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  • Your Swiss Re Team

    Climate Change, Resilience, Parametric insurance IAC conference Cancun, 3rd June 2019

    Nadja Riedwyl, Senior Structurer, Swiss Re Reinsurance

  • Agenda

    IAC Cancun, Monday 3rd of June 2019 2

    1. Climate Change, Adaptation, Resilience 2. Parametric insurance

    a. Macro, Pooling b. Mass distribution c. Microinsurance d. Facultative risks

    3. Take away messages 4. Appendix

  • IAC Cancun, Monday 3rd of June 2019 3

    Climate change, Adaptation, Resilience

    1

  • IPCC Understanding global warming

    IAC Cancun, Monday 3rd of June 2019 4

    Mitigation & adaptation to limit the risks of climate change

    http://report.ipcc.ch/sr15/pdf/sr15_spm_final.pdf

  • gap

    Which risk?

    Governments

    Who carries the risk?

    Pooling Insurance schemes and pools

    to increase insurance penetration

    Macro Risk transfer solutions

    for (sub)sovereigns to cover their direct or indirect costs

    Micro Simplified products distributed

    via aggregators such as MFIs, NGOs, and corporates

    Risk transfer solutions

    Businesses, homeowners,

    farmers

    Public physical assets

    Emergency response costs

    Foregone revenue

    Uninsured private assets

    Livelihood assistance

    Pr ot

    ec tio

    n ga

    p

    Individuals

    Climate change adaptation

    IAC Cancun, Monday 3rd of June 2019 5

    Public & private sector – Combined response

  • Resilience

    IAC Cancun, Monday 3rd of June 2019 6

    It’s within our grasp – Let’s start now

  • Geological riskHydrometherological riskEnergy risk

    United States National Flood

    Insurance Program

    Team specialized in risk transfer for government agencies. Pioneer in Emerging Markets

    Global presence with government and multilateral bodies. Tailor made solution for our clients.

    Track record world wide Innovative risk transfer solutions

    7IAC Cancun, Monday 3rd of June 2019

  • Close the protection gap

    8

    Strengthen system resilience

    https://www.swissre.com/dam/jcr:c37eb0e4-c0b9-4a9f-9954-3d0bb4339bfd/sigma2_2019_en.pdf

    Total economic losses from natural and man-made disasters in 2018 amount to

    around $155 billion, of which approximately $79 billion are insured

    IAC Cancun, Monday 3rd of June 2019

  • IAC Cancun, Monday 3rd of June 2019 9

    Parametric insurance value proposition

    2

  • Parametric insurance

    Swiss Re Parametric NatCat

    Simple, predictable, transparent

    Trigger

    Reporting agent

    (ev. calculation agent)

    Insured InsurerClaim

    Premium

    "Simplification is the ultimate sophistication" Leonardo Da Vinci

    • Parametric insurance is a type of insurance that settles on a pre-agreed, simple measure (the "parameter" or "index")

    • Pay out depends on the occurrence of a triggering event, regardless of the actual loss

    • An independent third party (e.g. NHC for hurricane or USGS for earthquake) determines the intensity of the event and hence the impact on the claim

    • The insured purchases a maximum pay out cover from the insurer. The premium depends on the chosen limit as well as exposure of the insured

    • The pay out on a parametric product is unlikely to be exactly equal to the financial loss of an insured and the difference is known as "basis risk“

    10IAC Cancun, Monday 3rd of June 2019

  • Basis risk in parametric insurance

    11

    Potential scenarios of divergence between the trigger and the economic losses

    • The design of the trigger plays a key role in minimizing this risk

    • There needs to be a high level of correlation between the trigger and the economic losses

    • The parametric product flow includes the proof of loss by the insured in order to avoid scenarios where the trigger activation does not correlate with a real economic loss

    • The activation of the coverage occurs when the intensity of the event exceeds the pre- agreed trigger

    • Simple communication and clear explanation of the product is the utmost importance to avoid misunderstandings

    • The simpler the trigger, the better understanding by the insured

    Insured has an economic loss but the cover is not triggered

    The trigger is activated but the insured has no economic loss

    IAC Cancun, Monday 3rd of June 2019

  • Parametric insurance advantages Fast, flexible, accessible

    Fast access to cash

    Flexible usage of cash

    Accessible no claims process

    Parametric insurance makes sense when traditional insurance is not accessible or affordable

    Parametric insurance acts as a complement to traditional insurance, not as a substitute

    Parametric insurance offers immediate pay out for emergency cash relief, no claims handling process

    Swiss Re Parametric NatCat

    12IAC Cancun, Monday 3rd of June 2019

  • Simplicity drives satisfaction

    13

    Reducing complexity in insurance drives better performance and consumer loyalty

    Source: Simplicity Index (2017) from http://simplicityindex.com/

    Global Brand Simplicity Index 2017

    +433% vs. S&P : +135% DAX : +116% DOW : +106% FTSE :+52%

    2x growth of a stock portfolio comprised of ten publicly traded simplest brands (since 2009)

    consumers tend to use twice as much the telephone to receive more information about a product or service in complex industries

    Financials Channel Switch

    ?

    64% 61% of consumers are more likely to recommend a brand because it provides simpler experiences and communications

    of consumers willing to pay more for simpler experiences

    Willingnes s to pay

    $ Customer

    Loyalty

    IAC Cancun, Monday 3rd of June 2019 13

  • IAC Cancun, Monday 3rd of June 2019 14

    Macro, Pooling Mass distribution Microinsurance Facultative risks

    2a

  • CCRIF SPC Parametric TC & EQ insurance

    Solution features

    • CCRIF SPC offers parametric hurricane and earthquake insurance policies to 21 governments (19 Caribbean governments and 2 Central American governments)

    • The policies provide immediate liquidity to participating governments when affected by events

    • Member governments choose how much coverage they need up to an aggregate limit of USD 100m

    • Parametric insurance products make payments based on the intensity of an event (modelled loss triggers, e.g. hurricane wind speed, earthquake intensity), and the amount of loss calculated in a pre-agreed model

    • Peace of mind: Protection of funds and operational efficiency

    • The facility responded to events and made payments

    Involved parties

    • Reinsurers: Swiss Re and other overseas reinsurers

    • Reinsurance program currently placed by Willis

    • Derivative placed by World Bank Treasury

    Recent payouts

    • 2017: Dominica USD 19.3m (hurricane Maria), Antigua & Barbuda, Anguilla, St. Kitts & Nevis, Turks & Caicos, Haiti and the Bahamas (hurricane Irma) USD 29.6m

    • 2016: Nicaragua USD 1.1m (hurricane), USD 500k (earthquake)

    • 2010: Haiti USD7.7m (earthquake), Barbados USD 8.5m (hurricane), St. Lucia USD 3.2m (hurricane), St. Vincent & The Grenadines USD 1.1m (hurricane), Anguilla USD 4.2m (hurricane)

    15IAC Cancun, Monday 3rd of June 2019 https://www.ccrif.org/

  • CCRIF SPC Excess of rainfall

    Solution features

    • In July 2014, CCRIF SPC added a third peril to their program by offering excess rainfall insurance to their members

    • Losses are determined based on 2-3 day rainfall totals and the country exposure values

    • Utilized Kinetic Analysis Corporation’s (KAC) high resolution data that is a compilation of satellite and ground observations Environmental Resource Management ERM modelling

    • Deductible for the CCRIF is USD 7m and Swiss Re provides reinsurance with a limit of USD 35m

    Involved parties

    • Reinsurer: Swiss Re

    • Product designed by: CCRIF, KAC and Swiss Re

    • Calculation agent: KAC / Risk Management specialist ERM

    Payouts to date

    • 2018: Barbados USD 5.8m (Oct 2018), Trinidad & Tobago USD 2.5m (Oct 2018)

    • 2017: Trinidad & Tobago USD 7m

    • 2016: Haiti, Barbados: XS wind USD 21.5m and Haiti, Barbados, St. Lucia, St. Vincent & the Grenadines: XS rain USD 8m (Oct 2016), Belize: USD 260k (Aug 2016)

    • 2014: Barbados USD 1.2m (Nov 2014), St Kitts and Nevis USD1m (Nov 2014), Anguilla USD 493k (Oct 2014) and USD 559k (Nov 2014)

    16IAC Cancun, Monday 3rd of June 2019 https://www.ccrif.org/

  • Parametric insurance Coral reefs Mexico

    https://www.businessinsurance.com/article/20180309/NEWS06/912319746/ Parametric-insurance-policy-launched-for-coral-reefs-Mesoamerican-Reef-Swiss-Re

    • Conservation in coastal areas in Mexico has culminated in a new parametric insurance policy designed to cover hurricane-related damage to coral reefs

    • The Nature Conservancy and the State Government of Quintana Roo worked with reinsurer Swiss Re Ltd. to e