[PPT] - Nat Re and PIRA initiatives on disaster risk assessment and PowerPoint Presentation

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GIZ CRI NTF and TWGs, May 20, 2019

Nat Re and PIRA initiatives on disaster risk assessment and modelling

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Outline

Oasis platform of Oasis LMF, Nat Re, UP,

PAGASA, KatRisk, and Willis Towers Watson

What are catastrophe models?
Data needs
Usability by different stakeholders
Issues in developing climate risk insurance

solutions for the low-income sector and the most-at-risk

How the government and GIZ RFPI can help

address issues

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The first open-source cat model for flood in PH

Oasis Platform for Climate and Catastrophe Risk Assessment in

Asia (“The Oasis Project”)

Will develop the first open-access catastrophe model for flood (for

property risks) in the Philippines (launching in June 2020) and build long-term capacity among stakeholders to help them understand, sustain, use, and develop catastrophe models

First project of its kind with the Philippines and Bangladesh as pilot

countries

German government-funded project running from 2018 to 2020
Being implemented by Oasis Loss Modelling Framework, Nat Re,

PAGASA, University of the Philippines Geodetic Engineering Department, KatRisk, and Willis Towers Watson

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The Oasis Project

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Main objectives of the Oasis Project

Create greater awareness on:
the use of catastrophe models (“cat models”) in the area of

climate risk assessment

the risks associated with climate events
the importance of financial risk transfer mechanisms such as

insurance

Facilitate the development of risk transfer products, helping narrow the

gap between insured and uninsured losses

Extend the use of cat risk modeling beyond the insurance industry for risk-

informed decision-making

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What are catastrophe or cat models?

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Catastrophe models are computer software that calculate the likelihood

and severity of losses that a portfolio may sustain due to a catastrophe event such as an earthquake, typhoon or flood.

Differ in the kind of peril and in the location (e.g. cat models for

earthquake and for typhoon in the Philippines)

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Input and output of a cat model

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Cat Modeling

Geographical Location Street Address, City, Postal Code, Province, CRESTA, Lat-Long Risk Characteristics Occupancy, Construction, Year Built, Number of Storeys Insured Values Buildings, Contents, Business Interruption

Location Risk Info Insured Value

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Monetary loss data of expected physical damage to structure given that a peril occurs with a certain intensity

INPUTS OUTPUT

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How are cat models used

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(Re)insurers Government Academe / Non-Profit Development Sectors

Underwriting and Risk Selection Pricing Portfolio Management and Monitoring Capital and RBC Calculations Risk Transfer / Reinsurance Structure Risk Identification Risk Reduction and Mitigation Financial Protection Disaster Risk Management Infrastructure Planning Augment Existing Research Climate Change Impacts and Effects Loss Scenario Analysis

Users of Cat Models

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Data needed to develop the cat model for flood*

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Hazard

Precipitation gauge
Radar precipitation
Temperature and wind

speed

Discharge gauge
Digital terrain model
Flood defenses
Flood hazard maps
Historical flood outlines

Vulnerability and exposure

Building stocks
Exposure estimates
Population densities
Building characteristics
Vulnerability surveys

and curves

Loss

Loss statistics by event,

historical losses

Detailed loss data
Insurance portfolios

with loss data

*Different sets of hazard data is needed for the development of other peril cat models

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Granularity of data for cat model and applicability of the Oasis platform

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We will use city-level data (of

select pilot cities) from PAGASA, UP, and other data providers when applicable

Otherwise, we will use less

granular local data from other agencies or global data Applicability of the Oasis platform

Applicable for homeowners insurers, commercial

insurers, industrial insurers, reinsurers and brokers for modelling the risk from natural disasters to any type of insurance policy, such as homeowners policies, commercial policies, large industrial policies, entire insurance portfolios and rolling up reinsurance policies.

Not designed for use directly by householders,

SMEs or bodies such as trade associations to purchase insurance, or to get price estimates for their insurance policies

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Issues in developing CRI products

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Issues in product development

Affordability
Products that provide resilience against catastrophes may be too

expensive for low-income groups

Products catering to low-income groups are mostly funded by

government but this may not always be budgeted

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f CRIs for low-income groups and most-at-risk

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Technical capabilities of insurers especially underwriters
There is limited quality data, risk models and expertise for the

development of actuarially sound and marketable products

Because there is a significant risk in insuring these groups,

insurers need enough technical capabilities to calculate the effect of taking on these risks

These risks are not the typical types of risks that underwriters see
n a day to day basis. Underwriters should have the knowledge

to evaluate these risks.

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Issues in product development

f CRIs for low-income groups and most-at-risk

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Claims process
Claims processes for CRI products should:
Be quick to provide immediate liquidity
Include the easy identification of policy holders in the event that

required documents are completely lost and unrecoverable (possible when insuring low-income groups)

Most insurance products (i.e. indemnity) have time-consuming claims

processes that are costly for insurers and frustrating for the policy holders

Parametric products are a good alternative but are difficult to design

(need a significant amount of data, technical capability and resources) and the basis risk needs to be managed carefully.

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Issues in product development

f CRIs for low-income groups and most-at-risk

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Legal and regulatory framework (e.g. capital requirements) may

discourage insurers from prioritizing development of these products

Simplifying terms
CRI products shouldn’t have wordings that are too technical
Current insurance products are filled with technical jargon and

complex clauses that are difficult for the layman’s understanding

Bundling with other products
Products should be innovative and/or bundled with other risks/

products (credit life insurance, accident insurance, etc.)

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Issues in product development

f CRIs for low-income groups and most-at-risk

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Distribution channels
Insurers and/or government should think of ways to efficiently

distribute products to these groups as this also entails costs to the insurers

Can be through government, other intermediaries (e.g. NGOs, other

financial services providers), or directly to individual policy holders through mobile apps, SMS, etc.

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Issues in distribution

f CRIs for low-income groups and most-at-risk

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Technology operations
Operating framework should be low-cost, automated, and standardized
Challenges in increasing penetration and diversification
Insurers face challenges in reaching out to these groups for reasons such as

price, complexity, and location. This hampers achieving spread and portfolio diversification.

Public procurement policies could prevent LGUs from acquiring insurance from

private insurers

Perception on CRI products
Generally the public thinks short term or reactive when it comes to disaster

resilience strategies

The developed product should be perceived as complementary, if not superior,

to other existing risk adaptation strategies

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Issues in distribution

f CRIs for low-income groups and most-at-risk

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Simple and have transparent policy terms
Convenient and accessible to purchase
Quick and efficient in settlement
Affordable

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To summarize, CRI products for low-income groups and most-at-risk should be…

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What the government and GIZ RFPI can to do address these issues

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What the government can do

Increase insurance awareness among

government personnel and decision makers to encourage long-term thinking in disaster resilience efforts

Increase awareness (e.g. through LGUs

and other non-profit partners) on CRI products among low-income groups

Provide incentives and subsidies to

support affordability (e.g. using funds from LDRRMF to acquire insurance)

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What the government can do

Lower taxes on non-life insurance
products. Insurance industry and the

House of Representatives have reached a compromise on Package 4 of the TRAIN Law; it is now with Senate.

Provide a conducive regulatory environment

for the development and distribution of CRI products

IC circular 2018-07 enhances framework

for insurers to use mobile-phone apps to sell products

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What the government can do

Continue formal discussions between

government and insurers to help encourage public-private partnerships and gain a better understanding of each group’s objectives, challenges in implementing initiatives, etc.

Provide training for or best practices sharing

with the industry

Access to government data to support the

proper design and pricing of CRI products.

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Serve as a venue for discussions between

government and insurers to encourage public-private partnerships and formulate strategies to propagate CRI products to low income groups

Provide training or technical assistance for

best practices sharing with the industry

Help raise awareness on the Oasis project

and the value of CRI products

What GIZ RFPI (NTF and TWGs) can do

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