown

3 Were floods the old normal? Major floods in central Britain March 1947 most extensive 20 th C flooding in E&W 1951 Severe groundwater flooding 1952 Lynmouth Disaster 1953 Devastating tidal flooding 1954 Severe flooding in the South 1955 Martinstown storm (rainfall record to this day)

4 Are we in the middle of a flood rich period?

5 The importance of decision-support tools Ambiental UKFloodMap4 100yr Fluvial

6 The importance of decision-support tools

7 as well as flood model validation Flood extent modelled by Ambiental (blue) Actual flood extent (dotted red line) Flood extent validation using UKFloodMap4

8 as well as flood model validation Carlisle FC Stadium, 6 th December 2015 Flood extent validation using UKFloodMap4

9 Validation: Keswick, Cumbria Flood extent validation using UKFloodMap4

10 What might an optimum Flood Re ceding strategy look like? One goal might be: Reduced flood losses, without sacrificing too much premium income. Ceding of actual or potential repetitive losses / killer bees Ceding high risk properties which generate less income / margin Retaining risks which are likely to benefit from flood defences Retaining those risks which one or more models say are low risk

11 Do we have to re-think our views of risk?

12 How do we think of risk? B. Attritional Risk A. Problem Risk D. Safe Bet C. Cat Risk

13 How do we think of risk? Moderate Risk High Risk Low Risk Moderate Risk

14 Key Decisions to make Which risks should I retain? Low risk; high value; no claims history? Which risks should I cede? All risks with past claims? High risks? How should I set my decision-making criteria? Needs to be based on potential future flooding

15 But there are other considerations Uncertainties (hazard; location; sums insured; vulnerability) Materiality of flood risk to the organisation Decisions around market share (grow; reduce; maintain) Transaction costs and other overheads Customer retention and loyalty Other practical considerations (time:cost; IT constraints)

16 Flooding can happen in many ways

17 Groundwater the hidden risk which can increase losses and exacerbate other forms of flooding Out of 28.1M property records (residential) in our FloodScore database: 3.7M (13.2%) have some degree of groundwater risk at the 1 in 100 year level. 470,000 (1.7%) of properties have a high risk of groundwater flooding at the 1 in 100 year level. Out of the 470,000 at high risk 282,000 are not currently captured within any flood zone (river, surface, or storm surge). ESI Ltd

18 Decision making The Challenge 3+ Flood Sources Variable Intensity (Depths) 18 Floating- Point Datasets 6+ Severities (Return Periods) Line of Business Building Modifiers Exposure

19 Towards simplification Raw Data Risk Index Zones Unprocessed engineering datasets Useful for detailed design or auditing results Classified into meaningful distinctions Sliding scale of risk (e.g ) Useful for strategic decision makers Simplified into a few zones e.g. Classified AAL values Rapid tactical decision-making re ceding

20 Cede all the reds? The need for sensitivity testing Red = Depth > 85cm Building-Level Exposure

21 Cede all the reds? The need for sensitivity testing Red = Depth > 1m Building-Level Exposure

22 Towards a streamlined decision-making process 1. Decide on your desired outcomes 2. Decide on key hazards / sources 3. Combine risks and eliminate double-counting

23 Hazard-based approaches to ceding 1. Return Period Based Pros: - Clearly visualised - Useful for rapid onthe-fly decision making Cons: - Lacking detail - No indication of severity Return Period 30yr 75yr 100yr 250yr 500yr 1000yr Decision Zone D D/C C B B/A A

24 Hazard-based approaches to ceding 2. Return Period and Depth Based Pros: - Severity visualised to underwriters - Includes depth information - Allows zoning of specific types of risk Depth / RP 30yr 75yr 100yr 250yr 500yr 1000yr > 3m D D D D D C > 2m D D D C C C > 1m D D C C B B > 50cm D C C B B A > 25cm C C B A A A > 10cm C B A A A A Cons: - Many layers can be visually confusing

25 AAL-based approaches to ceding 3. Average Annual Loss Based Pros: - Combines flood sources into a single, relevant figure (loss ratio/ /FloodScore) - Averages (annualises) all probability information - Accounts for full range of possible events - Risk net of insurance terms Cons: - Not the whole picture - Does not tell you likelihood of a big loss - Poor exposure data can lead to error

26 UKFloodMap4 - Risk Ratings C. Cat Risk 30yr: No Flood 75yr: No Flood 100yr: No Flood 250yr: No Flood 500yr: 1.7m 1000yr: 2.3m AAL here is 200 for a typical residential property B. Attritional Risk 30yr: 14cm 75yr: 25cm 100yr: 31cm 250yr: 45cm 500yr: 52cm 1000yr: 58cm and likewise, the AAL here is also 200.

27 Quantifying the benefit of ceding using AALs If AAL is greater than chargeable premium: Cede, otherwise; Retain. Goal: estimate the expected annual loss due to flooding, at the property level.

28 Damage to residential properties (m Euro) Contribution to total uncertainty (%) Understanding uncertainty is key 36 models Return period (yrs) Return period (yrs) Source: Merz, B., Thieken, A. H. (2009): Flood risk curves and uncertainty bounds. Natural Hazards, 51, 3,

29 Looking to the future Change % Percentage change in 20-year river flow by the 2080s

30 Climate Change Increased Flood Risk Map showing expansion of pluvial flood extent resulting from predicted rainfall increases through climate change.

31 There is continuing development in flood risk areas Data provided to us by the Committee on Climate Change shows 5,477 new builds in Brighton and Hove since UKFloodMap shows 21% new builds have some degree of flood risk. 2% of new builds (98 properties) fall within EA Floodzone No risk Tidal Fluvial Pluvial Note: 13% of new builds with flood risk are residential.10% of new builds with flood risk are major developments.

32 Key Takeaways Preparing for Flood RE 1. Take stock of flood data and methods you have fit for purpose? 2. Multiple models can be used to to cross check / better classify risks 3. ID of information gaps e.g. groundwater / pluvial 4. ID of uncertainties / sensitivities location; sums insured; claims? 5. Use claims to screen out repetitive losses, but don t over-rely.

33 AFP/Getty images For a free trial of Ambiental s addresslevel UKFloodMap TM and FloodScore TM products, please contact: Mark.Nunns@ambiental.co.uk Access to and use of this material is provided subject to the terms and conditions found at: Background maps and imagery, where shown: AFP/Getty images; OpenStreetmap. Justin Butler Justin.Butler@ambiental.co.uk