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HITTING THE POOR NATURAL DISASTERS 1980 - 2010 August 2010 Angelika Wirtz & Thomas Mahl
HITTING THE POOR
NATURAL DISASTERS 1980 - 2010
August 2010 Angelika Wirtz & Thomas Mahl
Agenda
• Munich Re
• NatCatSERVICE database
• AnalysesAnalyses
• Global view
Comparison of continents• 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
Three options to deal with natural exposures
2 Risk management
Dealing with the impacts P ibl t t iPossible strategies
Risk
Before the disaster event we deal with the risk, after the event we can only deal with costs. Risk Management Cost financingeither ….. ….. or
=
Cost bearing…..
Risk bearing Risk transfer
3
Risk management – moving from passivity to action
2Risk management
Dealing with the impacts P ibl t t iPossible strategies
“Ex-ante” “Ex-post”
Ex-ante and ex-post distinguish each other by risk management awareness.
before disaster during disaster after disaster
Ex ante Ex post
t
Moving from an ex-post to an ex-ante solution implies a development of governmental risk Rehabilitation andmanagement process. Rehabilitation and
reconstructionRescue and reliefRisk Management
4
Catastrophic risk financing levelsDifferent impacts/scales/products
3 Risk Financing
Micro-scale Microinsuancefocus: -individual health, life (funeral), ( )
-individual property (home, cattle)
Meso scale Derivatives and IndexMeso-scale Derivatives and Indexfocus: -weather, drought
-mostly in the developed world/USAy pstarted in Aftrica, Asia
Macro scale Cat BondsMacro scale Cat Bondsfocus -EQ, windstorm, flood
Pool Solutions
5
Catastrophic risk financing levels Government - insurer of last resort
3 Risk Financing
Probability %
Insured
Insurance
Reinsurance
Capital market
Government
low significant high severe catastrophic
6
Public private partnership3 Risk Financing
1. 7 Public Responsibility Private Responsibility
Disaster Contingent loans
Private Reinsurance/Cat Private Reinsurance/Cat
GovernmentDonors
Risk
Bond Market Bond Market
Pool/consortium etcPool/consortium etc DonorsDonors
Management Agency
Response Capacity, Mitigation
PostdisasterSubsidized loan and Grant Facility
PostdisasterSubsidized loan and Grant Facility
Insurers, Property LendersInsurers, Property Lenders
Incentives Grant FacilityGrant Facility
Lifeline infrastructure, the poor Lifeline infrastructure, the poor Small business, cash Small business, cash Middle class Middle class , pand disadvantaged
, pand disadvantaged farmersfarmers housinghousing
Macro Scale
8
Ex Ante versus ex-post loss financing4 Macro Scale
Natural DisastersE l
Ex-ante risk financing by insurance Ex-post loss financing
Costs pre-event Premium payment causes opportunity costs -Example:Ex-ante vs. Ex-post
Costs pre 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 (+socio-
economic)
-
)
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)financing gap)• borrowing increases debt (inflation,
interest rates, etc.)
Incentive for mitigation Yes No
Additi l A ti t t P i t tAdditional • Active strategy• Risk of insurer going bankrupt• Avoidance of diversion of government
resources from other important objectives
• Passive strategy• Controversial for international donor
community demanding for more „ex-ante“ initiatives
9
Example of government cover ( CCRIF)4 Macro Scale
Background
High exposure to a variety of adverse natural events
The primary objective of this facility is to provide immediate liquidity to the affected
fLimited economic resilience to disasters because of small size and limited borrowing capacityDependence on financing from
country after a major natural catastropheRapid, simple and transparent assessment of policy payout amountDiversification of risk and better access to Dependence on financing from
international donors to finance post-disaster needsLimited access to insurance and
markets through pooling across the regionHighest standards of governance and operations and lowest possible operational
t f F ilit
Objectives
reinsurance markets, and limited resources to do so
costs for Facility
10
The structure of CCRIF 4 Macro Scale
Island 1
„Cat swap deal“ with World Bank
Island 2
Island 3 Insurance premiumparticipation fee 28,6% Agg 70 xs 50
Reinsurance premium
Island 4
.
CCRI CaptiveInsurance policies on parametric basis
Insurance payout
Agg 15 xs 10
Agg 25 xs 25Reinsurance on Aggregate XL basis
Reinsurance payout
I l d
...p y p y
11
Island n
Insurance Policies on parametric trigger basis Coverage choices by clients
4 Macro Scale
Three variables are chosen by each country separately for each peril• Attachment point (in index units)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 tr e Cat ins reras 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 becomesparametric index works effectively (above this return period, basis risk becomes unacceptably high)
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Insurance policies on parametric trigger basis Example – hurricane Ivan payout for Grenada
4 Macro Scale
p p y
13
4 Macro Scale
Insurance policies on parametric trigger basis Example – hurricane Ivan payout for Grenada
]))5.22(,0(max([IndexHurricane_1
Gweight i
ni
ii −××= ∑
=βα
p p y
m/sinpointcalulationatspeedgust windpeakG point,n calculatioat weight weight
:where
i
1
ii
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 001 60 4 194 46 29 23 23 86
m/sin point calulationat speedgust windpeak Gi i=
GRD-001 60.4 194.46 29.23 23 86GRD-002 10 194.46 29.23 23 194
F (friction factor at site)
G (calc gust wind speed at site, m/s)
W (site weight factor)
B (index param beta)
A (index parameter alpha)factor at site) speed at site, m/s) weight factor) beta) alpha)
GRD-001 0.968421 28.92 0.05977 2.5 16.540212 GRD-002 0.959523 64.63 0.94023 2.5 16.540212
Country Index Estimated Loss Value Estimated Loss
Grenada 179317 $ 179,317,000
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Catastrophe insurance solutions
4 Macro Scale
Catastrophe Insurance
Pools are important features of the risk management scheme for countries with a high exposure to NatCat risks
solutions Wrap-up
sc e e o cou t es t a g e posu e to atCat s 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
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Meso-scale
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Value Chain
5 Meso scale
MFI
Insurer/SecondaryCooperative
Reinsurer
MFI Cooperative
1.Risk Carrier
2 Train the1. Risk Carrier
Agents
1. SalesChannel
1. Sales channel - MI products
2. Train the Trainer
3. Actuary support
2. Product development
3. Training of A tMicro
enterprises
Channel(Trusted bythe poor)
2.RiskAwarenessConsumer
2. Credit Portfolio protection
4. Risk modeling
5.Product development
Agents
4. Literacy awareness campaignAwareness
3. Cash management
Consumer requiring risk coverage
3.Product development
pp g
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Micro-insuranceSystemic Risks ( Natural Catastrophes)
5 Meso Scale
MFILoan
Debt Service
Group ofGroup ofGroup ofMicro -debtorsGroup ofMicro -debtors Social
collateral
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Systemic Risk protection-Group protectionSystemic Risk protection-Group protection
Impact of natural catastrophes Members’ balance sheets
5 Meso Scale
Provision for Provision for
Credit defaultCredit default If provision is insufficient…If provision is insufficient…
If provision is sufficient…
If provision is sufficient…
Doubtful DebtsDoubtful DebtsBAD
DEBTSBAD
DEBTS
Provision for Doubtful DebtsProvision for Doubtful Debts
BAD DEBTS
BAD DEBTSProvision for
Doubtful DebtsProvision for Doubtful Debts
Out
stan
ding
Out
stan
ding
Liab
ilitie
sLi
abili
ties
s ngs ng bilit
ies
bilit
ies
gg abili
ties
abili
ties
After a N t l
Gross Loans Out-standing
Gross
Gross Loans Out-standing
Net
Loa
ns
Net
Loa
ns
Net
Loa
nsO
utst
andi
nN
et L
oans
Out
stan
din
Liab
Liab
Net
Loa
ns
Out
stan
din g
Net
Loa
ns
Out
stan
din g Li
aLi
aNatural Catastrophe
Liab
ilitie
sLi
abili
tiesGross
Loans Out-standing
Loans Out-standing
Oth
er
asse
tsO
ther
as
sets Eq
uitie
sEq
uitie
s
Oth
er
asse
tsO
ther
as
sets
Equi
ties
Equi
ties
Oth
er
asse
ts
Oth
er
asse
ts
Equi
ties
Equi
ties
Oth
er
asse
tsO
ther
as
sets
Equi
ties
Equi
ties
↑ Provision of Doubtful Debts↑ Expenses↓ Retained Earnings↓ Equities
↑ Provision of Doubtful Debts↑ Expenses↓ Retained Earnings↓ Equities
↑ Bad Debts↑ Expenses↓ Retained Earnings↓ Equities
↑ Bad Debts↑ Expenses↓ Retained Earnings↓ Equities
Portfolio protection of cooperatives/MFIs5 Meso Scale
1. 20Services provided: Loans, Insurance (life, Non- life) Services provided: Loans, Insurance (life, Non- life)
MM
Payments, Membership fee, Interest, Loan repayment Payments, Membership fee, Interest, Loan repayment
MICRO-LevelMICRO-LevelMFI/
Cooperative
MFI/
MM
MM
M
MM
M
MESO-LevelMESO-Level
Secondary cooperative
MFI/ Cooperative
MFI/
MM
MM
MM
MMFI/ Cooperative
MFI
MM
MM
MM
MMFI /Cooperative
MM
MM
Meso/National-Solution MICRO/regional-Solution Scope:
Product concept5 Meso Scale
1. 21Annual recurrent payments
Disaster recovery payments
Independent Consultant
Reinsurance payments in case accumulated payout exceeds retention
Annual reinsurance premium
Secondary Cooperative
Disaster recovery payments subject to qualifying event/ trigger (to be defined)
Aggregators Aggregators Aggregators Aggregators
Micro-scale
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Risk Identification What are the main problems people face in Jakarta?
6 Micro Scale
Some statements from our Jakarta focus group discussions:
Evacuation is stressful!Interruption of
social life!
Evacuation is stressful!Interruption of
social life!
Extreme floods are our biggest threat!Extreme floods are our biggest threat! Rising food prices!Rising food prices!
Damage to our property/house!Damage to our property/house!
Sudden health expenditure!
(M l i D )
Sudden health expenditure!
(M l i D )
Loss of valuable items!(motor bike, TV, radio)Loss of valuable items!(motor bike, TV, radio)p ope ty/ ousep ope ty/ ouse (Malaria, Dengue)(Malaria, Dengue) ( oto b e, , ad o)( oto b e, , ad o)
Can not pay the Can not pay the Dependant on external help!Dependant on external help! Borrow money from Borrow money from
school fee!school fee!
Loss of food stock!Loss of food stock! Mutual help is not Mutual help is not No or less income!No or less income!
external help! (not guaranteed)
external help! (not guaranteed) e.g. relativese.g. relatives
Loss of food stock!(e.g. rice)
Loss of food stock!(e.g. rice)
ppossible, as everybody
is affected!
ppossible, as everybody
is affected!
No or less income!(no or little paid work)
No or less income!(no or little paid work)
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Risk identification6 Micro Scale
Important Aspect ParticipationL i h h ld th ht ifi dLow income households express thoughts, specific needs
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Risk analysisSchematic situation at the Manggarai gate Micro Level ApproachMicro Level Approach
6 Micro Scale
Ciliwung
Area with the hut of the Gate keeper
UPSTREAM
Micro Level ApproachMicro Level Approach
X = Manggarai Flood Gate (Photo)
= the bridge (on the photo)
Position der Messlatte
DOWNSTREAM
WBC (WesternBanjir Channel)
2after the bridge
to the left is actually
12actually
another part of Ciliwung
Banjir Canal
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Risk evaluationTrigger Development Micro Level ApproachMicro Level Approach
6 Micro Scale
gg p Micro Level ApproachMicro Level Approach
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Level Measurement at Manggarai Gate
Risk evaluation Trigger development
Micro Level ApproachMicro Level Approach
6 Micro Scale
Water Level Measurement at Manggarai Gate
Micro Level ApproachMicro Level Approach
PINTU AIR MANGGARAI
> 950pp
Siaga I at Manggarai: 950pp
27Microinsurance In Indonesia
Risk evaluation Trigger definition Micro Level ApproachMicro Level Approach
6 Micro Scale
Data Quality CheckData collection: copies of the Flood Gate Keeper’s Book
gg c o e e pp oacc o e e pp oac
Data collection: copies of the Flood Gate Keeper s BookWater Levels at Manggarai Flood Gate (1985 – 2007)
Data Source: Ministry of Public Works
Computerize Data: Maximum Water Level of each day (cm)
23 years x 365 days 8395 data
Risk evaluation Exposure analysis
6 Micro Scale
NKEMKEM Kebon Manggis
Schematic: Main Rivers Area of Pilot KelurahansSchematic: Main Rivers Area of Pilot Kelurahans
X = Manggarai Flood Gate
District
NPEGPEG Pegangsaan
PEGPEG
WBC (WesternBanjir Channel)
XX
BDBD
KMKMDistrictDistrict:: TEBETTEBETMG MG ManggaraiBD BD Bukit Duri
District
District
JATINEGARAMGMG
MSMSBB
RBRBCBUCBU DistrictDistrict:: JATINEGARAJATINEGARA
KM KM Kampung Melayu
KEMKEM
KBKB
BDBD
BCBC
KB KB Kebon BaruMDMD Menteng DalamMSMS Manggarai SelatanTTTT Tebet Timur
TEBET
MDMD
MSMS
TTTTTBTB CCCC
RBRB
CMCMCBSCBS
BC BC Bidara CinaCCCC Cipinang CimpedakBB BalinmesterRBRB Rawa BungaCBUCBU Cipinang Besar Utara
Ci i
Sunter
TB TB Tebet BaratCACA
CICI
CACA Cawang
CBU CBU Cipinang Besar UtaraCBS CBS Cipinang Besar SelatanCMCM Cipinang MuaraCKCK
CKCK CikokoPEPE PengadeganRJRJ R J ti
PEPE
RJRJCiliwung
Cipinang CACA CawangCICI CilitanBEBE Belekambang
BEBERJRJ Rawa Jati RJRJ
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Risk transferInsurance solution
6 Micro Scale
Flood protection card
Case I:
Client buys Flood Protection Card (until Oct. 2009) Wet season
Not triggered:flood water did not reach 9.50m at Manggarai Flood Gate
Price Rp. 50,000
Not triggered NOT TRIGGERED 9.50m Not
triggered:No payoutp ,
Case II:Triggered TRIGGERED
Triggered:flood water reached/ exceeded 9.50m at Manggarai Flood Gate
y
DRY SEASON WET SEASONPrice Rp. 50,000
Pay outRp. 250,000
9.50m
April 2009 March 2010Oct. 2009
DRY SEASON WET SEASON
1 time payout per card30
Training & MarketingInsurance literacy campaign
6 Micro Scale
Make the function of insurance understandable!Make the function of insurance understandable!Make the function of insurance understandable!Make the function of insurance understandable!
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THANK YOU
Thomas Mahl & Angelika Wirtz
THANK YOU
