Quantifying Catastrophe Losses and Risk Exposures...

___________________________________________________________________________

2015/FMP/SEM1/010 Session: 5

Quantifying Catastrophe Losses and Risk Exposures: Proposed OECD Contribution to Cebu

Action Plan

Submitted by: OECD

Seminar on Disaster Risk Finance – APEC Roadmap for Resilient Economies

Bacolod, Philippines29-30 April 2015

Disaster Risk Finance—APEC Roadmap for Resilient Economies Bacolod City, Negros Occidental

29-30 April 2015

Page | 2

Quantifying Catastrophe Losses and Risk Exposures:

Proposed OECD Contribution to the Cebu Action Plan

Executive Summary

The OECD was invited to suggest a possible contribution to the Cebu Action Plan under the

action program for Enhancing Financial Resiliency. The following note provides further details

on a possible OECD contribution on quantifying catastrophe losses and risk exposures, including

the support that would be required from APEC member economies through the completion of a

questionnaire and, potentially, the development of relevant case studies.

Required Action/Decision Points It is proposed that Senior Finance Officials:

1. Approve the OECD proposal on “Quantifying Catastrophe Losses and Risk Exposures” as a

deliverable under the Cebu Action Plan.

2. Oversee the circulation and collection of a survey for APEC economies (once circulated) and,

where applicable, volunteer to support the development of case studies on approaches to

quantifying catastrophe losses and risk exposures based on their experience.


29-30 April 2015

Page | 3

Background

Recent years have seen a rise in the frequency and impact of disasters in a great number of

economies around the globe resulting in a broad range of direct and indirect impacts, including

loss of life and damage to public and private property and infrastructure as well as fiscal

impacts arising from recovery and reconstruction expenditures and decreased tax revenues. In

many economies, particularly low income economies, annual disaster losses account for a

significant and growing share of GDP. Economies in the APEC regions are particularly prone to

natural disasters, accounting for approximately 55% of significant events between 2005 and

2014.1

Source: Swiss Re sigma annual reports on natural catastrophes and man-made disasters, 2006-2014.

The development of effective strategies for the financial management of disaster risks is critical

for building resilient economies. The OECD has supported the development of strategies for the

financial management of natural and man-made disaster risks, including the elaboration of an

OECD Recommendation on Good Practices for Mitigating and Financing Catastrophic Risks. In

cooperation with other international organisations, the OECD has also developed the G20/OECD

Framework for Disaster Risk Assessment and Risk Financing for G20 Finance Ministers and

Central Bank Governors and a report on Disaster Risk Financing in APEC Economies: Practices

and Challenges for APEC Finance Ministers.

Quantification catastrophe losses and risk exposures provides the foundation for the

development of disaster risk financing strategies by providing the information that is necessary

for: (1) underwriting disaster insurance products; (2) effectively managing possible fiscal

1 Based on natural disaster events reported in Swiss Re sigma annual reports on natural catastrophes and man-

made disasters for 2005 to 2014 (available at:

http://www.swissre.com/rethinking/climate_and_natural_disaster_risk/).

http://www.swissre.com/rethinking/climate_and_natural_disaster_risk/


29-30 April 2015

Page | 4

exposures to disaster risks; and (3) identifying the most cost-effective approach to mitigating

disaster impacts.

Proposed OECD contribution to the Cebu Action Plan

With the support of APEC member economies and international organisations, the OECD could

prepare a report for APEC Finance Ministers outlining the types of information that are required

for the quantification of catastrophe losses and risk exposures, the availability of that

information across APEC economies and case studies on approaches to establishing the

necessary infrastructure and processes for collecting this information based on the experience

of selected APEC economies. If useful, and subject to the support of APEC economies, case

studies could also be prepared on the use of this information for the development of private

insurance markets, sovereign risk transfer mechanisms such as catastrophe bonds and regional

risk pools and/or cost-benefit analysis on different approaches to mitigating disaster risks.

The completion of this work would require input from APEC member economies through

responses to a questionnaire on existing practices and through offers of support for the

development of relevant case studies. The OECD circulated a questionnaire on this issue in 2011

(attached) which provides an illustration of the types of questions that may be included in the

questionnaire to support this work. A notional timeline for this work is presented below. The

support of other international organisations with experience/expertise in these areas would

also be welcome.

Action Deadline

Circulation of Survey May 4

Completed Responses from APEC Economies May 29

Circulation of draft report August 7

Comments on draft report August 14

Circulation of final report August 21

Fatal flaw comments August 28

Submission to Finance Ministers September 4


29-30 April 2015

Page | 5

Annex A: OECD Questionnaire on the quantification of catastrophe losses and exposures

(2011) (for illustrative purposes only)

QUANTIFYING CATASTROPHE LOSSES AND RISK EXPOSURES

The availability, accuracy and reliability of data and information on the economic and social

impacts of catastrophic (“CAT”) events play a fundamental role in the design and implementation of

efficient financial management strategies to cope with large-scale disaster risks.

Notwithstanding the existence of several long-standing, well-respected initiatives, there is a

general lack of international consensus regarding good practices for collecting, elaborating and

disseminating these data, especially with respect to the quantification of total economic losses which

encompass not only insured but also uninsured losses, and not only residential and business losses but

also government losses. Catastrophe loss quantification is characterised by variability in definitions,

methodologies, tools and sourcing, which reduces comparability.

Moreover, there appears to be scope for certain geographical areas, including Asia, to be better

represented in current initiatives. Also, a recent initiative, the Global Earthquake Model, has

demonstrated the scope for improved data on economic and social losses on, and exposures to,

earthquake risks2.

To improve the current situation, consideration could be given to promoting standardised

definitions and terminology, and more consistent data gathering and dissemination methodologies,

regarding:

a) Losses from past catastrophes, be they natural (e.g. floods, wind-related, earthquake, tsunami,

etc) or man-made (e.g. terrorism, technological accidents, etc).

b) Current exposure to potential catastrophe loss (residential, business and governmental

exposure).

While these are difficult tasks, the OECD could potentially play an important role in

promoting standardisation and/or harmonisation and enhanced data gathering.

The purpose of this questionnaire is to obtain information from OECD member and selected non-

member countries on their experiences and perspectives regarding the quantification of catastrophic

losses and risk exposures. The questionnaire seeks to assess the possible difficulties encountered by

countries in the quantification of catastrophe losses and risk exposures, identify relevant national

initiatives, and assess the priority attached by countries to the quantification of losses and risk

exposures. Questionnaire responses will provide a basis for determining the appropriate role (if any)

of the OECD in this area. Based on the level of interest, a special seminar could be organised to

discuss issues with relevant stakeholders.

2 See http://www.globalquakemodel.org.

http://www.globalquakemodel.org/


29-30 April 2015

Page | 6

The results of this questionnaire will be shared with the OECD’s Insurance and Private Pensions

Committee (IPPC) and its Task Force on Insurance Statistics at their forthcoming meetings in 2011.

The results will also be circulated to the OECD’s High-Level Advisory Board on the Financial

Management of Catastrophes. In addition, they will be shared with non-OECD countries participating

in the survey.

QUESTIONNAIRE ON QUANTIFICATION OF LOSSES AND RISK EXPOSURES LINKED TO

CATASTROPHES IN OECD AND SELECTED NON-OECD COUNTRIES

COUNTRY

ORGANISATION

CONTACT PERSON

(with e-mail address)

Please also indicate relevant contact

persons or organisations in your

country who might be interested in

participating in any seminar organised

on this topic. Please include e-mail

address(es).


29-30 April 2015

Page | 7

This questionnaire should be filled in by governmental authorities (government ministry or

supervisory authority). If the information/data provided are not from governmental source,

please indicate the source.

For the tables: Please mark with an “X” as appropriate in the last line of each table.

1. Disasters : extent of country exposure and definition

1.1. Would you consider your country to be prone to natural or man-made catastrophes? If yes,

please provide details (including nature of principal hazards).

Risk of natural catastrophe Risk of man-made catastrophe

High Medium Low High Medium Low

1.2. Is there a definition of natural or man-made “disaster” or “catastrophe” that is commonly used by

governmental bodies in your country (e.g. definition provided by national law / used to trigger

government spending, etc.)? The source of such definition can be a public or private institution.

Natural catastrophe Man-made catastrophe

Yes No Yes No

Please provide this(these) definition(s) if it(they) exist(s).

1.3. Is the government or any other official body responsible for declaring that an event is a disaster or

catastrophe?


Yes No Yes No

If so, what are the criteria (if any)? What is the purpose of such official declaration (e.g., trigger of

payments under insurance/compensation schemes, allocation/disbursement of public funds)?

2. Quantifying insured losses

2.1. Is data3 on insured losses linked to natural and man-made catastrophes in your country collected

and disseminated at a national (or sub-national) level?


Yes No Yes No

2.2. If yes, is this process undertaken by:

a) the private sector?

3 Including estimates.


29-30 April 2015

Page | 8


Yes No Yes No

b) the public sector?


Yes No Yes No

c) other data collector/provider(s) (e.g., NGOs)?


Yes No Yes No

Please provide details, including geographical scope of the exercise (national, regional, or

international), whether the exercise is voluntary or mandatory and its frequency.

2.3. If yes, please provide information on the definition / methodology for each identified exercise,

including:

a) How are “insured losses” linked to catastrophes defined:

How is the catastrophic event defined in this context (type of peril, quantitative

threshold for losses and linkage (if any) of that threshold with governmental

declaration/statutory definition or possible industry definition):

Insurance lines that are covered (property only versus life, liability, business

interruption, etc):

Whether it includes insured losses incurred by publicly backed insurance schemes:

Geographical scope of definition (losses incurred by direct insurers licensed to

undertake business in your country and subject to your country’s authority or also

losses incurred on your national territory even if covered by foreign direct insurers on

a cross-border basis):

b) If the exercise provides information on the split between insured losses retained by direct

insurers versus reinsurers:

c) How data on insured losses are collected, and frequency of this data

gathering/dissemination (including updates and revisions to loss figures):

d) Other methodological notes:

2.4. If yes, does your authority (government ministry or supervisory authority) regularly review this

information (e.g., as part of monitoring of insurance sector, development of approaches to overall

catastrophe risk management)?


Yes No Yes No


29-30 April 2015

Page | 9

If yes, please provide details (if any):

2.5. If yes, please identify, from your perspective, the benefits and costs related to this ongoing data

gathering/ dissemination:

2.6. If no to 2.1. above, how is such data obtained (or might be obtained)

a) ad hoc requests (please provide details on experiences with such requests)


Yes No Yes No

b) Reliance on regional and/or international data gathering exercises (please provide details,

including nature of the exercise(s), geographical scope, experiences (if any) with respect to

accuracy and reliability):


Yes No Yes No

2.7. Please rate the difficulty you would have in providing the aggregate amount of insured losses

linked to natural and man-made catastrophes in your country for a given year. If the answer is low,

please provide this data for each of the last five years (2006 to 2010) and indicate the data source.


Yes No Yes No


29-30 April 2015

Page | 10

3. Quantifying uninsured economic losses

3.1. Is data on uninsured economic losses linked to natural and man-made catastrophes collected and

disseminated at a national (or sub-national) level?


Yes No Yes No

3.2. If yes, what is the definition of uninsured economic losses used for this purpose?

Please provide details on the scope of the definition, and whether it encompasses:

a) All uninsured loss to private and public property/assets/infrastructure

b) All resources (money, time, machinery) spent on post event clean-up and restoration

(private and public, including emergency crews, army equipment and troups, temporary

housing, emergency aid by private and international institutions, etc.)

c) Loss of production and service delivery due to destroyed assets (direct and indirect effects

like unavailability of power and transportation or work force, etc).

3.3. Please provide any other details regarding data collection of uninsured economic losses (e.g., data

sources at private, federal, state or municipality level, etc).

4. Quantifying government spending

Is data available on government spending incurred to cover uninsured

economic losses (e.g., emergency response costs, temporary housing, payments to households for

physical damage, reconstruction, including public assets and infrastructure) related to natural and

man-made catastrophes?


Yes No Yes No

If yes, please provide details, explaining how such data is collected (e.g. through national catastrophe

insurance programs if they exist) and stored, and indicating whether and how it is made publicly

available:

5. Quantifying disaster loss

5.1. Please rate the extent to which you consider disaster loss quantification to be an important issue

for your country:


29-30 April 2015

Page | 11



5.2. Please provide rationale for rating (if possible):

5.3. If medium or high, please provide information on your specific priorities or needs (if any):

6. Quantifying insured exposures

6.1. Is data on insured exposures to natural and man-made catastrophes in your country collected or

disseminated at a national (or sub-national), regional, or international level?


Yes No Yes No

If yes, please provide details (including nature of the exercise, geographical scope, definitions used,

whether exercise is voluntary or mandatory (e.g., for prudential supervision), frequency, whether data

is easily accessible, examples of data and their source):

6.2. Please rate the extent to which you consider insured risk quantification to be an important issue

for your country:



Please provide rationale for rating (if possible). If medium or high, please provide information on

your specific priorities or needs (if any):


29-30 April 2015

Page | 12

7. Work in progress and future work on the quantification of disaster risk and losses

7.1. Are you aware of any work-in-progress concerning improvements being made to data

gathering/dissemination exercises regarding insured losses or risk exposures, at a domestic, regional,

or international level, be it by private or public stakeholders?


Yes No Yes No

If yes, please provide details:

7.2. Please provide any further information or any views on potential work by the OECD in this area:

Quantifying Catastrophe Losses and Risk Exposures...

Documents

Transcript of Quantifying Catastrophe Losses and Risk Exposures...