FIAR 2012 SINAIA ROMANIA Session on Catastrophic Risks

FIAR 2012, SINAIA, ROMANIA Session on Catastrophic Risks Insurance Natural Catastrophe Risk Management Experiences and perspectives Roland NUSSBAUM Managing Director of Mission risques naturels (MRN), Paris, FR AFPCN Board, FR National DRR Platform Sinaia, 22 May 1

Preambles • Former presentations to the Romanian insurance market… • What dit happen since 5 yrs? FIAR Sinaia, 22 May 2

What is MRN ? Mission des sociétés d’assurances pour la connaissance et la prévention des risques naturels www. mrn. asso. fr An association dedicated to Nat. Cat risk knowledge and reduction, in partnership with public authorities, created in 2000 between: Sinaia, 22 May 3

The MRN team • Permanent staff members: engineers, geoscientists, Ph. D students… • Collaborative network of hundreds of correspondents : ü insurance companies ü State and local authorities ü Stakeholders and thematic associations Sinaia, 22 May 4

Activities of the association Studies Operational Institutional Sinaia, 22 May 5

MRN GIS Platform Monitoring, gathering, acquisition GENERIC (all risks) THEMATIC (risk specific) insurance undertakings Extraction Analyses Cleaning Reporting Interpreting Methods Integration Transactional and geographic DB Models Geoservices Studies Insurance associations and public partners Data warehouse « Observatory » Sinaia, 22 May Products and services of general interest 6

MRN asset exposure observatory Preliminary assessment of storm surge exposure number of property assets (personal and commercial lines / CRESTA zone) Areas subject to storm surge Sinaia, 22 May 7

MRN intranet geoservices infrastructure A web based GIS tool to support insurance professionnals on the natural hazard exposure analysis for the sites of a commecial lines customer Users Sinaia, 22 May 8

Use of MRN conventional hazard data sets at company level Analysis of a commercial lines porfolio exposure to floods R. NUSSBAUM Sinaia, 22 May 9

Natural Catastrophe Risk Management Experiences and perspectives OUTLINE • Nat. Cat Insurance Schemes in the EU • 30 Yrs of French experience, Lessons learnt • Risk knowledge, a main PPP issue • Concluding remarks Sinaia, 22 May 10

Insurance Schemes in Europe source : Insurance Europe Insurance schemes widely vary across Member States due to: Ø Different levels of risk exposure Key: Optional Coverage Ø Underestimation of risk (ie low risk perception) Ø Lack of awareness about risk prevention Ø Anticipation of state aid or compensation Compulsory extended coverage: + Recently put in place * In project Minimal role played by insurers Colour intensity proportional to penetration rate of Natural Hazard coverage + * Sinaia, 22 May + Source CEA 11

1. Nat. Cat Insurance and risk management: 30 Years of experience in France, as an example • Loss records • Lessons learnt from a recent event: Xynthia • An integrated DRM scheme ü Insurance component ü Prevention component • Risk basin strategies / governance towards sustainability • Lessons learnt and further developments Sinaia, 22 May 12

1. 1. Property damage losses caused by natural catastrophes in France Annual evolution of claims paid per insurance scheme: Nat. Cat (CATNAT) and Windstorm (TGN) 13, 000 Annual claims paid (discounted anmounts in millions €) 12, 000 11, 000 10, 000 9, 000 floods windstorms 8, 000 7, 000 CATNAT TGN 6, 000 5, 000 4, 000 subsidence 3, 000 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 0 1982 1, 000 Years AFIR 6 – Special Session I Sinaia, 22 May Sources : FFSA-GEMA (2011) & MEDDTL / BD GASPAR (2011) Author : MRN – May 2011 13

1. 1. Property damage losses caused by natural catastrophes in France Comparison annual loss/ extreme events 13, 000 11, 000 10, 000 9, 000 8, 000 7, 000 6, 000 Somme sinistralité Annual loss annuelle 5, 000 Evènements Extreme events extrêmes 4, 000 3, 000 2, 000 1, 000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Annual claims paid (discounted anmounts in millions €) 12, 000 Years AFIR 6 – Special Session I Sinaia, 22 May Sources : FFSA-GEMA (2011) & MEDDTL / BD GASPAR (2011) Author : MRN – May 2012 14

Carte de répartition par département de la centaine d’événements complémentaires source BD GASPAR, SANDRE, traitements MRN Sinaia, 22 May 15

1. 2. XYNTHIA 28 February 2010 Winter storm and storm surge Sinaia, 22 May 16

1. 2. Property damage losses Xynthia Event 28 February 2010 • 53 fatalities and 79 injured people in France • More than 2. 5 bn € of economic losses, out of which 1. 5 bn € insured losses Cover Total insured loss Nb of Claims Average cost CATNAT (storm surge) 0, 75 bn € 35 000 21 000 € Windstorm 0, 75 bn € 435 000 1 700 € Sinaia, 22 May 17

1. Nat. Cat Insurance and risk management: 30 Years of experience in France, as an example 1. 3. An integrated DRM legal and regulatory scheme FIAR 2012 Sinaia, 22 May 18

1. 3. An integrated DRM scheme (1) Mapping environmental risks, according to insurability and associated insurance solutions in France Natural hazards Storm Domino effects Forest Fire Thunder Hail Snow Technological other environmental risks Assurablility Hurricane Earthquake Volcanic Landslide Subsidence Cat. Tech Risks (law 21 July 03) Environmental liability (law 01 August 08) • Mesurable deteriorations : • Water • Soils • Protected Species and Habitats • Mesurable impacts on their ecological services Avalanche Flood) Cover TGN CATNAT Cat. TECH IRD RI Sinaia, 22 May Environmental liability insurance ASSURPOL Pool 19

1. 3. An integrated DRM legal scheme (2) Nat. Cat 1982 law, revised 1995, 2003 Sinaia, 22 May 20

1. 3. Main features of « Nat. Cat » insurance scheme Insurance compoent § Compulsory extended coverage to property damage contract § Cover type, level of premium and basic deductible are the same for all insureds, adopted by law § Insurance-like business, excess of annual losses by direct insurers are topped at 100 % loss ratio on retention after 50% quota share § State operating as reinsurer of last resort, on top of CCR (State owned reinsurance company) both QS & annual stop loss reinsurance treaties § The cover (indemnity based, no limitation) is triggered by administrative recognition of natural catastrophe at the level of each affected municipality AFIR 6 – Special Session I Sinaia, 22 May 21

RISK REDUCTION COMPONENT 1. 4. Risk reduction incentives within the CATNAT scheme AFIR 6 – Special Session I Sinaia, 22 May 22

RISK REDUCTION COMPONENT Risk reduction incentives within the CATNAT scheme AFIR 6 – Special Session I Sinaia, 22 May 23

RISK REDUCTION COMPONENT Risk reduction incentives within the CATNAT scheme AFIR 6 – Special Session I Sinaia, 22 May 24

Volet prévention Risk reduction incentives within the CATNAT scheme A 12% levy on Nat. Cat premium (150 Mio €) is financing a public Fund ( « Barnier Fund » ), dedicated to subsidize: § At individual level (must be insured): o Expropriation from highly exposed assets o Friendly acquisition of property if severely affected o Vulnerability reduction measures within the limit of 40 % of total costs ( studies and works) § At community level : o PPRN studies (50 % of their costs) o DRR structural and non structural measures taken by communities (PAPI, PSR), within the limits of 20 to 40 % of their total costs o Risk awareness raising and insuruance information campaigns Sinaia, 22 May 25

1. Nat. Cat Insurance and risk management: 30 Years of experience in France, as an example 1. 4. Risk basin strategies / governance towards sustainability FIAR 2012 Sinaia, 22 May 26

Risk retention and transfer along LEP Curve (for floods under Nat. Cat regime) Without DRR measures at risk basin level With structural DRR measures at risk basin level Sinaia, 22 May 27

1. 4. Flood risk reduction strategy of a floodplain management authority (1) Source : Stratégie d’aménagement à l’horizon 2013 pour lutter contre les inondations sur le bassin de l’Oise, Entente Oise Aisne, 2009 Sinaia, 22 May 28

1. 4. Flood risk reduction strategy of a floodplain management authority (2) Source : Stratégie d’aménagement à l’horizon 2013 pour lutter contre les inondations sur le bassin de l’Oise, Entente Oise Aisne, 2009 Sinaia, 22 May 29

1. Nat. Cat Insurance and risk management: 30 Years of experience in France, as an example 1. 5. Lessons learnt and future developments FIAR 2012 Sinaia, 22 May 30

1. 5. 1. Lessons learnt • Too many events unavoided, Several significant events, but No extreme event in 30 yrs • Very efficient/popular scheme, despite compulsory extension • Delayed DRR policies and measures, although recent significant improvements at all levels, but effects on average annual loss are a long term issue FIAR Sinaia, 22 May 31

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1. 5. 2. Future developments • Implement risk knowledge, as major DRR governance decision making tool (see § 2. ), involving stakeholders as producers and/or end users • Proposal of a law introduced last month, with the following main changes on FR Nat. Cat scheme: – Introduce objective recognition criteria for events – Allow insurers to differentiate Nat. Cat ratings for commercial lines – Restricted conditions for subsidence coverage FIAR Sinaia, 22 May 33

2. Risk knowledge, a main PPP issue Sinaia, 22 May 34

2. 1. Present situation of Nat. Cat risk knowledge in FR • Public hazard data are a main input to insurance market, through MRN hazard / risk knowledge management tools : • Observatories of public hazard data coverage, exposure, public prevention policies efficiency • Services to the insurance companies • Launching of a National Observatory for Natural Risks (ONRN), as a main imput for DRR governance decision making, with public/private stakeholders – Data sets coverage & quality evaluation, sharing & dissemination, – Hazard/Risk mapping, « open source » modelling methodologies and decision making tools development & uses Sinaia, 22 May 35

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Sample flood risk indicators (1) Sinaia, 22 May 37 37

Sample flood risk indicators (2) Sinaia, 22 May 38

Sample flood risk indicators (3) Sinaia, 22 May 39

Concluding remarks Sinaia, 22 May 40

To summarize on DRM/DRR and related domains: legal/cooperation frames, at international, regional and national levels Domain Prevention Civil Protection UN scale EU scale French scale HFA* Dir. Flods (2007) Dir. INSPIRE (2007) EUROCODES 8 & 20 CCA & DRR Strategies Codes (2003) environment, spatial planning, construction-habit. Financial Instrument (2007) Communautary mechanism (2007) New civil protection law (2004) MDG HFA IDRL (Intl Red Cross Red Crescent) Economic resilience (incl. Risk transfer) MDG HFA IAIS Art. 122. 2 Treaty EUSF (2002) Dir. Solvency II (2009) EIOPA / Cat TF Code envt: Fds Barnier Insurance Code; : Insurance scheme Prudential regulations (*) Hyogo Framework for Action and Millenium Development Goals Other domains of UN conventions integrating Nat. Cat prevention (by order of apperance) : Heritage, Human Rights, Cross border rivers and lakes, Alpine region, CCA… Sinaia, 22 May 41

Trend towards integrated DRM costs control Is it an equilibrated country profile? Source : PLANAT, 2007, Safety at which cost? Sinaia, 22 May 42

Conclusion Major trends for Nat. Cat insurance schemes • Integration of Risk Financing and Transfer within DRM at most governance levels • Convergence towards: – Risk metrics methods, including LP-HI scenarios, – Loss, exposure and DRR policy data shared at appropriate aggregation level, – Holistic risk based approaches & decision making tools – Risk governance bodies involving stakeholders, all relevant scales • Innovative risk transfer and public private partnerships to address these issues Sinaia, 22 May 43

Thank you for your attention roland. nussbaum@mrn. asso. fr Wood sculpture of Atlas cedar tree, that was fallen by MARTIN Storm of 27/12/99 Sinaia, 22 May 44