Nat Cat challenges – the German insurers’ solutions

Frank Thyrolf, German Insurance Association GDV

22 June 2015, Munich

German Nat Cat news (as of last week) first!

Brief introduction to the P & C insurance market and GDV´s work

The German voluntary private Nat Cat insurance system

Activities to raise awareness for natural hazards and prevention

Conclusion

Nat Cat challenges – the German insurers’ solutions

Agenda

2

A never ending discussion on a compulsory scheme?

August 2002 August 2010

In June 2013, insurerssettled 140,000 floodclaims for a total of 1.8 billion €. In 2013 as a whole, they paidout 7 billions € for Nat Cat claims.

Conference of German States´Ministers of Justice, 18 June 2015:

No need for a compulsory insurance scheme for natural risks in

Germany!

The better way would be,

– to encourage the public to purchase insurance on a voluntary basis: Density

is currently at just about 40 %, but practically all buildings are insurable!

– It is necessary to make the public more sensible of the danger posed by

natural hazards

– to start a nationwide federal educational campaign (besides to similar

activities existing in a small number of states)

– To start a federal public GIS Internet portal (besides to similar activities of

some states) in which Germans can obtain information about their individual

risk potential, as well as preventive measures and insurance options

Similar recommendations have already been made by the conferences

of Environmental and Finance Minsters!

Hopefully, the discussion comes to the end now…

German Nat Cat news (as of last week) first!

4

GDV Nat Cat Press release

18 June 2015

”Insurance coverage alone does not prevent disasters. Mandatory insurance can therefore only be the last resort. The best protection that people can get is prevention together with insurance.“

Dr. Alexander Erdland, President of GDV

Brief introduction to the P & C insurance market

and GDV´s work

6

Positions,

Shaping opinion,

Services

About us – GDV´s tasks and functions

7

23/06/2015

Source: gdv.de

Members

Politics and

government

Public

533,000people work in the

insurance sector

427 millioninsurance contracts

and risks

1,450 billion €Investments

460Member companies

Identifying themes and interests

of primary insurers and reinsurers in

Germany

Status: 29/04/2015

Status: 13/03/2015

The largest European insurance markets

Share in European insurance premium income, 2013

8

23/06/2015

* Health insurance and Property & Casualty insurance

Source: Insurance Europe

1 UK 25.8%

2 France 17.8%

3 Germany 13.6%

4 Italy 12.8%

5 Switzerland 4.0%

6 Spain 3.9%

7 Sweden 3.4%

8 Netherlands 2.7%

9 Finland 2.7%

10 Denmark 2.5%

1 Germany 21.4%

2 France 15.4%

3 UK 14.3%

4 Netherlands 12.7%

5 Italy 7.5%

6 Spain 6.5%

7 Switzerland 4.7%

8 Belgium 2.5%

9 Austria 2.2%

10 Turkey 1.6%

Life Non-Life*

Status: 02/04//2015

Number of insurance companies in GDV: 460

By business line

9

23/06/2015

* spun-off, group-affiliated companies and service providers (e.g. asset management, distribution and assistance

companies)

** includes branch offices of foreign insurance companies

Source: GDV

Property and Casualty insurers229

Life insurers**108Pensionskassen

27

Health insurers38

Reinsurers26

Pension funds14

Other*18

Status: 10/2014

GDV's committee structure

10

23/06/2015

Source: gdv.de

General Assembly

Presidential Board

Steering committee on

Life insurance/pension

funds

Steering committee on

Property & Casualty

insurance

Mathematics and statistics Private customers

Tax issues in Life

insurance/pension funds

Commercial and industrial

customers

Social policy Motor insurance

Medico-Acturial-Science /

risk and benefit assessment

Executive Committee

Central Committees

Business

administration and IT

Mutual insurance

associationsRisk management

Finance and risk

managementBudget and auditing Taxes

Legal affairsCentral and Eastern

EuropeCommunications

Distribution Investments

Economics Accounting

Status: 13/03/2014

Premium income, 2014

By line, in EUR billions

11

23/06/2015

Sources: GDV, PHI Association

93.7

62.5

36.2

Life insurance

48.7%

Private

health

insurance

18.8%

192.3billion EUR

Primary insurers overall:

As a percentage of gross premiums written, 2013

Market shares of the 10 largest German P & C insurers

04/06/2015

12

Group market share

1. Allianz 14.9 %

2. R + V / Kravag 7.3 %

3. HUK-COBURG 6.3 %

4. AXA 5.8 %

5. Generali 5.5 %

6. Talanx 5.0 %

7. ERGO 4.8 %

8. Zurich 3.7 %

9. VKB 3.2 %

10. LVM 3.0 %

Total 59.6 %

23/06/2015

Property & Casualty insurance: premium income

By line, 2014, in EUR billions*

62.5billion EUR

Overall premiums: Total motor24.3

General liability

7.4

Accident insurance

6.4

Legal expenses

3.5

Marine1.7

Credit insurance

1.6

Source: GDV

Status: 13/03//2015

13

* 2014: Preliminary result (status 26/02/2015)

Property insurance

17.3

40.4

41.0

44.0

39.9

39.4 39.639.9

42.0 41.9 41.9

43.343.8

44.2

49.7

45.9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

23/06/2015 Status: 13/03/2015

Property & casualty insurance: benefits

Paid out, in EUR billions

Premium income in 2014: 62.5 billion (up 3.2%)

-7.6 %

flood

Source: GDV

14

* 2014: Preliminary result (status 26/02/2015)

*

flood + hail

incl. run-off results, without investment income, in EUR billions

Property & casualty insurance: Underwriting results

* Preliminary result (status 26/02/2015)

-1.06

0.05

-2.11

3.81

4.78 4.884.52

2.06

2.702.33

0.95 1.121.60

-2.05

3.0

-4

-2

0

2

4

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

04/06/2015

15

700

German Nat Cat Losses 2013 (insured)

Loss Property Claims in Million EUR

Flood 05-06/2013

Hailstorm 07-08/2013

Autumn Storms 2013

1.800

3.000

5.5bn. EURProperty

For Comparison:

Storm Kyrill 2007

Hurricane Lothar 1999

2.060

800

Total

„Munich Hailstorm“ 1984 900

Flood 2002 1.800

+ 1.5 bn. EUR Motor

=7 bn. EUR

The 2013 flood event

Market penetration was approx. 35 %

But, history repeating: election year…

Again large scale subsidies for those

uncovered – nobody asked “Why

uncovered?”

Intense debate about flood protection,

prevention and the lessons learned

Knee-jerk reaction by many politicians:

We need a compulsory Nat Cat

insurance!

But for this time, the debate took

another road: Politicians finally

realized, that the insurance industry

is actually able to cover nearly all

Nat Cat risks (> 99 %)

If market penetration is 35 % and 99 %

are insurable, then approx. 2/3 of the

households neglected to buy cover…

Strengths and weaknesses

The 2002 flood event

At that time, overall natcat market

penetration was approx. 19 %

Soon after the 2002 event occurred,

the government declared, that

everybody will get public subsidies,

who suffered a loss

The government paid out substantial

subsidies to every citizen affected

The insured realized, that they could

have saved their Nat Cat premiums

“Why did I buy cover in the first place?

It doesn´t make sense to by…”

Furthermore, the insured had to offset

their claims payments against any

form of subsidies

Debate about compulsory Nat Cat

insurance ended in 2004 without

results.

The German voluntary

private Nat Cat insurance system

18

Private Insurance industry

Private based structure of German Nat Cat insurance

Policyholder

DemandSupply

Pre

miu

m

Government* Claim

s adju

stmen

t

At present,not

involved**

*The 16 German Bundesländer(federal states) are responsible for flood prevention measures like levees, embankments, retention areas.

**German Federal Government is not involved in any kind of risk transfer mechanism, financial backstop etc. but federal states are partners in the Nat Cat campaigns to rise risk awareness and market penetration.

German Nat Cat insurance covers

Windstorm & Hailstorm are part of the standard cover for

buildings / households

Beyond that, the NatCat Special Terms and Conditions of the

private insurance industry provide voluntary cover in a

package of the following risks (“opt-out” or “opt-in”)

Flooding (including torrential rain and sewer backwater)

Earthquakes, subsidence, landslides

Snow pressure, avalanches

Volcanic eruptions

Nat Cat package cover

Functionality of German

Nat Cat insurance system

Insurance is voluntary.

The scope covers approx. 99 % of inhabited areas;

however, due to the general public’s lack of awareness

of risk, demand is modest, but steadily rising

Approx. 40 % market penetration in 2015, uneven distributed

(high: federal states with former insurance monopoly*; low: other areas)

There are no standard premium rates or deductibles; insurers must

calculate them using statistical data and management ratios. Risk

based pricing.

Because each risk has to be assessed on a case-by-case basis using

statistical data, the zoning system ZÜRS Geo has become an important

element of catastrophe insurance in Germany.

*newly-formed German states until 1990; Baden-Wurttemberg until 1994

Zoning System for floods, sewer backwater and

torrential rain

ZÜRS Geo: (Z)onierungssystem für (Ü)berschwemmung, (R)ückstau,

(S)tarkregen

ZÜRS Geo provides an online risk assessment tool for the insurance

industry which helps it to assess flood risk and offer a risk-related

premium.

At the heart of the ZÜRS Geo system is a geo-database which uses

address information (road network, house number data etc.) to show the

risk of flooding for any requested area.

ZÜRS Geo is used as a technical basis for automated zoning systems for

other lines of business (e.g. environmental liability) and as a viewer for

externel web based services (WMS, WFS etc.) provided by the German

authorities.

Zone division in ZÜRS Geo

GK 4, highest threat:Statistically, flooded atleast once every 10 years

GK 3, medium threat:Statistically, flooded at leastonce every 10-50 years

GK 2, low threat:Statistically, flooded at leastonce every 50-200 years

GK 1, very low threat:Statistically, flooded lessfrequent than once every 200 years

Limits of ZÜRS / Handling of high risk properties

Only approx. 1 % of all of the buildings are located in zone “GK 4” with

the highest threat of flood. In this case a further onsite risk assessment

is needed.

While GK 4 represents a flood return period from 1 to 10 years ( predictable

loss to random loss), many “random loss risks” in GK 4 are only insurable after

an individual risk assessment and basic loss prevention measures.

Further analysis shows, that only 0.3 % of buildings remain uninsurable, which

need much more extensive prevention measures to lower the risk (“predictable

loss risks”).

Without more extensive prevention measures, the risk based premium of

these highest risks buildings would be uneconomically high for the insured.

Annual Updates of ZÜRS Geo scheme

In Germany, only GDV is running and providing such a „solution“.

Therefore, only GDV is collecting and analysing the data of the regional

„Water Boards“ of all of the 16 German federal states and implementing it in

the ZÜRS Geo online system permanently. There is no one other authority

doing this and having “the whole picture”.

Yearly updates for the users, latest update of June 2015:

New detailed information from the „Water Boards“ (EU flood management directive)

New data of flood plains

New postal adresses

Moves between ZÜRS Geo risk zones from 2014 to 2015: 96.6 % still in the same

risk zone. 2.6% in a lower risk zone; 0.8% in a higher risk zone

ZÜRS Geo Update June 2015

Share of the ZÜRS Geo zones (percentage of all of the buildings)

ZÜRS Geo Update June 2015

Before and after implementing new data from the “Water Boards”:

Annual Guidelines

for „ZÜRS Geo“ users

Detailed additional information and

analysis about

New dike lines

New zones of creeks

Digital Terrain Models

Points and areas of insurers´interest (chemical plants, patrol

stations, natural reserves …)

aerial photographs

external links to the EU Flood

Risk Management Directive

GDV is doing in-depth research on climate change

Main question: How climate change will shape German insurers´ losses

in the next 30 – 50 years?

Scientific cooperation was established with the leading German climate

researchers like Potsdam Insitute for Climate Impact Research PIK and

universities of Cologne and Berlin

First results were published in May 2011:

A major storm as we measure at around 50 years will most likely have a

return period of only 10 years in the second half of this century. This extreme

storm will account for about 7 to 8 billion EUR per storm. (By comparison:

storm „Kyrill“ in 2007 accounted for 2.4 billion Eur only.)

Losses due to flooding will most likely double by the end of the century,

depending on the scenario even triple. Flood events with a return period of

nowadays 50 years will most likely occur every 25 years in the second half of

the century.

Annual Nat Cat reports, published by GDV

Naturgefahrenreport:

Größter Einzelschaden an EFH: 251.000 EUR

Größter Einzelschaden an EFH: 400.000 EUR

Activities and public private initiatives to raise

awareness for natural hazards and prevention

(examples)

- Public GIS portals with Nat Cat information

- Flood Resilience Certificate

- Guidelines for protection concepts

31

since 2012

starting with Berlin,

Niedersachsen, Sachsen

und Sachsen-Anhalt

5 natural hazards (in coope-

ration with the „Water Boards“

proof of concept for a

nationwide portal

(as proposed now!)

besides of educational

campaigns of the states

Public GIS portals with Nat Cat information

in cooperation with German insurers (ZÜRS Geo)

32

30.12.2014

http://www.kompass-naturgefahren.de

Flood Resilience Certificate (FRC) –

„Hochwasserpass“

Composition and components Web-based questionnaire for self-assessment to raise awareness

about the potential hazards, e. g. through the knowledge of one's own

hazards and how to limit it

Knowledge transfer through texts and pictures, standardized checklists

Result of the evaluation: Short report with recommendations, free of charge,

if needed, as a basis for proposals of protective measures to

significantly improve the hazard situation;

if needed, upgradable with additional experts´advice;

if needed, as a basis for the evaluation of technical conditions of

insurability, which is decided by each insurer in each case on its

own loss experiences according to the antitrust regulations.

Flood Resilience Certificate (FRC) –

„Hochwasserpass“

Design of the site: Home

Are your properties at risk

from flooding?

Way to FRC

What do I need to know?

Questionnaire

Find experts

FAQ

Flood Resilience Certificate (FRC) –„Hochwasserpass“

Flood Resilience Certificate (FRC) –„Hochwasserpass“

GDV´s prevention work on natural hazards:

Guidelines for protection concepts

Basic structure:

Responsibility

Responsibilities of the owner or others in

accordance with legal requirements

Risk potential

Claims experiences and risk assessment

Protection concepts and protection measures

Before, during and after a flood

Examples

Emergency plan

Who does what, when, where and how?

37

GDV Guidelines

for protection concepts

Risks

Flooding

Storm, lightning

Snow, frost

Hail

Fire, explosion

Burglary

Renevable

Energies…

38

Public campaigns are helpful: Market penetration

steps up in Germany

In 2002 approx. 3 m buildings had NatCat cover.

10 year later the insurance industry has added 2,5 m buildings. Market penetration rose by 83 %.

In total 5,7 m buildings are covered now. That is a market penetration of 35 %.

Before the NatCat campaigns

After the NatCat campaigns

Public campaigns are helpful: market penetration

is steadily rising

44 %

17 %22 %

24 %

29 %

40 %

23 %

42 %

16 %

13 %

22 %

33 %

21 %

14 %

95 %

Data: 2013 to 2014

+ 1 %

+ 3 %

+ 1 %

+ 2 %

+ 2 %

+ 2 %

+ 2 %

+ 2 %

+ 3 %

+ 2 %

+ 2 %

+ 2 %

+ 2 %

+ 2 %

+/- 0 %

15 %+ 2 %

Conclusions

41

Key elements of the German Nat Cat insurance

solution in a nutshell Free market risk based building insurance with online risk

assessment tool “ZÜRS Geo” – government is not involved

Policyholder might “opt-out” the Nat Cat insurance

Government / federal states are responsible for large scale flood

protection (e.g. levees, embankments, retention areas)

Federal campaigns to increase awareness for natural hazards and Nat

Cat insurance

Involved parties i. a. consumer protection, insurance industry

Public graphical information system on natural hazards in some

federal countries

ZÜRS public with data from the public water boards and the insurance industry

Encouragement of sustainable loss prevention with the introduction

of a Flood Resilience Certificate (“Hochwasserpass”)

Private initiative, structured “walk around the house” with advice for individual

loss prevention measures and contact to professional engineers

Wilhelmstraße 43 / 43 G, D-10117 Berlin

Postfach 08 02 64, D-10002 Berlin

Tel.: +49 30 2020-5000

Fax: +49 30 2020-6000

www.gdv.de | @gdv_de

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B - 1000 Brüssel

Tel.: +32 2 28247-30

Fax: +32 2 28247-39