French Protection Covers Against Natural Disasters P. Tinard Sr. Cat Modeler R&D Technical Studies Public Reinsurance
Agenda - Highlights on the French context - Main characteristics of the Nat Cat compensation scheme - French exposure to natural hazards - Summary of 30 + years of Nat Cat compensation in France
What is CCR (Caisse Centrale de Réassurance)? o Public reinsurer owned by the French State, created in 1946 Provides to insurers, operating in France, coverage against natural catastrophes and uninsurable risks French natural disaster compensation scheme (law of 07/13/1982) CCR is accredited to provide State-guaranteed with unlimited reinsurance coverage for: reinsurance of natural disaster risks reinsurance of terrorist acts reinsurance of exceptional risks linked to a shipment o CCR is also in charge of accounting and financial management of some public funds on behalf of the French State o CCR-Re (CCR affiliate) : Full-service reinsurer company operating on French and international markets in the life, non-life and specialty lines of business
Highlights on the French context
Insurance Market in France Key Figures Combined premiums ~188 billion EUR in 2014 19,7 30,6 Source : French Federation of Insurance Companies (FFSA) 5
Natural Hazards Coverage France has split natural hazards in two types Risks which can be covered by facultative or compulsory insurance with explicit contactual conditions Storm, hail, snow pressure, freeze Risks requiring specific compensation schemes All others (floods, earthquake, landslides,...) Public funds (National Fund for Agricultural Disasters - 1964 Law) The National Disaster compensation scheme (1982 Law) Nat Cat Why perils are covered under specific compensation schemes? Lack of statistics and large mutualisation, risk of accumulation and anti-selection 6
Natural Hazards Coverage France has split natural hazards in two types Risks which can be covered by facultative or compulsory insurance with explicit contactual conditions Storm, hail, snow pressure, freeze Risks requiring specific compensation schemes All others (floods, earthquake, landslides,...) Public funds (National Fund for Agricultural Disasters - 1964 Law) The National Disaster compensation scheme (1982 Law) * Out of the scope of the Nat Cat Compensation Scheme 7
Main characteristics of the Nat Cat scheme
Main characteristics of the Nat Cat compensation scheme 9
Main characteristics of the Nat Cat compensation scheme Perils generally covered: floods of any kind (surface runoff, overflow, groundwater flooding etc.) mudslides earthquakes landslides (including subsidence due to drought), tidal waves and tsunamis avalanches volcanic eruptions cyclonic winds (greater than average wind speed of 145 km/h or gusts of 215 km/h) This enumeration is not exhaustive 10
Main characteristics of the Nat Cat compensation scheme Solidarity with an uniform rating fixed by the State by way of decree Prevention linked to deductibles fixed by the State: compulsory and cannot be bought back Since 1st January 2001, deductibles are increased for municipalities without risks prevention plans Current rates: Property other than motor vehicles : 12% of property premium Motor vehicles : 6% of theft and fire premium (or, failing this, 0,50% of the property premium) Private lines Property 380 Subsidence 1 520 Corporate Property 10% minimum 1140 Business Interuption 3 working days minimum 1140 1 or 2 decrees: basic deductible 3 decrees: doubled deductible 4 decrees: tripled deductible Major Natural Risk Prevention Fund named Barnier Fund: Rate: 12% of Natural Catastrophe s rate Subsidence 3 050 5 decrees or more : quadrupled deductible 11
The Nat Cat Compensation Scheme in action 12
French exposure to natural hazards
French exposure to natural hazards o Almost 90 million policies collecting approx. 1.6 billion every year o A common citizen pays about 20 / year to benefit from the Nat Cat insurance coverage o Total insured values in France for dwellings and businesses: approx. 15 000 billions Insured Risk Number of policies Nat Cat premium Mean premium (million) ( million) per risk ( ) Dwellings 40 787 20 Businesses 6 597 95 Agricultural 0,7 60 86 Automobile 40 111 3 Total 87 1555 18 2014 estimation 14
French exposure to natural hazards River flood Terrain subsidence ~12 % of properties & businesses exposed ~17 % of properties & businesses exposed Groundwater flood ~18 % of properties & businesses exposed Hurricanes 15
French exposure to earthquake Seismic Hazard Number of municipalities Number of policies (a) Population (in thousands) (in thousands of inhabitants) Dwellings Businesses Dwellings Estimated insured value (a) (in euro billions) Direct damage Businesses Business interruption Weak 15 292 26 100 15 750 2 200 3 300 2 350 220 Light 11 996 21 500 13 800 1 850 3 350 1 800 200 Moderate 7 375 12 760 8 200 1 100 2 150 1 150 115 Strong 1 999 3 670 2 900 400 615 345 45 Severe (b) 68 845 240 21 35 30 2 16
Summary of the Nat Cat compensation in France
Summary of the Nat Cat compensation in France Almost all of the municipalities in France have been eligible at least 1 time for Nat Cat compensation regardless of hazard. More than 212 000 recognition decrees since 1982. 18
Summary of the Nat Cat compensation in France ~670 recognition decrees since 1982 0,3 % of all Nat Cat recognition decrees 19
Claims compensated within the Nat Cat Scheme approx. 26.5 bn compensated 1982 2013 including automobile 830 million compensated on yearly average Important variability depending on year Most costly year: 2003 but cumulated loss ( 3 bn) are far from possible loss due to a major event (earthquake or flood) 20
Earthquake in France within the frame of the Nat Cat compensation scheme o Limited loss due to earthquake since 1982 in France: 4 200 claims recorded in database approx. 320 million cumulated loss (in 2015) 1,3 % of all claims compensated in amount 7 main events ; top 3 events account for 85% of all loss experienced 21
Potential loss due to Earthquake in France o Destructive events in historical records o Potential loss up to tens of bn Insured Loss : 11 to 14 bn (CCR, 2014) Important need to make reserving to deal with extreme events 22
Insured loss vs. Economic loss o Within the scope of the Nat Cat compensation scheme, only Direct Damages and Business interruption to Properties suffering a direct damage are compensated. o The Nat Cat scheme excludes all Indirect Damages: Contingent Business Interruption, Emergency response costs, macroeconomic effects, Indirect economic losses (loss of added value), as a function of direct losses (Hallegatte, 2008) Event Insured Loss Global Loss Weight of Insured Loss ( million) ( million) on Global Loss Vaucluse 1992 52 136 38% Nîmes 1998 457 726 63% Aude 1999 289 555 52% Rhône 2003 828 1 166 71% Total 3 399 5 379 63% Example for France, based on flood (extract) 23
Concluding remarks o Unique Public Private Partnership o Provides an affordable coverage ( 20-25 on yearly average for a dwelling) o More than 25 billion compensated since 1982 o Almost all of the 36 500 municipalities have been eligible at least 1 time for Nat Cat compensation o Exceeding premiums are reserved for potential extreme events o Permanent need to ensure longevity of the compensation scheme to deal with future challenges, climate change especially 24
Thank you for your attention ptinard@ccr.fr