This article was originally published in Insurance Day, click here to view the original article.
Livestock insurance represents a significant part of global agriculture premium. Traditional indemnity insurance products are available, complemented with less common products like parametric index insurance. Managing livestock insurance is a complex business, as livestock mortality is a recurring event.
China is one of the biggest players as the world’s largest livestock producer. In China, livestock insurance premium represents about 25 percent of total Chinese agriculture premium, making livestock risk management a major concern for the insurance industry.
Like China, many countries have improved their contingency plans and established controlled diseases centers to reduce mortality event impacts. In China, major recent disease epidemics include Foot and Mouth Disease (FMD), Porcine Reproductive and Respiratory Syndrome (PRRS), Swine Fever, Avian Influenza and Newcastle disease. Noticeable epidemics since 1995 include SARS in 2003 (poultry), major FMD and PRRS in 2006 and 2007 (pigs), and FMD in 2009 and 2010.
Across the global risk management community, we are bombarded by new information every day. As risk professionals we have to prioritize how we give our attention to new information. From an RMS perspective, when we release new model insights, we know there is a need to be concise and boil down huge research projects into just the important details. But there is a concern that the top-level results get taken as a uniform value that can be applied across the board, losing vital nuance.
When RMS released its New Zealand Earthquake High-Definition (HD) model in mid-2016, an important message was that the annual average loss (AAL) had increased by 30 percent. The ground-up, all-lines, countrywide AAL increased 30 percent relative to the previous version of the model released in 2007. An increase in loss came as no surprise after the Canterbury Earthquake Sequence of 2010/11 – see our New Zealand earthquake blogs.
The HD model was launched at two industry seminars in Wellington and Auckland and came with online documentation: some 44 pages of Understanding Changes in Results and 114 pages of model methodology, supplementary materials on our RMS OWL client portal and a team of modelers happy to talk about their work.
Faced with this information, one approach is to note that the New Zealand market is very consolidated so industry figures should be useful guides for actual portfolios. Let’s just use the old model and scale it by 30 percent. “She’ll be right”, as they like to say in New Zealand. But with two models being so different, this scaling-up would not make sense. Why are they so different?
On February 1, I had the opportunity to speak at a panel session entitled “Technology as a Driver for ILS Growth” at the Artemis ILS Conference in NYC. It was a full house, with 350 attendees from across insurance, banking and financial markets. My fellow panelists were Sean Bourgeois, CEO of Tremor Technologies; Yaniv Bertele, Co-founder and CEO of Vesttoo, and Andries Hoekema, Global Head of Insurance for HSBC Global Asset Management. This session was chaired by Tom Johansmeyer, Co-head of PCS Strategy and Development from Verisk Insurance Solutions.
Despite the impact of consecutive years of losses, the insurance-linked securities (ILS) market continues to strengthen and expand to become a significant provider of global reinsurance and risk capital. And as financial instruments become more complex, and competition increases, the ability to successfully adopt new technology will emerge as a differentiator to separate the winners from the losers.
From our panel discussion, we had general agreement on what these technology drivers of ILS growth will be, and we coalesced around five drivers:
The terrorism landscape has changed significantly since 9/11. There is a visible shift from large-scale attacks to a growing number of lone wolf attacks. Many believe there has not been a major terrorist event in the United States post 9/11, but one should not overlook the near-misses in the recent past which could have caused massive losses such as the 2016 New York-New Jersey bombings.
The unpredictable and catastrophic nature of terrorism led to the emergence and continued reauthorization of the U.S. Terrorism Risk Insurance Program or TRIPRA, a federal backstop for defined acts of terrorism, which facilitated insurers to continue to provide terrorism coverage after 9/11.
Assessing Workers’ Compensation Risk from Terror Attacks in California
The objective of our study was to estimate California’s workers’ compensation losses to be retained by insurers due to terrorist acts, under TRIPRA for calendar year 2019. Please find a link to the study here.
Two people died and thousands of properties in the North Queensland coastal city of Townsville (pop. ~168,000) have been flooded, following an unprecedented rainfall event for the region, driven by a very active monsoon trough that is refusing to budge and a slow-moving tropical low dragging moist air down from the equator.
According to the Australian Government Bureau of Meteorology (BoM), Townsville has experienced record rainfall, with 1,153 millimeters (45 inches) – equivalent to a year’s worth of rainfall, falling over a seven-day period up to Monday, February 4.
To add to the city’s problems, on Sunday, February 3, the Ross River Dam at the mouth of Lake Ross, just five miles (eight kilometers) from the center of Townsville, reached 247 percent of its typical capacity, and a record-breaking height of 42.99 meters. With the river running through the city, the dam’s flood gates were opened allowing 1,900 cubic meters of water per second to flow downstream in order to prevent catastrophic dam collapse. Local authorities suggested this could have affected up to 2,000 homes in Townsville. More heavy rain is still forecast for the next few days and while the rainfall rate has eased the event is not over yet.
Around 98 percent of residential homes in New Zealand have earthquake insurance. This remarkable achievement is due to a unique partnership between the New Zealand government Earthquake Commission (EQC) working together with the insurance industry. From its origins in 1945 as the Earthquake and War Damage Commission – renamed as the EQC in 1993, the Commission is supported by an Act of Parliament which sees the Crown as the insurer of first resort for earthquakes in New Zealand. The EQC provides the first layer of coverage for 1.84 million residential properties across the country, with the private market delivering cover over this initial layer.
The EQC administers the New Zealand Natural Disaster Fund (NDF) which receives monies directly passed on by private insurers, from a flat rate levy imposed on all households who purchase a homeowner insurance policy. The EQC is also responsible for investing the fund and ensuring there is adequate reinsurance cover available.
The NDF has supported the country’s homeowners through a series of damaging events since the start of this decade, providing NZ$100,000 (US$67,332) of buildings and NZ$20,000 (US$13,466) of contents cover for each event. Before the Canterbury earthquakes in 2011-12, the NDF had NZ$6.4 billion (US$4.27 billion). By 2018, including payments for the Kaikoura earthquake in 2016, the NDF had just NZ$287 million (US$195 million) left and was perilously close to the NZ$200 million limit where the government is mandated to top up the fund.
This article was originally published in The Insurer, click here to access the original article.
Examples of data theft continue to stream through; no one brand seems immune from having to announce major losses of customer data records. Uber paid US$148 million to settle a legal action over a cyberattack in 2016 that exposed data from 57 million customers and drivers. Forbes reported that Yahoo agreed to pay a US$50 million settlement to roughly 200 million people affected by the email service’s 2013 data breach.
It is still the case that data theft is the leading source of loss for both insurers and reinsurers that cover cyber. The cyber insurance market is still in an early growth stage as the overall economic impact on the global economy from cyberattacks in 2017 was estimated at US$600 billion. Insured loss for standalone cyber policies was a fraction of this, at around US$1 billion to US$1.5 billion. But with cyber risk continually evolving, insurers may have to contend with a new, growing source of loss as cyber attackers are turning to ransomware, as it offers a potentially easier and more lucrative attack method.
Ransomware sees malware infiltrated into the networks of a company and disables servers or locks up data until a ransom is paid. This contagious malware, of which WannaCry and NotPetya are probably the most renowned examples, can even plague companies with high standards of security, and has the ability to scale and to cause systemic loss to thousands of companies. Attackers have also stolen data from a company, and then attempt to extort a ransom from the victim company in return for the data.
Overall, the number of ransomware attacks are increasing each year, and for cyber attackers there is the easy availability of ransomware to buy on the dark web. As outlined in our recent RMS Cyber Risk Outlook Report, estimates of ransomware extorted in 2017 exceed five billion dollars, a 15-fold increase over the previous two years.
The World Economic Forum (WEF) Global Risk Report was released a week ago, in time to generate discussion and provoke debate at the WEF Annual Meeting in Davos.
Among the headlines of the Global Risk Report, as in every annual update, there are two lists of the top five risks for 2019, according to their expected Likelihood and Impact. These lists are based on the WEF Global Risks Perception Survey conducted four months ago, with around a thousand responses from the WEF’s multi-stakeholder communities, professional networks of its Advisory Board, and members of the Institute of Risk Management.
There is a sense about these top five lists, that they are reactive – reflecting what has recently happened, more than being an effective and objective analysis of risk. We know that the most dangerous events are precisely those which one has not recently witnessed and that arrive as something of a surprise.
In my recent article in Reactions entitled Why Long-term NFIP Reform is a Must, I looked back at the flood events of 2018 through the lens of the need to reform the National Flood Insurance Program (NFIP). I made the argument that the NFIP is not effectively covering communities at risk or supporting the development of a private market that support that same goal.
Looking at Hurricane Florence, its impacts exemplify the type of event from which our communities need to recover from by leveraging the NFIP and a more robust private market. Both North Carolina and South Carolina each broke records for the amount of rainfall caused by a tropical cyclone. While the flooding due to storm surge was significant in areas such as New Bern, the majority of the flood damage was driven by that record rainfall in the inland areas.
The areas most impacted had the lowest take-up rates for flood insurance – the take-up rate for NFIP policies is less than two percent in the inland counties of North Carolina and South Carolina, while take-up rates in most coastal counties generally range from 10 to 25 percent. As a result, RMS analysis found that Florence caused US$3 billion to US$6 billion in uninsured losses, or about 4-5 times the losses expected to be incurred by the NFIP.
It is now exactly a quarter of a century, on January 17, 1994, since the last significant U.S. earthquake disaster. A previously unknown blind thrust ruptured beneath Northridge, in the San Fernando Valley north of Los Angeles. Casualties were fortunately modest (57 deaths) because the Mw6.7 shock happened at 4.30 a.m. local time, but the damage was significant – estimated as at least US$30 billion in 1994 prices, as the fault lay directly underneath the city.
Sooner or later California will experience another Mw6.7-7.5 earthquake disaster, in the highly populated San Francisco Bay Area or under sprawling greater Los Angeles. Year-on-year, while the probability rises, the proportion of the affected population with any previous disaster experience dwindles. When it happens, in all senses of the word – it will be a great shock.
One prediction is inevitable: after the next big Bay Area or LA earthquake, there will be large numbers of uninsured homeowners, landlords and small business owners looking for compensation. Given the high deductible and low take-up rates for earthquake insurance, as much as 90 percent of the residential losses will not be covered by insurance payouts: a far higher percentage than in 1994.
And the question is then, will the Federal Government response match that which followed Hurricane Maria, or can we expect it to be more like the aftermath of Hurricane Katrina. Or to put it another way: will California be “Puerto Rico” or “New Orleans”?