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Challenging Insurability An International Perspective by Dr Andrew Dlugolecki Climate Research Unit, University of East Anglia for CARR workshop on Flood Management and Insurance Regulation LSE December 4-5th 2003 [email protected] Overview • Survey of insurance schemes • Weaknesses and strengths of insurance • Climate change • The way forward [email protected] France • Uniform premium surcharge (%) on property • Government reinsures the risk • Activated only in official disasters • Administered by private market • Applies to a bundle of perils [email protected] USA • Subsidised flood-only scheme • Government carries risk • Private market administers • Risk-reduction measures • Narrow definition of flood • Low uptake- many other forms of relief [email protected] Sweden • Low catastrophe potential • Flood is part of private market package cover • Little risk recognition • Limited liability for hydro-operators [email protected] Some other variants • Norway- private market pool • Netherlands- forbidden • Australia- confused! • Hungary- absent (unlike other ex-Communist) • UK- risk-related terms, private market package [email protected] Gaps in Cover (1) Natural disasters 80 % of loss is uninsured Process friction c 30% of fund is not recycled No access agriculture/ poor/ industry [email protected] Gaps in Cover (2) Product design short-term, restrictive terms Lack of capital unstable prices, volatile supply Fragmented market [email protected] incapable of dialogue? Strengths (1) Efficient risk transfer risk pricing mechanism Global outlook can transfer lessons internationally Vertical sophistication specialists for all functions variety of RM solutions [email protected] Strengths (2) Leverage potential interacts with all sectors claims purchasing power Administration network [email protected] fraud control "overflow" capacity Climate Change “The most widespread , serious potential impact of climate change on human settlements is believed to be flooding- riverine, coastal, and maybe urban” Inland flood Return period was 100 yrs, is 40 yrs now, will be 4yrs midcentury. Coastal flood Sea-level up by c50 cm:wetter/ stronger/more frequent storms ? Surprises Quickthaw, icestorm,joint events ( eg inland and coastal flood) Other sectors Transport/Agriculture/Leisure/Power/Public supply [email protected] Implications for risk: an Example Event type Event cost Period Now 2050 Normal Extreme Catastrophe 0 1 5 ----------- % of Time ------------99 0.9 0.1 95 4 1 Expected Cost 0.014 0.090 540% rise in risk premium in 50 years ( approx 4% per year) [email protected] The Way Forward (1) Collaboration on public policy pricing (social v efficient models) regulation (tariff v competitive models) compensation (liability v relief/charity v contractual ) resilience (design and construction) [email protected] Finance Sector Agenda [email protected] The Way Forward (2) Public capital Private capital Internal processes The human factor Information [email protected] relief/international aid/ private renting, tax breaks, ART product design,distribution selection, training, development specification, capture and use Financial Layers and Sources International Capital Markets International Reinsurance Country/regional Pool with MLFI Support Private Market Public Pool Industry & Wealthy SME & Middle-class source: World Bank SelfInsurance Infrastructure Disaster Relief Poor [email protected]
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