Terrorism Insurance International Conference First panel · done in EU, and expand for “low...
Transcript of Terrorism Insurance International Conference First panel · done in EU, and expand for “low...
Terrorism Insurance International Conference
Paris conferenceJune 28, 2017
First panel
Speaker: Jamie Shea, NATO, Deputy Secretary GeneralEmerging Security ChallengesThe changing nature of terrorism and the emerging
challengesPanel
Geo-political update, new threats, hyper- terrorism andpossible mitigation of exposures• Moderator: Ed Butler, Pool Re, Head of Risks Analysis• Jamie Shea, NATO, Dpty Secretary Gal Emerging Challenges• Steve Johnson, Cranfield, Professor• Deborah Rosenblum, NTI, Vice President• Christian Sommade, HCFDC, General Delegate
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First panel
Paris conferenceJune 28, 2017
Hyper terrorism and emerging threats
Cranfield Forensic InstituteS. Johnson
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Hyperterrorism Threat outlook
Chemical
Small scaleModerate
Large scaleLow
Biological
Small scaleModerate
Large scaleLow
Radiological
Small scaleModerate
Large scaleLow
Nuclear
Small scaleLow
Large scaleVery low
Explosive
Small scaleHigh
Large scaleModerate
Kinetic
Small scaleVery high
Large scaleModerate
Combination & Complex marauding attacks
Brussels Attack - 22 March 2016. 3 Bombers ‘Ameur’ – Biological backpack Malaysia/N Korea Iraq/Syria Increasing concerns about drones Manchester – conventional bombings Kinetic & bladed attack Fire increasingly overlooked as a risk Agents used or emerging include…
AbrinNicotine
ThalliumChlorine
SarinVX
Ricin Mustard Fentanyl/Carfentanyl
Emerging threats
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Elaborate Hoaxes
Easy to carry out Combination with
Cyber Potential disruption/BI Can erode
preparedness Diversion from real
attack
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Improved modelling
CBRNE modelling Includes complex attacks and
contamination
0
5
10
15
20N
NNE
NE
ENE
E
ESE
SE
SSES
SSW
SW
WSW
W
WNW
NW
NNW
London Wind Direction (From)
Slide to follow showing variation by input factors at single target site
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Complex attacks
Rise of disruptive small attacks
Multiple dispersed attacks with blades, guns & explosives
Overmatch of civilian resources
Potential increase in damages
Preventing a Dirty Bomb
NTIDeborah Rosenblum, Executive Vice President
Paris conferenceJune 28, 2017
About NTI
Founded by U.S. Senator Sam Nunn and CNN founder Ted Turner
International board of directors
Mission is to strengthen global security by reducing the risks posed by weapons of mass destruction and disruption—nuclear, biological, radiological, chemical, and cyber
Operating model: direct action projects, partnerships, data collection and analysis
Threat Landscape
Terrorists groups have stated their intention to acquire and use radiological materials in a dirty bomb
Terrorist use of a dirty bomb is more likely than use of a nuclear device
The ingredients for a dirty bomb are located at thousands of sites in more than 150 countries, many of them poorly secured
There is increasing concern about Home Grown Violent Extremists that could become self-radicalized and inspired by on-line propaganda
Risks are Increasing
Potential Consequences
A dirty bomb detonation could: Cause widespread panic and fear Heighten public mistrust of governments'
ability to protect citizens Assist with terrorist recruitment Cause billions of dollars of damage due
to the costs of evacuation, relocation, and cleanup
New York City
Progress to Date
Effective, equivalent alternative technologies are available for permanent threat reduction
Additional efforts should be undertaken to raise awareness about the threat and to secure or replace the most vulnerable radioactive sources
• Significant progress has already made by numerous countries– As of 2016, France completely replaced all 30 cesium blood irradiators
with x-ray devices
NTI Contact Information:Deborah Rosenblum
www.nti.org/about/radiological/
Follow:@NTI_WMD
Paris conferenceJune 28, 2017
Lessons from recent attacks and mega shocksFrench High Committee for Civil Defense
Christian Sommade, Director
Paris Attack : Lessons learned – Facts :
Within 30 mn .. 7 (2 Main + 5 secondary) coordinated attacks in the north and east of Paris
• 1 on the north : Stade de France : Game France-Germany
• 5 in the east Part of Paris Old urban area - Young and active at night districts
What went well• Good response at Stade de France
• Good response from Fire and EMS as Volunteer's organizations on all sites
• Medical regulation
• Normal operation has been going smoothly
• Reserve was ready to go if needed (West Paris ?) Helicopters and Reinforcement column were activated and on their way sent at 11:00 AM from east and north defence zone
• Command and Control – Anticipation
What didn’t go so well that night
• Security issues : Police coordination for securing the zone : hard to get – not good at Bataclan in the 2 first hours : exchange of fire on rescue forces – Military secured the back street fast
• Coordination on road and traffic : narrow street : complex – evacuation gone by convoy of ambulances.. Sometimes slow
• Only EMS (SAMU) and Some Fire (MD) Ambulances got Damage control kit (Tourniquet – hemostatic bandage…) .. Others Under procurement – stretchers issue –
• Sinus (tracking system) not ops on all sites : lost many in the C2• Communication between forces (not enough channels)• Question : President on scene ??
Lessons learned
Using the same method everywhere (same at Hypercacher..) :
1. Phase «Massacre»2. Phase «Entrenchment»3. Phase «Maintaining Attention»4. Phase «Dying as a Martyr»
Lessons learned :The tremendous cost on economy
• INSEE estimated the cost on economy of the 13 th November attack to : 0,3 % spending on general consumption in France and 0,1 % on GPB on the quarter : 700 millions € of economic loss
• After Nice : 50 % slow down in local touristic economy on the next 6 months .. X 50-100 millions € ..
New doctrine for Police and first responders
• Local Crime squad can go with heavy weapons and ballistic protection
• New Swat team distribution over France and no more Police-Gendarmerie competencies issue : 20-30 mn concept of action
• New doctrine for first responders (Fire-EMS) included in assault team with the Police/Gendarmerie for rescue
• Generalization of « Damage control Kit » in all units
Are we ready for worst ?
MÉGA-SHOCKS
EXCEPTIONAL EMERGENCY SITUATIONS – (LARGE DISASTERS)
EMERGENCY MANAGEMENT
STANDARD INCIDENT
Not so many « mega schock » scenarios
Major flooding on Urban area Major earthquake Major infrastructure attack (ex:9/11) Major nuclear accident (>7) - (Terrorism or not) Bio (real) or Rad-Nuc dirty bomb (Real and massive ) CWA attack Cyber on critical infrastructure with «mass loss life
impact) Cyber over massive internet loss (long)
MÉGA-SHOCKS
Mega-shock means « Resilience »
Can we talk about ?How to make those scenarios acceptable by Government ?How to plan for inside “response organizations” ?How to implement and prepare population to be resilient ? Insurance and reassurance programs must not be a reason for not be
resilient
Facing those Mega-shocks :What are the obstacles for preparedness and response
Recommendations
• Government can used NGO to play those registers for alerting and work with social players (local communities, economic worlds..)
• Government must educated population on basic « disaster behavior » not really done in EU, and expand for “low probability VS high consequences threats
• Start to plan ”unthinkable scenarios” inside and outside national levels (EU-NATO-UN..) done today but at very low scale today (detail planning ?)
• Interoperability must be the rules in planning tools and rescue operation : Standards must be even more developed.
Emergent Threat: Cyber Terrorism
Paris conferenceJune 28, 2017
Pool ReEd Butler – CBE DSO
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‘An act of political violence involving physical damage orpersonal injury, caused by a remote digital interference withtechnology systems’
Cyber could affect multiple insurance classes and soaggregation is an issue
Modelling challenges
Problems of attribution
It is an ‘unknown known’
Introduction
DRAFT at 1 June 2017
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Malicious external sources
Internal threats: the “insider”
External accidents – third partyaffiliations
Criminal – Terrorist nexus
Technology transfer
Where does the threat currently come from?
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Enabling Intelligence gathering, attack planning, communications
Disruptive Hacking, web defacement, Distributed Denial of Service attacks (DDoS)
and Advanced Persistent Attack (APA)
Destructive Manipulate and / or corrupt
information system functionsto damage or destroy virtualand physical assets
Activity
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“Traditional terrorists relied on violent action (bombs and bullets) toachieve destruction. Now they use cyber to disrupt to achieve the samedegree of destruction”
- Paul Dwyer, CEO Cyber Risk International “Manipulating or corrupting information may, at a minimum, provide
misinformation and induce confusion and loss of confidence in criticalsystems. In the worst case, destructive cyber militancy may causecatastrophic effects on critical national infrastructure, possiblyresulting in death and destruction”
- Jonathan Brickey, Combatting Terrorism Centre “These (cyber) attacks could cost the oil and gas industry billions of
pounds…there has been a 179% rise in the number of reported cyber-attacks on oil and gas companies, which soared above 6,5000 caseslast year (2014).
- The Scotsman June 2015
Destructive attacks
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Stuxnet (2009 – 2010)
Targeted centrifuges at Natanzuranium enrichment plant
984 centrifuges destroyed,substantial delays to Iran’s enrichment programme
German steel mill (2014)
Malware contained in emails sent to employees
Destroyed a blast furnace
Destructive attacks
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Cyber could affect multiple lines of business
Accumulation of capital
Difficult to model
Mitigation measures General Data Protection Regulations ISO Accreditation (ISO 28001) “Cyber Principles” National Cyber Security Centre
Accumulation & Aggregation: Pool Re & Industry Response
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Cyber risks are difficult to model
There are multiple threat sources and attack vectors
Problems of accumulation
Attribution difficult
A question of when not if…..?
Conclusion
Terrorism Insurance International ConferenceSecond Panel
Paris conferenceJune 28, 2017
Speaker: Emma Karhan, Guy Carpenter, Managing DirectorTerrorism, bridging gaps and filling vacuums
PanelThe existing terrorism covers and the potential gaps indifferent insurance classes and marketsModerator: Eric Excoffier, Guy Carpenter, Managing Director• Albert Kuller,Lloyds, Research Officer• Michael Burle, Liberty Mutual, Marine Manager• Christophe Graber, La Réunion Aérienne, General Manager• Victor Peignet, SCOR, P&C CEO• Pascale Gallego, Partner Re France, Head of Life
Second panel
Terrorism, bridging gaps and filling vacuums
Paris conferenceJune 28, 2017
GUY CARPENTEREmma Karhan, Managing Director
GUY CARPENTER
Agenda
• Impacts of Terrorism – Economic, Social, Political
• Diverging between Economic and Insured losses– The changing role of governments in an intangible asset focused economy
• Terror Losses : now and then….. Severity to frequency, damage to casualties…
• 9/11 defined the way we looked at terrorism…. Does that still make sense?
• Bridging the gap…. Moving forward ?
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GUY CARPENTER
Impacts of terrorismEconomic, Political, Social
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Sept 11 cost over $20bn Financial market losses =0.25% GDP17.000 jobs lost in aftermath
Paris attacks: 40% of hotel booking in Brussels were cancelled due to lock down
25/11/2015 2000 Flight Cancellations into Brussels US Defence Budget increased by
1/3 2001-2003
Global Insight estimates ~ $350bn loss after Brussels from CBI & Loss of attraction
Paris tourism represents 7% French eco activity & 2 million jobs (FT)
Cost of Paris attacks ~€12bn
NYC lost $2.5-2.9bn in forgone tax revenue post 9/11
British Tourist Authority : 7/7 caused £750m loss in tourism revenues
Public and private sector costs to mitigate risks
GUY CARPENTER
Diverging Gap between Economic and Insured losses The changing role of governments in an intangible asset focused economy
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04 July 2017
GUY CARPENTER
Terror Losses : now and then….. Severity to frequency, damage to casualties…
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04 July 2017
1993 2001
2005-2017
GUY CARPENTER8
9/11 defined the way we looked at terrorism…. Does that still make sense?
Insured Loss(USDmn indexed 2016)
Victims Event
80 699 1836 Hurricane Katrina
37 344 18451 Tohuku Earthquake & Tsunami
30 141 237 Hurricane Sandy
27 368 65 Hurricane Andrew
25 456 2982 Terror attack on WTC, Pentagon, other buildings
24 773 61 Northridge Earthquake
22 577 193 Hurricane Ike floods, oil rig damages
17 072 185 Christchurch Earthquake
…An act of Terrorism means an act or a series of acts, …. Of any person or group(s) of persons whether acting alone or a member of, on behalf of or in connection with any organisation …. (excerpt LMA3030)
Insured Loss(USDmn indexed to 2016)
Victims Event
Minimal direct damage
52 (>100)
London 7/7
Minimal direct damage
12 Paris : Charlie Hebdo
Minimal direct damage
130 (368)
Paris : Bataclan
Minimal direct damage
12 (48) Berlin : Christmas Markets
Minimal direct damage (€118m)
32 (90) Brussels Airport & Metro
Minimal direct damage
80(>100)
Nice France
Minimal direct damage
5 (50) London Westminster
Minimal direct damage (~£150m)
33(119) London Manchester
Minimal if any damage
8 (48) London Borough Market
BUT WHAT IF INDIRECT LOSSES INCLUDED ?
GUY CARPENTER
Bridging the gap…. Moving forward ?
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Private Market Terrorism Insurance
The Lloyd’s Perspective
Paris conferenceJune 28, 2017
Albert Küller, CFA – Research Officer
Disclaimer
This information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. It is the responsibility of any person publishing or communicating the contents of this document or communication, or any part thereof, to ensure compliance with all applicable legal and regulatory requirements.
The content of this presentation does not represent a prospectus or invitation in connection with any solicitation of capital. Nor does it constitute an offer to sell securities or insurance, a solicitation or an offer to buy securities or insurance, or a distribution of securities in the United States or to a U.S. person, or in any other jurisdiction where it is contrary to local law. Such persons should inform themselves about and observe any applicable legal requirement.
This report has been produced by Lloyd's for general information purposes only. While care has been taken in gathering the data and preparing the report, Lloyd's does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those thatmight otherwise be implied.
Lloyd's accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as aresult of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expressionof opinion or belief contained in this report. This report does not constitute advice of any kind.
© Lloyd’s 2017 All rights reserved 2
Terrorism (re)insurance - syndicate participation and premiumsSignificant growth in premiums and syndicate participation
100
90
80
70
60
50
40
30
20
10
00
200
400
600
800
1,000
1,200
#of
Synd
icat
es
GW
PM
illio
ns(£
)
GWP # of Syndicates
© Lloyd’s 2017 All rights reserved3
Source Lloyd’s data returns
Meaningful capacity growth in terrorism (re)insurance since 2006
(2006 = 1)Source Lloyd’s data estimates
0
1
2
3
Organic growth and new syndicate entrants have both driven capacity growth
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2015
Mul
tiple
of 2
006
capa
city
/syn
dica
tes
2006 2011
Change in participating syndicates Change in capacity
© Lloyd’s 2017 All rights reserved4
Terrorism (re)insurance – Lloyd’s global reach
© Lloyd’s 2017 All rights reserved
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The distribution of terrorism (re)insurance premiums
US & Canada
34%Europe
15.5%
Latin America
7%
Central Asia & Asia Pacific
19%Rest of
the World
5%
United Kingdom
19.5%
Source: Lloyd’s Data Returns 2015, data is rounded and contains estimates
Terrorism (re)insurance - method of distributionDirect and reinsurance are main distribution channels, but binder has more than doubled since 2010
9%
21%
33%
Binder Lineslip Open - DirectOpen - Reinsurance
6
37%
Source Lloyd’s data estimates, 2015 data
© Lloyd’s 2017 All rights reserved
Terrorism (re)insurance - market trends
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The terrorism insurance market is facing challenges (together with the global insurance industry)
• Lloyd’s market can syndicate significant terrorism risks and provide bespoke cover to suit clients’ needs
• Falling rates putting pressure on traditional terrorism underwriting
• But Lloyd’s has remained resilient in a market with low cat activity
• Changes in distribution channels impacting market dynamics
© Lloyd’s 2017 All rights reserved
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Terrorism (re)insurance - coverage and gapsBut the Lloyd’s market is adjusting and innovating to satisfy client demands
• Sub-limited NBCR coverage available but typically excluded
• Cyber generally excluded, but written back through certain perils
• Increased focus on business interruption and contingent businessinterruption given perception of changes in terrorism threat
• Market focusing on innovation to remain relevant as the threat evolves
© Lloyd’s 2017 All rights reserved
Terrorism Insurance Coverage
Paris conferenceJune 28, 2017
Liberty Mutual Specialty MarketsMichael Burle, Marine Director
Agenda
Why do we need it?
How do we do it?
Where are the gaps?
2
Why? An Unfortunate Reality
• Global Economic cost at its highest point since 9/11
• A dynamic and changing threat
• A global threat:• Brussels – Airport bombing• France – Multiple attacks• Ukraine – Russian/European standoff• US – Lone wolf risk• Thailand – Religious attacks and civil unrest• Mexico – Strikes and riots• Kenya – Shopping mall hostage crisis• UK – Westminster & Manchester
• Are our clients protected?
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How and what is covered?
Sabotage & Terrorism SRCCMDLiberty Political
ViolenceInc. War & Civil War
Third Party NCBR
Act of Terrorism √ √ √ X X
Sabotage √ √ √ X X
Riots, Strikes and/or Civil Commotion X √ √ X X
Malicious Damage X √ √ X X
Insurrection, Revolution or Rebellion X X √ X X
Mutiny and/or Coup d'Etat X X √ X X
War and/or Civil War X X √ X X
Terrorism Liability X X X √ X
NCBR X X X X √
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Where are the gaps?
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CYBER ACTIVE SHOOTER
THREATLOSS OF ATTRACTION
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AVIATION Legal Framework and Insurance Coverage
LA REUNION AERIENNEChristophe Graber, CEO
Paris conferenceJune 28, 2017
IntroductionAIRCRAFT is considered as a weapon by the terrorists …
* September 11, 2001, but also AF flight Alger – Paris, December 1994 * see Modes of attack modelled in the RMS Terrorism Risk Model
2
Under a law passed in 1986, terrorism must be covered under propertydamage insurance policies (article L126-2 of the « Code des assurances »)
However, no duty to insure terrorism for majors risks such as aviationrisks (the hull aircraft ) except for hull aircraft value of less than 1 millionof EUROs combined with a non-profit activity (article R126-2 of the « codedes assurances »)
Bodily injuries are covered by the Fund specifically created for thecompensation of the victims
French legal framework
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European Union legal framework
Regulation (EC) N°785/2004 of 21 April 2004 on insurance requirements for aircarriers and aircraft operators
The EC regulation states minimum insurance requirements for air carriers and aircraftoperators in respect of passengers, baggage, cargo and third parties, including for war risksand allied perils (acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure ofaircraft and civil commotion)
This Regulation shall apply to all air carriers and to all aircraft operators flying within, into, outof, or over the territory of a Member State to which the Treaty applies.
For liability in respect of passengers, the minimum insurance cover shall be 250 000 SDRs perpassenger (roughly 340 000 USD). However, in respect of non-commercial operations byaircraft with a MTOW (maximum take off weight) of 2 700 kg or less, Member States may seta lower level of minimum insurance cover, provided that such cover is at least 100 000 SDRsper passenger (140 000 USD).
In respect of liability for third parties, the minimum insurance cover per accident, for eachand every aircraft, shall depend from the MTOW of the aircraft (from 750 000 SDRs forMTOW of less than 500 kg to 700 000 000 SDRs for jumbo jet aircraft, i.e. from roughly1 M USD to 1 billion USD)
Aggregate basis insurance authorized for war risks/terrorism (as standard market practice)
4
After 9/11 events, US congress passed the Terrorism Risk Insurance Act(TRIA)
The Act provides a temporary program (extended to 2020…) that, in theevent of major terrorisk attack, allows the insurance industry and federalgovernment to share losses according to a specific formula
TRIA enabled a market for terrorism to develop because the federalbackstop effectively limit insurers’losses, greatly simpliflying theunderwriting process
TRIA was extended for another 7 years to 2014 in 2007 and renewed againfor 6 years in 2015
The new law is known as the Terrorism Risk Insurance ProgramReauthorization Act (TRIPRA) of 2015 and raises the threshold for theprogram to go into effect from 100 M USD to 200 M USD
US legal framework
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International Legal Framework
Post 9/11 events, ICAO (international civil aviation organisation) askedspecial working group to modernise pre-existing international legalconventions such as the Rome Convention of 1952 in respect of damagecaused by foreign aircraft to third parties
It was clear that industry should not be liable for terrorism losses thatexceed insurance limits or that are uninsurable irrespective of fault
A separate war and terrorism Convention applying domestically andinternationnally for air carriers has been adopted in 2009 : « theConvention on Compensation for Damage to Third Parties, Resultingfrom Acts of Unlawful Interference Involving Aircraft”, done at Montrealon 2 May 2009
If the international initiative has to be welcomed, the Convention is notyet in force and it might take years to obtain a sufficient number ofratifications, as some countries are not willing to ratify (USA, France etc.)
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International Legal Framework
The concept of the modernized Rome Convention thought to provide adurable system for victims compensation with a strict liability of theoperator , but limited or capped, based on the weight of the aircraft,ranging from 750 000 Special Drawing Rights (SDRs) for the smallestaircraft to700 000 000 SDRs for the largest aircraft ( from roughly 1 M USD to 1 BNUSD)
With the creation of a special fund (the “International Fund”) similar tothe FIPOL fund with the principal purposes of paying additionalcompensation above and beyond the level of the cap, up to 3 billions USD.If insurance is unavailable, or is only available at a cost incompatible withthe continued operation of air transport, the International Fund may paythe damages for which the operators are liable
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AVIATION MARKET INSURANCE COVERAGE
Currently all aviation risks insurance policies are subject to War, Hijackingand Other Perils Exclusion Clause AVN48B or equivalent clauses, includingexclusion of terrorism and malicious acts
All paragraphs other than b) (Any hostile detonation of any weapon of war employing atomic
or nuclear fission and/or fusion or other like reaction or radioactive force or matter) of AVN48B arenormally written back into policy coverage by the Extended CoverageEndorsement (Aviation Liabilities) AVN52E/AVN52G or by LSW555D forthe Hull through a separate War policy
Paragraph b) is an absolute exclusion that cannot be written back,originated in cold war times before nuclear terrorism was contemplated
Nuclear perils represent unquantifiable and potentially ruinousaccumulation of losses and are therefore deemed uninsurable by aviationinsurers
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AIRLINES INSURANCE COVERAGE
HULL WAR RISKS COVERAGE
HULL WAR RISKS COVERAGE covers the damage to the hull aircraft if thedamage is due to an act of war or terrorism, usually written back by hullwar insurers under « Convention Annexe A1 » for the hull war frenchmarket and LSW555D clause for international market which specificallyexcludes NBCR risks, but with partial write-back for BCR risks (forexample in case of hi-jacking, radioactive contamination on board theaircraft etc.)
Nuclear risks / « dirty bombs » always excluded To be noted : the AVS 103 is a standard market clause which can be used
when the cause of accident is unknown, temporarily sharing losses 50/50between hull all risks insurers and hull war risks insurers
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AIRLINES INSURANCE COVERAGE
LIABILITY WAR RISKS COVERAGE LIABILITY WAR RISKS COVERAGE covers passenger, luggage, cargo and
third parties liability claims resulting from an act of war or terrorism written back by AVN52E clause with a sub-limit which might be up to
500 M USD in respect of third parties claims (any one occurrence and inthe annual aggregate)
Passenger, Luggage and cargo liabilities under AVN52E remained on aneach occurence, each aircraft basis and for the full Combined Single Limit(the original limit of the insured policy which might be up to 2 BN USD) asthese risks remain quantifiable (the number of passengers is known whichis not the case for third parties damage on the ground such as 9/11)
XS WAR RISKS COVERAGE for third parties claims is covered by XS warrisks specific market up to 2 BN USD (any one occurrence and in theaggregate)
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INSURANCE COVERAGE
AIRLINES All war risks coverage can be cancelled on either 48 hours or 7 days notice
by Underwriters depending on the circumstances Automatic termination without notice can also occur (outbreak of war
between UK, US, France, Russia, China)
AIRPORTS, MANUFACTURERS, SERVICE PROVIDERS WAR RISKS LIABILITY COVERAGE AS PER AVN52 G Sub-limit which might be up to 250 M USD With XS up to 1,5 BN USD under specific XS War Risks market
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SCENARIOS
Example of Scenarios on ROISSY CHARLES DE GAULLE AIRPORT :
- Gareat study for Property Exposure economical loss of more than 10 Bn € in case of conventional terror attack (PD + BI), a large part beingtaken over by Gareat (large risks) and small and medium risks ieinvolvement of the CCR (French State) in excess of approx. 2,5 Bn €
- No Public coverage for Aircrafts ! The accumulation can be huge … average aircraft value 100 M $ ; 10 Aircrafts = 1 Bn $ ; 20 Aircrafts = 2 Bn $
- Passengers and victimes are protected through the french fund ‘FGTI’
There is surely a way to optimize the coverage In any case, the insurance community will ask for an involvement of the State and/or international organization (UNO, EU…)
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A view on Cyber Terrorism
Paris conferenceJune 28, 2017
SCOR Global P&CVictor Peignet, CEO
Perpetrators, nature and impacts of Cyber Risks are very diverse Consequences are evolving rapidly
Pervasive, impacting all organizations (large, small, private and public) globally
Increasing and will continue to do so as the value of intangible assets keep growing
Evolving rapidly from Data Breaches to business interruption (e.g. WannaCry, power black-out in Ukraine Dec 2015)
Cyber Risks are:
Recent Cyber attacks also evidence disruptive / destructive potential
German Steel Mill
Yahoo!
Target
Home Depot
Yahoo!
Ashley Madison
AdultFriendFinder
Ukraine Black-outDyn
WannaCry
SWIFT
2010 2013 2014 2015 2016 2017
Major Data Breaches
Some Disruptive & Destructive Cyber Attacks
Source: SCOR
destructive
disruptivedisruptive
disruptive
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38
Cyber peril has systemic features making it prone to propagation and large risk aggregation
Power black-outUkraine – Dec 15
SWIFT Fraud – Feb 16
DYN DDOS – Oct 16
Wannacry Ransomware – May 17
fromprecursor hits on critical/systemic
players
towidespread
attacks
Interconnectedness
Standard software & hardware
IT outsourcing
Increasing reliance on IT
Internet of Things
Critical infrastructures Dominant IT players
From cascading effects of targeted attacks on critical players to making use of widespread vulnerabilities, conditions are met for a large Cyber Catastrophe to occur as signaled by several past attacks
3
Cyber: a pervasive risk exposing on an explicit or silent way many different insurance and reinsurance products
4
While market is still in a maturing phase to address cyber perils, assessing Cyber exposure in Re/insurers portfolios remains a challenge
Cyber policies are composite products combining in a modular way first and third party coverages responding to non-physical and physical losses.
Conflicting trends between Cyber Products incorporating more and more standard coverages on a named cyber-peril basis and standard Property & Casualty products capturing more Cyber exposure through Cyber extensions or write-backs of Cyber exclusions
In addition, silent exposure exists in many standard policies Intangible assets (loss of reputation, value of confidential or
proprietary information, IP …) remain largely uncovered by insurance, so far
Cyber Policy
Standard Policy
Fraud
Data/ SW restoration
Non damage BI / CBI
Extortion Regulatory costs
Privacy & security liability
IT forensic & Event Management (Public Relations, notification, Credit monitoring, etc.)
E&O / PI
Media liability
3rd party Bodily injury / Physical Damage; Product Liability
Reputational Harm; IP theft other intangible assets
Property Damage & BI
Standard GL Policy
Standard E&O
/ PI PolicyStan
dard
Pro
pert
y Po
licy
New Product ?
Fraud
Standard policy:usually exclude terrorism
Terrorism policy:usually exclude Cyber
Cyber policy:usually cover Cyber-terrorism
?
With the challenge of attribution, Cyber-terrorism remains a blind spot
4
Despite similarities with conventional terrorism, cyber terrorism require a dedicated approach
Both conventional and cyber terrorism are driven by geopolitical tensions
Both conventional and cyber terrorism are “weapons of the weak”− Low cost and low investment − Potential for large disruption & fear
Both conventional and cyber terrorism have consequences that may potentially exceed the (re)insurance market capacity
Modus Operandi of terrorists and cyber criminals are very similar
Geography: Conventional terrorism focuses on one place, cyber attacks may be global− How could National Pools address global events?
Attribution: Providing clear evidences pointing to cyber terrorism is a challenge− Qualification of a Cyber event may differ depending on
technical capabilities to identify perpetrators
Knowledge:− Lack of experience and/or modeling of Cyber
catastrophe scenarios− Certain cyber coverages are not fully tested yet (e.g.
non-damage BI)
Insurance impact: Beside material damage, a Cyber catastrophe could result in a large economic loss not covered by pools
Event definition− While victims of conventional terrorism counts in 100’s
or 1000’s, cyber attacks may impact millions− A cyber attack may result in side-effect incidents difficult
to link with the main source− Establishing the duration of a cyber attack is difficult
because it can spread slowly and create aftershocks
Similarities Differences
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Reconnaissance
Weaponization
Testing
AttackTarget selection
Intelligence & Surveillance
Rehearsal AttackTarget selection
Escape
Months-to-years preparation – Specialized team
5
Terrorism Insurance International ConferenceThird Panel- Pools & Market solutions
Paris conferenceJune 28, 2017
PanelThe pools current status and challenges with newthreats, reduction of gaps and risk managementModerator: Klaus Wilkens, Munich Re, Executive ClientManager
• Chris Wallace, ARPC (Australia), CEO • Marc Dierckx, TRIP (Belgium), CEO• Pierre Yves Laffargue, Gareat (France), President• Dirk Harbrucker, Extremus (Germany), Member of
Executive Board• Julian Enoizi, Pool Re (UK), CEO
2
Third panel
Australian Reinsurance Pool Corporation- ARPCChris Wallace, CEO
Paris conferenceJune 28, 2017
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ARPC is a Public Financial Corporation established under theTerrorism Insurance Act 2003
Our Purpose is to protect Australia from economic lossescaused by Terrorism catastrophe
Our Role is to use our expertise to provide cost effectivereinsurance to support the economic resilience of the nation
ARPC was established to support market failure post WTC
Scheme Coverage:• Insurer clients - 243• Retrocession reinsurers - 68• Premium income - $160 million (FY 17/18 forecast)• Aggregate sums insured - $3.4 trillion• Funding available for claims - $13.4 billion
The aggregate sums insured include:• $2.6 trillion – buildings and contents • $0.6 trillion – business interruption and loss of profits • $0.2 trillion – contract works
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The scheme provides cost effective reinsurance cover to the market
Why ARPC was established How we support our stakeholders
• ARPC is a public financial corporationestablished under the Terrorism Insurance Act 2003 to administer the terrorism insurance scheme
• ARPC was established following the terrorist attacks in the USA on 11 September 2001
• After this attack there was a global withdrawal of terrorism insurance leaving commercial property in Australia uninsured against terrorism attacks
• ARPC was established by the Australian Government with the support of stakeholders in the property, banking, insurance, and reinsurance sectors
• ARPC provides cost effective reinsurance cover and a framework which can respond following a terrorism attack
• ARPC enables the sharing and mitigation of risk in a difficult area where there is a continuing gap in coverage in the commercial market for terrorism insurance
• ARPC provides insurance cover of up to $13.4 billion for a declared terrorist incident, protecting commercial assets with an aggregate exposure of $3.4 trillion
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ARPC is an optional pool. Our customers are able to access the Government $10B guarentee if they participate in the scheme
INCLUDED: Commercial property
Business interruption
Construction
Private - road, tunnels, rail track, pipes
Private - infrastructure, power plants, docks, mines
Farms with business interruption
Property owners liability
ARPC provides reinsurance cover to private and commercial sector property assets
CURRENT EXCLUSIONS: High Rise Residential property (until
01/07/2017) Mixed use commercial and residential
(until 01/07/2017) Residential
Marine
Motor vehicles and CTP
Rolling stock
Machinery breakdown
Aviation
Workers compensation
Government property
Computer crime (cyber) Uninsured and underinsured assets
The landscape is changing in both mode and mitigation approach
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Whilst the style of attack is changing, partial market failure remains
Since 12 September 2014, when the national terrorism threat level was raised to ‘Probable’; 62 people have been charged as a result of 27 counter terrorism
operations around Australia There have been four attacks and 14 major CT disruption
operations in response to potential attack planning in Australia
Current monitoring of the terrorism landscape in Australia has shown Approximately 200 people being investigated for providing support to
individuals and groups in the Syria/Iraq conflict. Approximately 40 people have returned to Australia after travelling to
Syria/Iraq and joining groups involved in the conflict. Some of these returnees remain of significant security concern.
Since August 2014, the Government has invested an additional $1.5 billion to support Australia’s efforts in combating terrorism.
*As at 02 May 2017, Attorney General’s Department**Sources: 2014/15 ASIO Report to Parliament; and ASIO Director-General's address to the Security in Government Conference 01/09/2015
‘The most likely scenario for an attack in Australia is a low capability attack
perpetrated by a lone actor or small group. The threat of a complex attack,
such as a mass shooting or a large explosive device, also persists.’**
*
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Changes to the scheme as a result of the 2015 Triennial Review
• Tier rates increased effective April 1st 2016 (Tier A from 12% to 16%, Tier B from 4% to 5.3% & Tier C from 2% to 2.6%), premiums are a % of direct premiumsRate increase
• The 4% rate of gross fire and ISR premium to be increased to 5%Insurer Retentions
• Maximum retention levels for individual insurers to be increased to $12.5 million from $10 million *
Maximum insurer retentions
• Maximum industry retention to be increased from $100 million to $200 million over two years *
Increased maximum industry retention
• Scope expanded to include buildings in which at least 20 per cent of floor space is used for commercial purposes *
Mixed use commercial
• Scope expanded to include buildings with a sum-insured value of at least $50 million, whether used for commercial or other purposes *High value residential
• Events covered under the scheme clarified to specifically reference losses due to terrorism attacks that use chemical or biological means *
Biological & Chemical clarification
Additional changes around postcode tiers expected to be
implemented 01/01/2018
* Effective July 1st 2017
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Future of the scheme in Australia
Key future scheme changes being proposed If cyber terrorism causing physical property damage should be
included in the scheme Reviewing the extent of coverage available for victims of terrorism
where armed assault cause harm to people and how this is administered domestically
Typically Include Typically Exclude
Source: Table 2 - Categories of coverage included in stand-alone cyber policies, selected major providers from the 2016 OECD draft preliminary report on cyber insurance
Cyber Policies – A potential gap
Paris conferenceJune 28, 2017
GareatTerrorism Reinsurance & Insurance Pool - Belgium
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Per law (Belgian terrorism insurance act of 1st April 2007) the terrorism coveragecannot be excluded
TRIP was established in 2008 by the insurance industry acting in partnership with theBelgian Government
Formation due to inability to obtain reinsurance as terrorism was excluded from mostreinsurance treaties
Participation in the TRIP Pool is not compulsory but more than 95% of insuranceindustry are members of TRIP
Only members of the Pool will benefit from the compensation system introduced byTRIP
Dedicated TRIP website:
Public-access area with general info and FAQ Private protected section for TRIP members : financial, claims, reporting tool
Background to TRIP
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Terrorism Insurance Act Scope and Cover
Purpose
Protect insureds against damages caused by terrorism acts compensate in a timely manner
Reduce market failure sustainability of the insurance industry economy
Private – Public initiative and partnership
Act applies to all Belgian risks
Insurance companies manage and settle the claims
Total annual cover €1.2 billion (1st January 2017) System works on 2 levels
Insurance companies member of TRIP €925 million
Government €300 million
Mandatory terrorism cover for “Mass risks” i.e. Motor TPL – Fire simple risks – Strict liability for Public places – Personal accident and Health Care – Life - Workmen’s compensation
Optional in other types of insurance. However insurance policy must explicitly exclude terrorism
NBCR and Cyber covered
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Terrorism Insurance Act Scope and Cover (Continued)
Exclusions :
TPL nuclear energy
Damage to nuclear facilities
Railway rolling stock, aircraft and ships and TPL of these vehicles
Terrorism only dedicated insurance policies
Limits:
Overall limit of €1.2 billion per year (except for workmen's compensation = unlimited).
Proportional reduction of payments if estimated claims burden > €1.2 billion
Compensation for damage to individuals are prioritised
Industrial Fire risks : maximum limit of €75 million per year and per insured party
Terrorism Claims Committee - Mission (Government, CUTA (*) and TRIP representatives)
To determine whether or not an event is terrorism
To fix the compensation percentage rate to be applied to all pay-outs made by the TRIPmembers
(*) CUTA : Coordination Unit for Threat Assessment (State Security /Intelligence Service / Foreign Off / Police)
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TRIP - Objectives and characteristics
Assigning and distributing to TRIP members their respective insurance commitments following a terrorism event
Negotiate and taking out reinsurance cover on behalf of its members
Three-layered system: (figures indexed 1st January 2017)
1st layer : €300 million market (insurers) retention = solidarity and mutualisation (members’ market share)
2nd layer : €625 million stop-loss reinsurance cover 3rd layer : €300 million Government warranty Total coverage : €1.225 billion
Deductibles per event :
10% for Industrial fire risks 10% for Nuclear bomb risks
Control and sustainability :
Governance by Board of Directors of TRIP : Insurance representatives + Government observers Capacity limits by reinsurer – minimum rating A- diversification of placement – one year and
multiyear treaties
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TRIP - Terror claims
2016 = first large scale terror event triggering solidarity mechanism of TRIP Brussels Airport and Maelbeek Metro Station in Brussels terror attack on
22 March 2016 amounts to €118 million (figures as of 31 March 2017) TRIP has to date dealt with 6 certified terror claim events totaling €121 million
Brussels attacks were the most devastating : 1,463 victims
28 deaths (12 at Brussels National Airport and 16 at Brussels Maelbeek Metro station)
1,435 injured people (1,134 at Brussels National Airport and 301 at Maelbeek Metro Station)
Insurance coverage
19 insurers member of TRIP covering the attacks = 85% market share insurance industry
Insurance lines : mainly Workmen’s compensation and Strict Liability for Public places
Damage suffered : bodily injuries 80% - damage to property 15% - moral damages 5%
Procedure, reporting and system activated by TRIP on 23 March members’ satisfaction
Claims allocated/distributed to all members of the Pool annual financial compensation of claimspayments in 2016 allocation = market share of each member in TRIP
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TRIP – Market challenges ?
Risks :
CBNR exposure (covered)
Cyber (covered) awareness around cyber risk changed in recent years (capability of hackers)
Business interruption (covered if fire or explosion)
Drones (aircraft exclusion by Insurance Terrorism law)
Evaluation of the compensation system after the Brussels attacks of 22 March 2016
2017 assess both workings and funding
Belgian Association of Insurance companies (ASSURALIA)
TRIP : Board of directors
State Compensation Fund for Intentional Acts of Violence (subsidiary role)
Victims who are not insured
Indemnities were recently increased
Discussions ongoing between government and insurance industry (Assuralia) to improve communication towards victims and population
Paris conferenceJune 28, 2017
GAREAT - FRANCE
P.Y. Laffargue, President
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Per law the terrorism coverage cannot be excluded in Propertypolicies. After WTC, insurers could not find enough reinsurance asterrorism was excluded from most industrial risks reinsurance treaties
A Private Public Partnership on Large Risks was set up end of 2001between insurers thru the French insurance Association (FFA),captives, reinsurers and CCR (public reinsurer, unlimited warranty)
It became the first post WTC pool, covering Property Damage andBusiness Interruption in France, whatever the cause
The NBCR cover was included in 2005 as well as an optional Smalland Medium Risks section (same scope and format )
GAREAT first post WTC pool , CBRN extension in 2005
GAREAT – FUNDAMENTALS GAREAT is a “Groupement d’Intérêt Economique”Managing 2 co-reinsurance schemes
Large Risks section Operational since 01/01/2002 Policies with SI / CLL ≥ 20 million euros (no
PML) Mandatory for companies members of FFA Above 2,48 billion € (in 2016) unlimited
guarantee of the state granted through CCR
Small and Medium Risks section Operational since 01/01/2005 Policies with SI / CLL < 20 million euros (no
PML) Non mandatory scheme Unlimited guarantee of the state granted
through CCR
No adverse selection Coverage PD and BI losses consequential Sustained in France National Territories, whatever the cause
(including CBNR & Cyber means) Waiver of subrogation for Motor liability Retrocession prohibited
GAREAT – Fundamentals
2017:€ 2 040 m xs € 500m
Retention
Unlimitedvia CCR
2017 : € 335 m xs € 45 m
Retention
Retention : € 65 m xs € 380 m
150m 80m 50m 20 20
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Since 2002, ~ € 34 million cumulative losses were handled and settled within the co-reinsurance between members
For major losses, there is a specific process in order to:- Record, monitor and quantify losses in real time per section- Real time measure of the impact on Members’ retention - Trigger the Reinsurance protection - Quick reimbursement of Members
Crisis management in case of major or multiple losses: - Implementation of crisis tests- Coordination with Members - External communication with CCR and public bodies
GAREAT Risk Management
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Large mutualisation of risks, mandatory for members to cede all their property policies, losses covered from the first euro
Reinsurance rates visibility, based on property premium of the policies, insurance rates may be different
Maximal coverage, with few exclusions and unlimited coverage (whatever the size or number of losses)
Low cost administration and non profit organisation as all residual premiums after losses go back to members, potential reserves are done by members
Visibility with a 5 years unlimited warranty of the French State
Proactive governance with insurers and reinsurers participating to the management within the Board
GAREAT Benefits
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All recent attacks in France have targeted people (indirectly only properties). New threats are also to be assessed to keep the pool relevant and efficient
GAREAT was adapted over the last 16 years to new threats and perils in the Property lines, it must follow the private market offers and continue to prove its resilience and added value for the market
There are still some gaps in Property insurance (industrial and commercial) which have to be addressed in the long run
Property pools were set up for ‘blacks swans’, the long term nature of the terrorism peril (difficult to assess, predict, control or mitigate) advocates for long term schemes in the market
IFTRIP creation is boosting cooperation and benchmarking across terrorism pools worldwide which shall induce improvements, extensions and best practices over time
GAREAT Challenges
EXTREMUS
Paris conferenceJune 28, 2017
Dirk Harbrucker, Member of the Executive Board
IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Background
Founded in September 2002 to offer material damage terrorism
coverage for commercial and industrial risks (> € 25 Million) incl.
business interruption
Limited company, run by 15 shareholders (insurance and
reinsurance companies active on German market), none of them
holding a dominant share
Full limit covered + 10 % costs up to a maximum limit of € 1.5
Billion per contract/client
Coverage of terrorism not mandatory in Germany
Cooperation with primary insurers on voluntary basis
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IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Security
Reinsurance provided by domestic insurance and reinsurance
companies and international reinsurers with top security and
rating
Backup by German Government in case of multitude of losses
or high accumulation
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IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Coverage
Wording and General Conditions correspond to
conventional property policies
ATB (General Conditions) adapted several times to follow
the evolution of the property market, last in 2016
Sublimits for covering BI losses due to
• deny of access
• failure of public power/energy suppliers (remote effects)
• suppliers / customers contingency losses
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IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Benefits
Underwriting done by EXTREMUS
Deep knowledge of market and portfolio
Data collection of all risk locations > € 2 Million
Monitoring of accumulation zones
Fast reaction to clients, brokers
Close cooperation with primary insurers
pricing in competitive environment
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IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Claims Management
Implementation of a „Claims Settlement Advisory
Committee“ involving representatives of capacity
providers (reinsurers) and the leading primary
insurer to ensure a prompt and adequate
compensation of the insured
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IFTRIP – Paris - June 28, 2017 Folie
EXTREMUS: Challenges
To provide coverage for the multinational
exposure of industrial clients incl. independency
and suppliers / customers contingency losses
To provide coverage for threat scenarios
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Paris conferenceJune 28, 2017
Gareat
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Pool Re was established in 1993 by the insurance industry acting in partnership with the UK Government
Formation due to inability to obtain reasonable commercial property cover for prevailing terrorist events frommainstream insurance markets
Operates at nil cost to the taxpayer as a private industry mutual supported by a Government guarantee (repayablein the event of use)
Reinsures assets to the value of £2.2Trn
Largest claim paid to date (Bishopsgate Bombing in the City of London in 1993) amounted to £262m. Same eventtoday would be in excess of £1bn due to increased property density and values
Pool Re has to date dealt with 13 certified claim events costing £635m*
– 8 claims accounting for 95% of losses occurred between 1993 and 1996
– The relatively small claim payments from the 7/7 bombings highlights the terrorism insurance gapdiscussed later
– There are currently several active claim notifications arising from the events at Westminster on 22 March,2017 Manchester on 22 May, 2017, London Bridge on 3 June, 2017 and Finsbury Park on 19 June, 2017(see slide 7)
Governance is via a Board of Directors comprised principally of insurance industry representatives
* This figure would be significantly higher if the same events were to occur today
Background to Pool Re
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Economics
Pool Re operates a pre-funding model – there is currently a £9bn+ bufferbefore the requirement to drawdown funds from HM Treasury*
The capital stack operates as follows:
– Each insurer must pay losses up to a threshold, determinedindividually for that insurer, equating to an industry retention perevent and in the aggregate
– When losses exceed that threshold the insurer can claim upon thereserves accumulated by the insurance industry on a mutual basiswithin Pool Re
– An additional layer of protection is provided by a commercialretrocession arrangement, purchased by Pool Re since 1 March2015 (first time the commercial market has participated in terrorismreinsurance in the UK for 23 years)
– Should claims exceed all layers described above then Pool Re candraw funds from the Government to enable it to meet its obligationsin full, regardless of the scale of losses
Pool Re charges insurers a premium for the reinsurance cover provided;in turn 50% of these premiums are passed on to HM Treasury forproviding the Government guarantee and further payment is made forthe commercial retrocession; annual profits in Pool Re (if any) aredistributed 25% to HM Treasury and 25% to Members
For the 2015 financial year, £154m in premiums and an additional£33.5m share of surplus is payable to HM Treasury; this is expected toincrease for 2016
It is the intention over time to encourage greater insurance industry riskparticipation - through increased market retention, involvement inadditional retrocession and/or similar arrangements (e.g. Insurance-linked securities) and potentially by segmenting the risk
Current capital structure
Pool Re investment fund
Market retention
Commercial retrocession
HMT drawdown
£0.150bn
£0.5bn
£2.0bn
unlimited
£5.7bnPool Re investment fund
HMT Hypothecated Fund £0.7bn
* Excludes any increased premium receipts and/or revision to premium split post event; any money drawn from HM Treasury would need to be repaid from future premium receipts
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Proposition
Pool Re provides reinsurance cover for damage to commercial property caused by a terrorist event; the nature of the coverhas changed over time in response to the evolving terrorism risk landscape
– Initially Fire & Explosion– Cover was changed to ‘All-Risks’ with two exclusions - War and Electronic (Cyber); CBRN no longer excluded
The traditional approach to terrorism (focused on property damage and related business interruption) has however not keptpace with the evolving nature of the threat (focusing primarily on achieving propaganda of the deed by murderingindividuals); as such, coverage gaps have emerged in the terrorism insurance market
Changes to the terrorism landscape
Domestic terrorismMethod of attack: Large vehicle bombs (LVBIED)Intent: Economic disruption (discriminate targeting)Risk transfer needs: Property damage and BI
Islamist extremism Method of attack: MTFA / PBIED / VBIED / CBRN / CyberIntent : Mass casualties (indiscriminate targeting) Risk transfer needs: Property damage, BI, loss of attraction, non-property damage BI, cyber, impacts on people and damage to brand and reputation
15:00
Changing nature of terrorism threat
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Pool Re’s evolving role as a Public Private Partnership (PPP)
1993Pool Re scheme created
1998Good Friday Agreement
2003Coverage widened to ‘All Risks’, including CBRN (as a result of 9/11),Electronic risks excluded (Cyber)
2014Negotiations with HMT over premium cede as well as modernisation of the scheme
2015Modernisation of Pool Re scheme (SME proposition, purchase of commercial retrocession and PSIA)
FuturePPP blueprint- Economics/Model- Proposition- Expertise- Stakeholder
engagement- International
collaboration- Risk Mitigation
Originally formed in response to the spate of terrorist attacks related to the situation in Northern Ireland at that time. As theIRA threat reduced, terrorism nevertheless went from being a localised issue to being a global threat post 9/11
In 2015, as a result of the conclusion of negotiations regarding the terms and conditions of Government support and a majorstrategy review, there was a significant shift in the premium allocated to Government in return for the modernisation of thescheme
As a result, we introduced a number of modernisation initiatives; these initiatives sought to bring the organisation into thepresent day in the context of significant changes in both the macro, and the insurance market environments
We have now started introducing a series of changes, wider in scope and more far reaching, shifting the focus from passivefund/mechanism to a proactive buffer organisation engaged in resilience building. These changes will define the evolution ofPool Re over the coming years and towards the next Government review of its involvement in terrorism insurance starting inmid-2020
Our goal at the next Government review is that HM Treasury, rather than adopting a narrow focus, will take account ofbroader national security issues and the role that Pool Re can play in these. We aim to promote this by by engaging indialogue across Government
Government review
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Pool Reinsurance Company Limited, 5 Lloyd’s Avenue, London EC3N 3AE
Pool Re modernisation
initiativesExternal reinsurance
Purchase of £2 billion retrocessional capacity from the private market through a three year single layer programme led by Munich Re
Dividend
Payment of a 25% dividend Increased investment in
risk mitigation measures
Risk reflective rates
SME proposition
Underwriting amendments
Investment class widening
Updating of exclusion
Member Retention
Terrorism Research & Analysis Cell
International Collaboration
Ability to alter rates so they are risk reflective
Modelling Member exposure data to establish the relative rating position between the 4 zones Simplified terrorism
product set to businesses with assets <£2m
Changes to underwriting manual regarding deductibles, Risk management credit (PSIA) and Credit for loss limits Allow Members to provide Treaty RI
Investment in a broader range of asset classes to diversify risk and help maintain the real value of the fund
Increased to £150 million per event and £300 million per year
Update the cyber exclusion Move to cover physical damage
as a result of remote digital interference
Created to provide high-end focused intelligence and data on the contemporary threat environment to Members and the wider market
Founding member of the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP) with 14 other catastrophe pools
Since 2015 Pool Re has implemented a number of modernisation initiatives, a selection of which are highlighted below:
Changes to the scheme
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Pool Reinsurance Company Limited, 5 Lloyd’s Avenue, London EC3N 3AE
6 strategic Themes
• How should Pool Re’s scheme structure and operating model evolve so as to ensure that it is the optimum model for a modern terrorism pool in the UK evolving beyond hygiene factor and back to a systemically important arm of protection for the economy?
• What size of fund is appropriate in the context of the exposures we face, how would it be replenished following a major event so as to ensure continuance as a “buffer” rather than a simple mechanism and how should Pool Re use any excess in the interim?
• How could Pool Re increase use of reinsurance and alternative capital?
• How would the legal documentation need to be amended to achieve our objectives?
• To what extent can Pool Re develop its role as an expert, an innovator, and a thought leader and take a more active role in improving national resilience?
• Should Pool Re have an ancillary consultancy service charging for its research?
• How can Pool Re best make use of its expertise?• How can Pool Re encourage the market to assume more risk?• How much would market confidence improve if Pool Re were to
incentivise preventative actions in the market?• What other actions in this regard can Pool Re take?• How can we become the trusted partner for providing intelligence led
information and data that will inform our modelling, pricing and the decisions we, our Members and other stakeholders take that will improve resilience?
• To what extent should Pool Re continuously modernise so as to update its existing proposition?
• Should Pool Re consider expanding its coverage so that it remains appropriate for the needs of its Members and their policyholders?
• What is the market capacity for various products eg cyber terrorism?• Does Pool Re have the required resources and expertise to achieve its
aims?• How can Pool Re encourage greater take-up of its proposition as well as
facilitate the design of new products so as to close the terrorism insurance gap?
• How can Pool Re act as a catalyst for communications between Government and industry about market-led catastrophe management and PPP?
• What role can be played by international collaboration? How can this be facilitated?
• What lessons can be learned from foreign catastrophe risk insurance pools?
• Would commercial market capacity be increased if international pools found an innovative pooling mechanism via which to cooperate?
• Could we work together with HMG to assure business continuity post an event in any one country where Britain’s interests are implicated by consulting in the design and build of similar schemes abroad thereby providing an opportunity for the London insurance market?
• Ensure the buy-in of Government, PRA and Reinsurers as well as respect for Competition law requirements.
• How can Pool Re meet Member demand for greater innovation in risk mitigation?
• How can Pool Re build awareness of the risks to business from terrorism?
• What more can Pool Re do to measure and quantify the risks from terrorism faced by businesses?
• How can Pool Re examine how risks might be eliminated or mitigated?• How can Pool Re build resilience in the economy through investment in
risk mitigation?• How can Pool Re develop its partnership with the OSCT ?• How can Pool Re add value through a partnership with Cranfield
University?
• What is the best method by which Pool Re can conduct a stakeholder audit to understand the objectives of the principal stakeholders (Members, HMT, other government departments, regulators and end customers?
• What components should a “Membership Project” to articulate the value of Pool Re cover to the Members, contain?
• How can we broaden our relationships with other government departments adding value and gaining support in advance of the next review?
• How do we ensure the continuing confidence of the regulator?
Pool ReIn
tern
atio
nal Expertise
The modern Pool Re
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Pool Re Objectives
Reduce market failure. The scheme should only cover risk which the market could not or would not cover.
Incentivise the market to take as much risk as it can cope with
Return more pricing control to the market
Ensure that there is the widest possible cover for UK plc
Adapt the scheme to the changing nature of the threat and loss
Mitigate risk to the taxpayer. The scheme should keep the taxpayer as far away as possible from risk and cost
Provide a fair basis of compensation, broadly related to the risk take by different parties.
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The Potential of the Pool Re Model
Pool Re is an example of an effective market-oriented collaboration between the public and private sectors
– It promotes financial resilience within the UK economy, providing UK Plc with continued access toappropriate terrorism insurance cover as well as influencing mitigating behaviour
– It is the vehicle through which premium is collected from the market and claims paid out, over time buildinga significant buffer between potential loss events and the UK taxpayer
– It brings government agencies, academia and the industry together to promote greater understanding of therisk and develop the product as the risk evolves, as well as facilitating the re-emergence of the commercialterrorism reinsurance market
– It benefits from a government guarantee in order to do so
We intend to continue to develop as an organisation – developing our economic model to maximise value to ourstakeholders, evolving our proposition in line with the nature of the threat and positioning ourselves as a globalterrorism expert
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Pool Re – Harnessing the Private Market
We buy as much retrocession as we can - £2bn
Government is compensated for their guarantee
Government also shares in the surplus
Over time Government layer being pushed ever higher – taxpayer protected.
Scheme is balanced. Private market provide working layers of cover, but are not exposed to the systemic event that might destroy them
Cover remains ‘back to back’ with property – important.
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Pool Re’s Focus – Adding value to HMGTerrorism Insurance Gaps:
We are currently focusing on bridging terrorism insurance gaps in the following areas:
– Cyber – knowledge and awareness around cyber threats and attack vectors has changed enormously in recent years as has the capability of hackers. This is currently an excluded peril
– Non damage Business Interruption (BI) – total BI from the recent Paris attacks could reach US$12bn even though the property damage was negligible, leading to questions over the efficacy of the French Pool and Terrorism Pools in general
– Losses in these areas are NOT currently covered by the insurance market or Pool Re and could therefore result in loss to HMG. In France by way of example, the French state has been forced to raise taxes on insurance policies following three major attacks which resulted in no pay out from the French Pool
– The events at Westminster are an illustration of this since the claim notifications relate to non-damage BI, not currently covered by either Pool Re or the private market. Discussions o this with HMT have been halted due to the General Election
– In addition to the above gaps, the SME segment and exposures outside London remain underpenetrated, with therefore potentially increased vulnerability in the event of a terrorist attack
Risk Mitigation:
In collaboration with the National Counter Terrorism Security Office (NaCTSO), Pool Re introduced Loss Mitigation Credit and Protective Security Improvement Activity (PSIA) initiatives. This has the potential to improve resilience by driving a significant increase in the implementation of counter terrorism security measures in public and private buildings across the UK. We are now working with OSCT/NaCTSO to explore widening of the scope
Opportunity to drive compliance with Cyber Essentials, ISO 27001 once scope of cover is extended to Cyber Terrorism
Potential future activities to include involvement in information dissemination (e.g. National Counter Terrorism Awareness) and the launch of new product
Sponsor a Professor of Terrorism Risk Management and Resilience at Cranfield University
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Pool Re’s Focus (Continued)
Expertise:
As the terrorism threat landscape changes, Pool Re has begun to leverage its expertise to become a global thought leader, setting up the Terrorism Risk & Analysis Centre to coordinate all research/knowledge based activities and produce regular Threat & Mitigation Reports for our Members and our clients in the wider business community so as to enable better assessment and pricing of risk
Provide analytical support to the OSCT, as part of the refresh of CONTEST:
– How the (re)insurance sector might support UK interests in fragile states
– Engaged in wider discussion within the private sector about how to close the terrorism “Information Gap” between HMG and businesses - Pool Re (along with other recognised counter terrorism entities) could potentially have a significant role to play (Project SIDE - Security Information and Data Exchange)
Ongoing external projects on CBRN exposure modelling (Project Nighthawk with Cranfield University) and cyber-terrorismwith the Judge Business School, Cambridge University
Enhancing our model:
Participating in a research study led by Cass Business School, City University London) titled State-sponsored pools as centres of expertise in the changing market for risk will determine if our model can be an effective one for removing liability from the Government’s balance sheet
Pool Re’s Terrorism Risk & Analysis Centre
Objective
Workstreams
• Equip Pool Re to better understand the terrorism threat and, through research, to better inform our decisions
• Generate “value add / thought leadership” products benefiting Members, partners, and other stakeholders relating to the terrorism environment
Export Pool Re’s PPP knowledge to markets where terrorism risk pools are being investigated as a risk financing option
Lead thinking on how terrorism risk should be priced
• Enhance relationship with HMG and those responsible for the UK’s Counter Terrorism policy development
• Lead on risk management solutions for, and communication with, insureds and delivery partners thereby mitigating claims on Members and ultimately, the Government
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• Develop capability to provide innovative solutions to new and emerging risks and help to drive national resilience
KEY OUTCOMES:
• Establish a brand as the ‘go-to organisation ’ for the most complex issues in the terrorism insurance space
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• To position Pool Re as a global expert in terrorism insurance
• Provide terrorism information/data to underpin the terrorism information gap between HMG and the private sector
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Pool Re’s Focus (Continued)Supporting Government initiatives:
Pool Re has driven its agenda in the absence of specific policy guidance from HMG but now seeks enhanced collaboration with the Home Office in particular
Pool Re is looking to engage more closely with its stakeholders to align strategic thinking and drive consensus, and has been actively involved in a number of collaborations in addition to those described in previous slides
– Organised a joint Home Office/Pool Re event (re. CONTEST) in July 2016
– Seconded an employee to the Home Office (OSCT) to assist with the proposed working groups aimed at bringing together the private sector, the third sector, Government and Government agencies to facilitate the private sector's role in counter-terrorism by enabling two way communications
– Attended the first meeting of a cross departmental Insurance Task Force in September , chaired by DfID with other key departments and agencies including Treasury and FCO
– Assisting a Home Office/FCO initiative on how insurance can help protect British interests abroad
International:
Pool Re is a founder member of a group aimed at closer collaboration between international terrorism pools
– Hosted the first National Terrorism Pools Congress in October 2015; the second annual congress was held in Canberra the following year
– The International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP)ratified in October 2016, conceived as an independent working group serving as a discussion body for issues relevant to any kind of state-backed terrorism (re)insurance solution providers, and as a forum for the discussion of relevant developments in the (re)insurance industry
Stakeholder engagement
TreasuryPool Re members
UK Plc - corporates
Private reinsurers
Home Office - OSCT
Small business
Insurance industry
Public
International Terrorism Pools
Regulatory bodies
Academia
15
Currently
Pool Re adds value by:
Pool Re is an example of an effective market-orientated collaboration between the public and private sectors
It has been approached by a sub-committee of the 5 eyes as well as countries considering a terrorism pool, with a view to how to establish a pool and incentivise resilience measures
It promotes financial resilience within the UK economy, by providing UK Plc with continued access to appropriate terrorism insurance cover and by encouraging businesses to implement government accredited risk management strategies (PSIA and Cyber Essentials)
It is the vehicle through which premium is collected from the market and claims paid out, over time building a significant buffer between potential loss events and the UK taxpayer
It acts as a framework facilitating the ongoing and increasing involvement of the insurance industry in terrorism insurance in the UK
It has to date operated at nil cost to the tax payer, paying the Government around £200m per annum
It helps to facilitate the flow of information between the government and the private sector (SIDE)
It acts as a think tank for ways in which to mitigate new forms of risk (British interests abroad, Terrorism Insurance Gap)
It is an incubator of new ideas (Pool Re Chair of Terrorism Risk Mitigation and Resilience at Cranfield)
It is a model for cooperation in risk management globally (IFTRIP and a potential Insurance Linked Securities solution as per the recent Bank of England and Financial Services Bill)
16
Looking Forward
It could, however, be used further:
We intend to continue to move forward as an organisation – developing our economic model to maximise value to our stakeholders, evolving our proposition in line with the nature of the threat thereby closing gaps in cover and positioning ourselves as the leading global expert in terrorism insurance and reinsurance
We also aim to provide a blueprint for a successful public/private partnership:
– To propose innovative ways to remove risk from the government’s balance sheet (Civil Injuries Compensation Scheme, strike riot and civil commotion by way of example)
– As a model for other “uninsurable” perils that threaten society and where partnership between government, academia and the private sector could yield world leading ideas (cyber, climate change, pandemic)
– To promote behavioural change by developing a private sector version of the PSIA concept beyond NaCTSO’scrowded places solution thereby ensuring broader take-up and therefore resilience
– To help ensure that the London Insurance Market post-Brexit remains world leading with ideas such as a Terrorism Bond
– To back other Home Office initiatives
17
Recent tragic events
Definition of terrorism Inspired by, directed by, violent religious extremism
Westminster The Westminster attack specifically raises the issue of non-damage business interruption, highlighting the
issue of a gap in coverage between buyers’ needs and that which is freely available. As a result, Pool Re is evaluating the issue and will discuss its findings with the principal scheme stakeholders, including the new government, as to how a solution might be found and if so, how it might be structured.
Manchester Members to demonstrate that any losses for which they seek indemnity arise under a Head of Cover as a
result of damage to, or the destruction of, Property in the Territory
London Bridge This attack provides further evidence of the changing nature of the terrorist threat and follows similar attacks
in Europe over the past two years. As a result of this, Pool Re has been working towards evolving its coverage by, for example, introducing some form of cover for cyber-terrorism, another example of emerging terrorism risk and on which discussions will continue after the election.
Finsbury Park Right wing extremism as well as Islamic extremism is branded as terrorism
Paris conference, June 28, 2017
Terrorism Insurance International Conference
Panel 4 - Public Private Partnerships
Speaker: Bertrand Labilloy, CCR, General Manager
The Role of public reinsurer in Public Private Partnerships
PanelHow Public Private Partnerships can encourage riskmitigation by collaborating with public authorities
Moderator: Bertrand Logoz, XL Catlin, Head of TechnicalUnderwriting• Alejandro Izuzquiza, Consorcio, Operations Manager
• Laurent Montador, CCR, General Manager
• Leigh Wolfrom, OECD, Policy Analyst
• Esther Baur, Swiss Re, Director Global Partnerships
2
Fourth panel
Paris conference, June 28, 2017
Consorcio de Compensación de Seguros (CCS) Alejandro Izuzquiza, Director of Operations
1
1. ENTIRELY PUBLIC SCHEME: “CONSORCIO DE COMPENSACIÓN DE SEGUROS” (CCS)
• Attached to the Ministry of Economy, Industry and Competitiveness.
• Linked to the Insurance Supervisory Authority.
• Several functions: MTPL insurance Guarantee Fund; co-insurer and reinsurer of the Agricultural Insurance Scheme; liquidator/IGS…
2. LONG-ESTABLISHED SCHEME SET UP IN 1954
It doesn’t follow any specific recent terrorist attack
1. ENTIRELY PUBLIC SCHEME: “CONSORCIO DE COMPENSACIÓN DE SEGUROS” (CCS)
• Attached to the Ministry of Economy, Industry and Competitiveness.
• Linked to the Insurance Supervisory Authority.
• Several functions: MTPL insurance Guarantee Fund; co-insurer and reinsurer of the Agricultural Insurance Scheme; liquidator/IGS…
2. LONG-ESTABLISHED SCHEME SET UP IN 1954
It doesn’t follow any specific recent terrorist attack
3. INSURANCE (neither reinsurance nor coinsurance)
• Bodily injuries• Damage to property• Loss of profit/Business interruption
3. INSURANCE (neither reinsurance nor coinsurance)
• Bodily injuries• Damage to property• Loss of profit/Business interruption
2
4. COMPLETELY LINKED TO “EXTRAORDINARY RISKSINSURANCE”
• the same scope, legal framework an functioning asnatural catastrophe insurance: floods, earthquakes,severe windstorms etc.
• therefore, it is by no means a separate cover; it is not aterrorism-specific insurance scheme.
NATURAL DISASTERS MAN-MADE DISASTERS
Floodings
Severe wind storms(gusts above 120 km/h and tornadoes)
Earthquakes
Battering sea waves
Tsunamis
Volcanic eruptions
Meteorites
TERRORISM
Riots
Rebellion
Sedition
Mutiny
Actions by the armed forces
in peacetime
Extraordinary risks as a whole are covered by the CCS; no separate cover of one single risk or a group of risks
3
5. COMPULSORY NATURE OF COVERAGE:
• sufficient volume of premiums (surchages) and
• compensation amongst risks (exposed risks and rarely exposed risks).
5. COMPULSORY NATURE OF COVERAGE:
• sufficient volume of premiums (surchages) and
• compensation amongst risks (exposed risks and rarely exposed risks).
4
6. RATES: PERCENTAGE OF THE VALUES BEING INSURED IN THE POLICYISSUED BY THE INSURANCE UNDERTAKING
• Scale depending on types of risks.
• Motor vehicles: fixed amount depending on the type of vehicle.
• Companies collect the surcharge along with their premiums.
• Companies transfer monthly surcharges to the CCS.
• Companies charge a 5% handling fee.
7. COMPLETELY LINKED TO THE ORDINARY RISKS COVER ( LIFE AND ACCIDENTS; FIRE,THEFT, BUSINESS INTERRUPTION…)7. COMPLETELY LINKED TO THE ORDINARY RISKS COVER ( LIFE AND ACCIDENTS; FIRE,THEFT, BUSINESS INTERRUPTION…)
INSURANCE POLICY
2 insurance contracts in the same policy
ORDINARY RISKS(life, accidents, fire, theft, etc.)
EXTRAORDINARY RISKS(terrorism , flooding, severe wind storms,
earthquakes, etc.)
Private insurerCCS
Private insurancecompany
Premium(free premium rate)
Compulsory surcharge
Collected along with the premium Transferred to the CCS on a monthly basis
Coverageclausecompulsorilyincluded in thepolicy
issued by
5
• Not linked to Court decisions• No government declaration is required
Automatic insurance cover
8. DEFINITION OF TERRORISM: VIOLENT ACT+DESTABILISING POLITICALORDER+GENERATING FEAR IN THE SOCIAL ENVIRONMENT (Extraordinary risksinsurance legislation)
8. DEFINITION OF TERRORISM: VIOLENT ACT+DESTABILISING POLITICALORDER+GENERATING FEAR IN THE SOCIAL ENVIRONMENT (Extraordinary risksinsurance legislation)
6
7
9. COVER OF RISK LOCATED WITHINTHE SPANISH TERRITORY, EXCEPTBODILY INJURIES, THAT ARE ALSOCOVERED ABROAD
9. COVER OF RISK LOCATED WITHINTHE SPANISH TERRITORY, EXCEPTBODILY INJURIES, THAT ARE ALSOCOVERED ABROAD
10. TERMS OF COMPENSATION10. TERMS OF COMPENSATION
Point ofreference
The same property and persons
The same sum insured
The same compensation conditions
The same property and persons
The same sum insured
The same compensation conditions
than those inthe policy
DEDUCTIBLES:
For direct material damagesFor direct material damages
7% of the compensable loss7% of the compensable loss
For loss of profitsFor loss of profits The same as in the ordinary policyThe same as in the ordinary policy
For bodily injuries For bodily injuries No deductibleNo deductible
No deductible: motor vehicles, houses and homeowners’ associations
No deductible: motor vehicles, houses and homeowners’ associations
8
9
11. MAIN EXCLUSIONS (for all “extraordinaryrisks”): besides war, the following types ofpolicies
• Marine, aviation and transport
• Third-party liability
• Agricultural insurance
• Construction and erection
• Credits and bonds
• Health
11. MAIN EXCLUSIONS (for all “extraordinaryrisks”): besides war, the following types ofpolicies
• Marine, aviation and transport
• Third-party liability
• Agricultural insurance
• Construction and erection
• Credits and bonds
• Health
REPORTING
of the claim
the claim form is
filed through
CCS’s CALL CENTRE
CCS’s WEBSITE
Regular mail (only MTPL insurance)
ASSESSMENT
of the losses
LOSS ADJUSTERS
MEDICAL PRACTITIONERS
Communication via a web
application
Reports and documents
uploaded to the web platform.
Claims HANDLING
PAYMENT
CLAIMS HANDLERS in CCS’s Regional Branches (18 throughout
the Spanish territory) and in Operations Head Office.
By the CCS to the INSURED/VICTIM by
BANK TRANSFER
12. THE CCS HANDLES THE CLAIM ENTIRELY12. THE CCS HANDLES THE CLAIM ENTIRELY
10
13. ALREADY TESTED BY SIGNIFICANT EVENTS
• ETA’s terrorist attacks
• Madrid trains bombing 2004
13. ALREADY TESTED BY SIGNIFICANT EVENTS
• ETA’s terrorist attacks
• Madrid trains bombing 2004
11
1987-2016
6% material damage92% personal injuriesof total amount of compensation from “extraordinary risks “ cover due to terrorist deeds.
1987-2016
6% material damage92% personal injuriesof total amount of compensation from “extraordinary risks “ cover due to terrorist deeds.
cover regulated in theOfficial Journalcover regulated in theOfficial Journal
12
14. STABILITY
• Yearly cover with no variations depending on market conditions.
• Is not under constant review
• Terms and conditions don’tvary at short notice
14. STABILITY
• Yearly cover with no variations depending on market conditions.
• Is not under constant review
• Terms and conditions don’tvary at short notice
15. BACKED BY THE STATE GUARANTEE:
• No maximum loss that the CCS will pay
• Should claims exceed the reserves, theCCS can, in turn, draw funds from theGovernment to enable CCS to meet itsobligations in full.
• The reserves have never beenexhausted
• The State guarantee has never beenapplied for the time being.
15. BACKED BY THE STATE GUARANTEE:
• No maximum loss that the CCS will pay
• Should claims exceed the reserves, theCCS can, in turn, draw funds from theGovernment to enable CCS to meet itsobligations in full.
• The reserves have never beenexhausted
• The State guarantee has never beenapplied for the time being.
16
Paris conference, June 28, 2017
How PPP can encourage risk mitigation by collaborating with governments?
CCR Laurent Montador, General Manager
Three Terrorism coverage in France:
o Properties (coverage is mandatory since 1986),
o Transport (“war risk”),o Bodily injuries (specific guarantee fund FGTI managed by FGAO),
France is one of the most widely covered country for Terrorismacts.
What do we cover ? What do we need to model ?
1
Scope of compulsory cover:o Under Article L 126-2 of the French Insurance Code, it is mandatory for
insurance policies covering Property Fire Damage on national territory and damage to motor hulls, to also cover “...direct material damage to the insured property caused by a terrorist attack or act of terrorism... sustained on national territory.”
o The terrorist attacks defined by Articles 421-1 and 421-2 of the French CriminalCode.
o Cover extends to nuclear, biological, chemical or radiological (NBCR) acts of terrorism
o Cover any material damage sustained on national territory (may result from anattack perpetrated outside its borders).
What do we cover ? What do we need to model ?
2
Compulsory cover including CBNR.
o Scope:– Direct material,– Financial losses (resulting from direct material damage),– Business Interruption (covered by insurance policy) with direct damages,– Costs related to property decontamination (excluding the decontamination
and containment of debris),
o Exclusions:– Bodily injuries,– CBI,– BI (without direct damages),– Cyber Risks.
What do we cover ? What do we need to model ?
3
Terrorism, a necessary Public-Private Partnership:CCR is a public-sector reinsurer:o providing insurers operating in France a coverage for NAT CAT, Terrorism, War Risks.
o accredited to cover terrorism with the guarantee of the French State since 1983.
Insurance companies:o have the obligation to deliver protection including CBNR,
o can be reinsured by CCR (with French State guarantee),o are in charge to handle directly claims,
CCR could be considered as a facilitator for the French State,
The French State, via CCR, is ensuring the solvability of the scheme.
Terrorism, a necessary Public-PrivatePartnership
4
o The intervention of CCR is :– For Large Risks(>€20 Mio): since 2001, CCR provides a further unlimited coverage
in XS of €2.54 bn annual loss. A market agreement requires insurers affiliatedwith FFA to cede all their terrorism risks systematically to GAREAT’s Large Risks.
– For Small and Medium Risks(<€20 Mio): no market agreement has been enteredinto, but CCR has been authorized by law, since 2006, to offer insurancecompanies, upon request, unlimited State guaranteed cover.
o Contribution of CCR:– Large mutualisation of market portfolios,– Constitution of equalization reserves– Risk management tool for the French State (including modeling),
o Current negotiations for a new framework for the next 4-6 years.
Role of CCR
5
o For several years now, CCR has been developing Cat models toassess the French exposure related to the main Natural Disasterssuch as flood, sea-surge, terrain subsidence, earthquake orhurricane.
o These models encompass a fully-integrated approach from hazardto loss estimation.
With this expertise, over the years on the Natural Disasters modeling, CCR has been starting to model Terrorism from 2012.
CCR expertise: from Natural Disasters to Terrorismmodeling
6
o A CBNR-type act of terrorism is today a credible threat.
o CCR modelling :
– deterministic model,
– difficulties to develop a probabilistic model,
– collaboration with private partner to estimate the financial consequences
(property damages) of CBNR-E acts of terrorism.
Terrorism and CBNR-E Modeling
7
Terrorism and CBNR-E Modeling
25
Damages
Exposure
Loss
Hazard
8
o To date, CCR model includes the following features:– High-res 2.5D mapping of buildings: France mainland and overseas territories– CCR target database: ~ 47 000 potential targets including Embassies, Touristic places,
Worship places, Governmental buildings, Petrochemical facilities, Nuclear facilities(power plants & industrial), …
– French Weather stations network historical database– First estimation of blast effects using TNO™ approach
Full variability on all the parameters: hundreds of deterministic events, takinginto account all the parameters variability, are weighted to produce a maximumlikelihood damages evaluation for a main scenario.
o Key parameters are:– Location of the CBNR source: user-defined or using CCR target database
– Wind speed and wind direction: user-defined or constrained by the weather stations database
– Explosive quantity (in eq. TNT) of the explosive device137Cs, 60Co, 131I, 210Po, 192Ir, Sarin, VX, Phosgene,
Terrorism and CBNR-E Modeling
9
– CBNR product & quantity released:Anthrax, Sulfur hexafluoride …
Case study: The Impactof a Dirty Bomb Striking Paris
Example of an impact forone specific combinationof model parameters
Dirty bomb & blast effect
o Improvised Explosive Device:
1kg TNT (or equivalent)
100 TBq of 137Cs (~30 to 50 grams of pure product)
can be carried in a backpack
Severe event10
o Depending mostly on weather condition,the fallout will be totally different and so will be the economic consequences.
o What would be the real wind parameters ifthis attack occurs ? There is no a prioriwind preferred conditions for a scenario.Thus All the possible combination ofweather conditions should be consideredand modelled.
– Taking into account the range of plausible values forthe parameters of the model and giving weight toeach computation according to the weather history,the loss for this unique example could credibly rangefrom 3 to 15 €bn.
– Furthermore, Paris area would suffer major indirectloss as tourists would probably avoid the city for atime.
Case study: The Impactof a Dirty Bomb Striking Paris
11
Terrorism and CBNR-E Modeling
Paris area
Dirty bomb scenarios evaluated to date
o Up to date, we have evaluated theimpact of approx. 125 dirty bombscenarios located all over the France,focusing on the Paris area with 75scenarios.
o The maximum modelled insuredlosses is about 5 times the cost of thescenario presented before.
12
Conclusion
13
We can see that terror risks are evolving and will continue to evolve in the future.WTC, attack to persons … poisoning people, dirty bombMixing people impact, building impact, business impact.
CCR will contribute for supporting:A market solution,With regular information on the evolution of risks,And with proposal on how to cover them,Without necessity of placing under the aegis of a State Guarantee (CBI, Cyber Risks and bodily injuries).
Paris conferenceJune 28, 2017
The financial management of terrorismrisk : the role of PPPS
OECDLeigh Wolfrom, Policy Analyst
2
OECD Recommendation on Disaster Risk Financing (2017)focuses on two particular areas where collaboration is essential: Quantification of exposure:
Ensuring the availability of necessary data, technology and expertisefor quantifying exposure to catastrophic risk and collaborating acrosssectors (public, private, academic)
Supporting insurability and/or affordability of financial protection: Raising awareness of risks and responsibility to protect against those
risks Establishing a regulatory environment that encourages insurance offer
and purchase Implementing a legislative and policy framework that supports risk
management/reduction (such as investments in prevention/security,incentives for private risk reduction)
Where necessary, enabling public (re)insurance arrangements andguarantees to support broad availability and affordability
Public-private collaboration is critical for managing complex risks
3
For a number of perils – countries that account for a significantshare of losses have pools in place (among OECD countries):
Pooling arrangements cover a significant share of losses in highly-exposed countries
Source: OECD calculations based on: (i) for flood and earthquake, total damages (or insured damages, where total was unavailable) as reported by Swiss Re; (ii) for terrorism, total casualties as reported by University of Maryland Global Terrorism Database (for events with more than 10 casualties). Reported damages/casualties were classified based on whether the main country of occurrence had an established pooling mechanism (or not) at the time of the event. Japan, New Zealand, Spain, Turkey and the United States (California) had reported earthquake damages and relevant pools; Switzerland, United States, France and Spain had reported flood damages and relevant pools; France, Netherlands, Spain, United Kingdom, and United States had reported terrorism casualties and relevant pools.
Earthquake1 Flood2 Terrorism3
Countries with relevant pools (or public insurers)
France, Iceland, Japan, New Zealand, Spain, Switzerland, Turkey, United States (California)
Denmark, France, Hungary, Iceland, Norway, Spain, Switzerland, United Kingdom, United States
Australia, Austria, Belgium, Denmark, France, Germany, Israel, Netherlands, Spain, United Kingdom, United States
Share of damages/ casualties in countries with relevant pools (or public insurers)4
84% of damages (2007-2016)
41% of damages (2007-2016)
29% of casualties (2007-2015)
1. OECD (forthcoming), Financial management of earthquake risk2. OECD (2016), Financial management of flood risk: http://www.oecd-ilibrary.org/finance-and-investment/financial-management-of-flood-risk_9789264257689-en3. OECD International e-Platform on terrorism risk insurance: http://www.oecd.org/daf/fin/insurance/terrorism-risk-insurance-programmes.htm4. Damage figures are from Swiss Re sigma annual reports on natural and man-made disasters. Casualty figures are from University of Maryland Global Terrorism Database.
4
Penetration of insurance coverage is (usually) significantlyhigher in countries with pooling mechanisms…
The difference is significant in the case ofearthquake coverage….
…but less obvious for flood risk
Pooling arrangements often lead to broader coverage for catastrophic risks
Source: Estimated earthquake insurance penetration rates are from OECD (forthcoming) based on country responses to an OECD questionnaire. Estimated flood insurance penetration rates are from OECD (2016) and also based on country responses to an OECD questionnaire .
0102030405060708090
100
Estim
ated
pen
etra
tion
rate
(ear
thqu
ake)
Pooling mechanisms
0
10
20
30
40
50
60
70
80
90
100Es
timat
ed p
enet
ratio
n ra
te (f
lood
)
5
Pooling mechanisms (i.e. institutional structure) can provide asingle window for coordinating country risk management:
Pooling mechanisms can develop models that can be used forbroader risk management purposes
Pooling mechanisms can contribute expertise (and funding) forenhancing government prevention/protection
Pooling mechanisms can act as conduit for sharing governmentexpertise with insurance sector
Pooling mechanisms as country risk managers
Some pools have been established on quasi-permanent basis to meet other policy objectives (e.g. solidarity in risk sharing)…others are meant as a temporary response to market failure
Pools with exit objective use different approaches to leveraging private sector contribution:
Pool-backed insurance products are distributed by the private sector
Pools provide only basic coverage (and create room for “surplus market”)
Pools transfer increasing risk back to the market (by increasing private insurer risk share or increasing reinsurance/retrocession by pool)
6
While pooling mechanisms have been established with different objectives….
Positive signs of private sector contribution:
Commercial catastrophe models are being developed
Excess or surplus market is established and responding to some needs not covered by the pool
International reinsurance and capital markets are taking on an important share of risk
7
…many signs that private sector contribution to risk management is being leveraged
Source: OECD calculations based on a review of the terrorism exclusions included (or not) in 26 stand-alone cyber insurance policies. Policies that included a limited terrorism exclusion were identified as not having a terrorism exclusion. For loss of attraction, 11 stand-alone terrorism policies were reviewed.
26,1%
45,5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Stand-alone cyber without terrorism exclusion
Stand-alone terrorism offering loss of attraction
0%
36%
15%
49%
September 11th
Pooling mechanism Primary Insurers
US Reinsurers Non-US Reinsurers
30%
42%
11%
17%
Hurricane Sandy
Pooling mechanism Primary Insurers
US Reinsurers Non-US Reinsurers
Source: Global Reinsurance Forum (2014)
8
Is the contribution of insurance to managing terrorism-related financial risks being maximised: could insurance more efficiently provide compensation for victims
(death or bodily injury)? could insurance more efficiently compensate businesses affected by
longer-term reputational damage/loss of attraction? what is the role of terrorism insurance in addressing cyber-terrorism?
Are the potential contributions of insurance to risk management maximised in the current approach: are current pooling arrangements sufficiently encouraging risk
reduction (or are there limited actions that can be taken in the case of terrorism risk)?
is the full appetite of private (re)insurance [and capital markets] for terrorism risk being utilised?
Maximising the contribution of (re)insurance to the financialmanagement of terrorism risk – considerations
IFTRIP | June 2017 | Esther Baur
Paris conferenceJune 28, 2017
Country risk management and InsuranceSwiss Re
Esther Baur, Director Global Partnerships
IFTRIP | June 2017 | Esther Baur
Country risk management – who is responsible and get’s the bill?
2
illustrative
1. What are the risks?
Individuals
Corporates
Insurers
Banks
2. Who will pay?
Public Sector
Source: WEF Global Risk Report 2017
What are the contingent liabilities?
IFTRIP | June 2017 | Esther Baur
Financing is a key pillar of integrated disaster risk management
3
Adaptation
Identification
Assessment
Prevention & mitigation
1
2
3
What risks do we face?
• Systematic• Cross-
sectoral
Can we quantifyit?
• Frequency• Severity
How can we minimize it?
• Improve quality• Build new
protection
How can we manage the residual risk?
• Change behavior• Pre-finance• Risk transfer
4
3. What can be prevented? Prevention versus adaptation (incl. risk transfer)
4. Which type of insurance solutions? Market-based, PPP, Public system?
IFTRIP | June 2017 | Esther Baur
A Chief Risk Officer for the public sector would help taking a holistic view
Tasks Work jointly with (re)insurance industry to identify emerging risks Establish frequency/severity risk landscape based on best scientific knowledge Communicate risk landscape to policy makers and general public Steer mitigation efforts towards biggest risks (either frequency or severity) Establish risk transfer framework Manage a pool for mega risks which cannot be carried by (re)insurance industry alone
Benefits Active public-private partnership including knowledge exchange Much more risk knowledge at policy maker level and general public on key risks More rational mitigation strategies and usage of public funds Less human, physical and economic damage Higher economic growth since uncertainties about mega risks removed (e.g. terrorism)
ObjectiveOptimal allocation of resources for systematic risk identification, assessment, mitigation and adaptation.
4
5. Who can facilitate the dialogue with the private sector?
IFTRIP | June 2017 | Esther Baur
Role Description Nat Cat Example
Governments as rule setters
Setting rules and regulations to enable the private sector to absorb large losses, e.g. capital, risk-based rates, raising awareness, prevention measures (zoning, building codes, etc.). This may not be enough.
Germany FloodItaly NatCat
Governments as sponsors of an insurance market
Providing incentives to insure, potentially through compulsory insurance or subsidies, provide necessary information to spur the development of an insurance market, e.g. exposure data, risk research and modeling, awareness campaigns. This is often necessary.
UK Flood ReSwitzerland NatCat
Governments as (re)insurers Government backstop programmes can complement private sector solutions where risk assessments or size of a potential loss are a challenge for the private sector (e.g. terrorism). For natural catastrophes, the private sector has the capacity and expertise to provide coverage.
France CCRSpain Consorcio
Governments as (re)insurance buyers("sovereign risk transfer")
Governments can also buy insurance to protect their budget, thereby securing funding before a disaster strikes. More can be done by governments to stabilize budgets.
Mexico FondenChina provinces
Source: Swiss Re publication "Closing the financial gap"
The role of government in enabling risk transfer
5
IFTRIP | June 2017 | Esther Baur
Public-private partnerships in natural catastrophe insurance:Example homeowners insurance - a large variety of solutions
6
Purely Private Public sector involvement
Optional
Compulsory/Bundled
State reinsurerFrance, Spain
Germany
USA
France
Australia
UK
Turkey
New Zealand
SpainSwitzerland
Italy
Norway
Portugal
IFTRIP | June 2017 | Esther Baur
Examples of recent innovative public-private risk transfer solutions
7
IndiaWeather insurance
for farmers
UruguayEnergy production
shortfalls due to drought
CaribbeanHurricane,
earthquake and excess rainfall risk
Pacific Islands Earthquake and
tropical cyclone risk
VietnamAgriculture yield cover
BeijingAgricultural risk
TurkeyEarthquake pool
BangladeshFlood insurance
African Risk CapacityGovernment drought
insurance pool
FloridaHurricane risk
United KingdomFlood risk
Guangdong Typhoon/rainfall
ThailandCrop insurance
MexicoEarthquake/hurricane
and livestock risk
Louisiana Hurricane risk
Heilongjiang Multiperil disaster risk
KenyaLivestock insurance
California Earthquake risk
GuatemalaNat cat business interruption risk
United StatesFlood risk
IFTRIP | June 2017 | Esther Baur
• What problems / risks need to be addressed?
• Why is the insurance market not working?
(demand vs supply constraints; insurability criteria)
• Prevention versus adaptation (incl. risk transfer)?
• Post-event versus pre-event (financing mix)?
• What is the best insurance mechanism?
(macro, pool, market)
• Voluntary versus mandatory schemes?
• Affordability vs risk signaling?
(Who pays which premium / subsidies, incentives?)
• Public versus private sector roles?
Key considerations for public-private insurance solutions
8
High level of coordination across public and private sector bodies needed
Risk transfer is a key pillar of integrated risk management
The private sector has substantial expertise and capacity
Effective public-private partnerships can address the challenges
IFTRIP | June 2017 | Esther Baur
Legal notice
9
©2017 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.
The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.