Adaptation to climate change in the insurance sector: examples from the UK,Germany and the Netherlands

Adaptation to climate change, particularly flood risks, may come to pose large challenges in the future and will require cooperation among a range of stakeholders. However, there presently exists little research especially on the integration of the private sector in adaptation. In particular, recently developed state programs for adaptation have so far been focused on the public sector. Insurance providers may have much to contribute as they offer other parts of society services to appropriately identify, assess and reduce the financial impacts of climate change-induced risks. This study aims to explore how the institutional distribution of responsibility for flood risk is being renegotiated within the UK, Germany and Netherlands. Examining how the insurance industry and the public sector can coordinate their actions to promote climate change adaptation, the study discusses how layered natural hazard insurance systems may result from attempts to deal with increasing risks due to increasing incidences of extreme events and climate change. It illustrates that concerns over the risks from extreme natural events have prompted re-assessments of the current systems, with insurance requiring long-term legislative frameworks that defines the objectives and responsibilities of insurers and the different political authorities.     

Investigation of insured earthquake damage

The assessment of the loss potential caused by natural perils is a very important task for all insurance companies working in hazard-prone markets. It has to be based on two crucial items: the frequency of events and the investigation of their effects on the insured portfolio.This article deals with the second aspect, i.e. an evaluation of the insured damage caused by two earthquakes, namely those occurring near Albstadt, Germany, on 3 September 1978, and in central Chile on 3 March 1985. The results of the analysis of the earthquake in central Chile enable the mean damage ratio (damage in relation to the value) to be related to the height and the type of construction of the buildings affected. The Albstadt earthquake data permit an illustration of the effects of the type of subsoil on the mean damage ratio. The damage to individual buildings can be described by a lognormal distribution. Possible applications of these results are mentioned.     

Investigation of insured earthquake damage

The assessment of the loss potential caused by natural perils is a very important task for all insurance companies working in hazard-prone markets. It has to be based on two crucial items: the frequency of events and the investigation of their effects on the insured portfolio. This article deals with the second aspect, i.e. an evaluation of the insured damage caused by two earthquakes, namely those occurring near Albstadt, Germany, on 3 September 1978, and in central Chile on 3 March 1985. The results of the analysis of the earthquake in central Chile enable the mean damage ratio (damage in relation to the value) to be related to the height and the type of construction of the buildings affected. The Albstadt earthquake data permit an illustration of the effects of the type of subsoil on the mean damage ratio. The damage to individual buildings can be described by a lognormal distribution. Possible applications of these results are mentioned.     

US billion-dollar weather and climate disasters: data sources, trends, accuracy and biases

This paper focuses on the US Billion-dollar Weather/Climate Disaster report by the National Oceanic and Atmospheric Administration’s National Climatic Data Center. The current methodology for the production of this loss dataset is described, highlighting its strengths and limitations including sources of uncertainty and bias. The Insurance Services Office/Property Claims Service, the US Federal Emergency Management Agency’s National Flood Insurance Program and the US Department of Agriculture’s crop insurance program are key sources of quantified disaster loss data, among others. The methodology uses a factor approach to convert from insured losses to total direct losses, one potential limitation. An increasing trend in annual aggregate losses is shown to be primarily attributable to a statistically significant increasing trend of about 5 % per year in the frequency of billion-dollar disasters. So the question arises of how such trend estimates are affected by uncertainties and biases in the billion-dollar disaster data. The net effect of all biases appears to be an underestimation of average loss. In particular, it is shown that the factor approach can result in a considerable underestimation of average loss of roughly 10–15 %. Because this bias is systematic, any trends in losses from tropical cyclones appear to be robust to variations in insurance participation rates. Any attribution of the marked increasing trends in crop losses is complicated by a major expansion of the federally subsidized crop insurance program, as a consequence encompassing more marginal land. Recommendations concerning how the current methodology can be improved to increase the quality of the billion-dollar disaster dataset include refining the factor approach to more realistically take into account spatial and temporal variations in insurance participation rates.     

Default risk-based probabilistic decision model for risk management and control

This study describes how risk-based risk control allocation models work. We begin by discussing the economic rationale for allocating risk control in a diversified organization such as an enterprise. For a probability model for risk control decision making under uncertainty and risk, we propose a model involving stochastic total loss amount constraints with respect to various tolerable default levels. Our main objective is to develop a method that will allow shaping of the risk associated with risk control outcomes. The direct and indirect losses caused by simulated disasters can be estimated using an engineering and financial analysis model. Based on this model, we can generate an exceeding probability curve and then calculate how much of the loss can be eliminated or transferred to other entities should funds be allocated to risk control. The optimal natural disaster risk control arrangement with a probabilistic formulation is explained in this paper. Results from the proposed formulations are compared in case studies. The model attempts to apply risk-based budget guidelines to risk reduction measurement within a portfolio-based risk framework.     

Design and implementation of a voluntary collective earthquake insurance policy to cover low-income homeowners in a developing country

Understanding and evaluating disaster risk due to natural hazard events such as earthquakes creates powerful incentives for countries to develop planning options and tools to reduce potential damages. The use of models for earthquake risk evaluation allows obtaining outputs such as the loss exceedance curve, the expected annual loss and the probable maximum loss, which are probabilistic metrics useful for risk analyses, for designing strategies for risk reduction and mitigation, for emergency response strategies and for risk financing. This article presents, based on probabilistic risk models, the design and implementation of a risk transfer instrument to cover the private buildings of the city of Manizales, Colombia. This voluntary collective instrument provides financial protection to both, the estate tax payers and the low-income homeowners through a cross-subsidy strategy; besides, it promotes not only the insurance culture but also the solidarity of the community. The city administration and the insurance industry are promoting this program using the mechanism of the property tax payment. This collective insurance helps the government to access key resources for low-income householders recovery and improve disaster risk management at local level.     

Earthquake risk assessment and optimal risk management strategies for Hi-Tech Fabs in Taiwan

In this paper, we build an event-based seismic hazard assessment and financial analysis model for Hi-Tech Fabs in Taiwan. As we know, the low occurrence rate, tremendous loss and high uncertainty are characteristics of earthquake disasters. To handle the above issues, the model integrates knowledge from many fields including earth science, seismology, geology, risk management, structural engineering, the insurance profession, financial engineering and facility management. The portfolio of data from the site survey indicates that the model can be used to calculate the event losses (including buildings, contents and business interruption losses); furthermore the average annual loss and loss exceeding probabilities also can be calculated. The total earthquake risk cost, which includes earthquake insurance premiums, average annual retained loss and equivalent annual retrofit cost, is defined as an indicator for selection of optimal risk management strategies.     

Coasts: the high-risk areas of the world

No other region is more threatened by natural perils than coasts. Fierce winds, storm surges, large waves and tsunamis expend their destructive energy when they reach the coastline. Constituting, in many cases, the boundary between continental plates, coasts experience earthquakes and volcanic eruptions more frequently. The changing climate poses the threat of sea level rise. Most global trade crosses the oceans; ports are the entry and exit points of a nation’s trade. As a consequence, coasts attract people, businesses and industries. Some coastal regions rank among the top places in the world in terms of population and value accumulation. Enormous catastrophe loss potentials have been created and are increasing. Risk is the result of a natural hazard, the values at risk and their vulnerability. Living with and reducing the risk requires awareness at all levels of society and partnership between the public authorities, the people and enterprises concerned, and the financial sector. Great natural events are not avoidable, great disasters are. Catastrophes are not only products of chance but also the outcome of the interaction between political, financial, social, technical and natural circumstances. Effective safeguards are both achievable and indispensable, but they will never provide complete protection. In order to manage the risks faced by a society, we have to be aware of that.     

Natural disasters as the end of the insurance industry? Scalar competitive strategies, Alternative Risk Transfers, and the economic crisis

The aftermath of Hurricane Katrina has piqued interest in the insurance industry, and this scrutiny has led to assumptions that the industry has become unstable and unprofitable with the increased incidence of disasters in highly-insured regions of the world. This paper challenges that assumption by arguing that the insurance industry has responded by spreading risk through scaled and networked recovery schemes. We found that because of competitive strategies of risk-spreading and displacement arrangements, the industry has actually profited as a whole. Regional insurance companies have always relied on the higher financial scales of the reinsurance industry in Munich, Zurich, and London. But with claims reaching into the billions of dollars, the reinsurance industry itself has raised premiums, spread risk farther afield, and jumped scale by spreading risk to futures markets called Alternative Risk Transfers (ARTs). However, the recession beginning in 2008 has called into question the viability of using futures markets as insurance. It is shown through a media analysis of four major business publications (The Economist, The New York Times, The Financial Times and The Wall Street Journal) how the industry responded to the costs of the 2004, 2005, and 2006 hurricane seasons. Because geography is rather new to this literature, this paper also offers a broad review of the insurance industry.     

Insurance as catastrophe: A geography of house and contents insurance in bushfire-prone places

Insurance is increasingly identified as the disaster management technique of choice; a benign tool that can be utilised to reduce the impacts of disaster and aid recovery. For householders in disaster-prone places, individual rational agency is assumed to inform decision-making surrounding house and contents insurance purchase. In this paper, we present findings from interviews with householders in places with high bushfire risk that significantly unsettle such accounts. Drawing upon four identified themes – trade-offs, networks, virtue and promise – we observe that for these householders, the uncertainty and anxiety created through a lack of transparency on behalf of insurers, the construction of insurance as an individual endeavour, and the rendering of household materiality as object, renders insurance catastrophic. Attempts at calculation for insurance coverage are momentary rather than monetary; as constituting an entanglement of insurantial moments constructed within conflicting emotions, morality and the familial, rather than fiscal accountancy. For our participants this provides a stronger logic for choosing not to have insurance than for having insurance. We conclude with signposts for further research, including advancing the theorisation of insurance in the context of the everyday.     

我国自然灾害评估中亟待解决的问题

减轻自然灾害是一项系统工程，它包括对自然灾害的监测、预报、评估、防灾、抗灾、救灾、恢复、教育、保险与综合管理。通过对我国自然灾害评估现状的分析，介绍了目前我国国家级、省级和城市级自然灾害评估中亟待解决的若干问题，认为由国家、地方、主管部门组织开展全国自然灾害区划、加强自然灾害综合预报、建立自然灾害与灾情预评估、灾害应急评估与灾情评定、灾害应急救助与救援管理系统、积极开展灾害保险与灾区恢复、灾害教育与宣传、实现科学化、现代化灾害管理、实现灾害信息共享、开展减灾效益评估及建立综合减灾系统等是我国目前自然灾害评估中亟待解决的问题。     

Legal aspects of sinkhole development and flooding in karst terranes: 1. Review and synthesis

Structures built within the area of influence of a sinkhole can be affected by collapse, subsidence, or flooding. Unanticipated property losses may be involved, and litigation commonly ensues. Insurance compensation for damages that result from sinkhole collapse or subsidence in a karst terrane are covered by statute only in Florida and by voluntary agreement of companies operating in Tennessee Liability or insurance compensation for damages resulting from sinkhole flooding is not specifically covered by any state or federal statute. Regulations of the National Flood Insurance Program have been interpreted to allow coverage by this program for homes affected by sinkhole flooding in Bowling Green, Kentucky In the present article, case law, legal concepts of groundwater and surface water, liability, and law review articles relevant to sinkhole litigation are summarized The rationales of plaintiffs and defendants are reviewed Liability for damages have been based on allegations of negligence, breach of various water law doctrines, trespass, nuisance, loss of support, breach of contract, and implied warranty of habitability Defenses against these allegations have been based on the merits of each of them and oncaveat emptor Several alternative rationales for claiming liability for losses incurred because of sinkhole development or flooding are proposed and discussed. The little-knownHenderson v Wade Sand and Gravel is highly recommended as an alternative leading case that clearly and justifiably gives protection to adjacent landowners, and ties liability for damages caused by groundwater pumpage to nuisance law and related interference with property rights. Several little-known litigated cases of sinkhole development in response to groundwater pumpage will be summarized in a second article at a later date. Concepts of liability are evolving It can be expected that the professional geologist or engineer will have an increasing number of claims made against him or her which allege responsibility for sinkhole-related damages. Such damages can often be prevented by creative zoning, sound engineering, and better husbandry of land.     

Estimation of industrial and commercial asset values for hazard risk assessment

For risk analyses not only knowledge about the impact of different types of hazards, but also information about the elements and values at risk is necessary. This article introduces a methodology for a countrywide estimation of asset values for commercial and industrial properties using Germany as an example. It consists of a financial appraisal of asset values on the municipal level and a further disaggregation by means of land use data. Novelties are the distinction of 60 economic activities, the consideration of production site sizes and the application of a dasymetric mapping technique for a sector-specific estimation and disaggregation of asset values. A validation with empirical data confirms the feasibility of the calculation. The resulting maps can be used for loss estimations e.g. in the framework of cost–benefit analyses that aim to evaluate hazard mitigation measures or for portfolio analyses by banks and insurance companies. The approach can be used for other countries if the necessary data is available (mainly in industrialized countries). In any case, it reveals the critical points when estimating commercial and industrial asset values.     

Risk and uncertainty analysis in the planning stages of a risk decision-making process

Natural disaster risk, a long-time concern in the insurance industry, is increasingly recognized as a present danger in the business strategies of risk control and enterprise management agencies. Floods and earthquakes can cause massive loss of life and infrastructure, resulting in business interruption and heavy casualties. Many of the short-term developmental strategies employed throughout the world have only served to exacerbate the impact of natural disasters. Therefore, this study presents a review of formal methods that are commonly used in risk and uncertainty analysis in planning and concludes with a critical assessment of the advantages and disadvantages of the different priority setting methods. Our focus is a preliminary proposal for developing an efficient probabilistic approach to facilitate design optimization that involves probabilistic constraints.     

21世纪矿业应向后工业发展势态倾斜--适者生存和可持续发展

“后工业”（post-industry)是知识经济或曰“新经济”的发展时代。这个时代的自然资源和一般劳动力资源,包括矿产资源在国民经济和社会发展中的基础地位逐渐为知识产权、市场网络、信息、创新环境等后天获得性资源,以及为创新人才的新“认知”（recognized intellect,RI)所代替。然而,据矿产资源分布及其成矿既具有一定的全球统一性又有区域的特殊性,以及不同国家（地区）对矿产资源勘查程度的不均衡性,特别是矿业活动与其他产业性质的不同,如何能按不同国家（地区）的具体发展状况,做好21世纪矿业向“后工业”发展势态的倾斜,达到适者生存和矿业可持续发展的目标是当代探讨的重大问题。在概括阐述了21世纪矿业发展势态、矿业活动特点及其自然属性的基础上,提出了矿业可持续发展的地质勘查和矿业活动决策支持系统的模拟,以及对当前紧缺铜矿资源可持续发展的新“认知”。     

A new viewpoint of hazard assessment and management for Taiwan��s insurance issues

High rates of urbanization, environmental degradation, and industrial development in disaster-prone areas have all served to increase the extent of damage following catastrophes. Recently, losses from environmental hazards have escalated, which has resulted in a noticeable change in policy, with more emphasis on loss reduction through mitigation, preparedness, and recovery programs. This study focuses on natural disaster management in which the direct risks are posed by the natural disasters themselves. This paper presents a review of issues surrounding natural disaster risk control and insurance in Taiwan. It proposes the use of background information concerning risk control strategies as well as earthquake, typhoon, and flood insurance in Taiwan. Finally, an insurance case study is utilized to demonstrate the feasibility of the proposed methodology.     

Resiliency of the Coastal Recreational For-Hire Fishing Industry to Natural Disasters

The financial condition of US Gulf of Mexico recreational-for-hire (RFH) fishing firms post-hurricane damage was examined within the context of the industry’s contribution to the resiliency of coastal socio-ecological systems (SES). Three key financial ratios—return-on-assets, assets turnover ratio, and debt-to-assets ratio—were calculated for 2009 from balance sheets and cash flow statements constructed from surveys of 247 RFH firms operating in the five Gulf states. The ratios were then recalculated using reported damage and operational losses from at least one named storm in the 2004–2008 period and combined with the results of a logistic regression model of profitability loss to assess the resiliency of the RFH industry. Results suggest that RFH firm resiliency was a function of operating class (head, charter, and guide boats), homeport, and the way in which the business was structured. Firms appeared to be the most resilient when they employed smaller vessels in intensively managed operations, perhaps due to their ability to move a vessel out of the path of storms and because their profitability and efficiency advantages allowed for self-insurance against losses. As a result, community contributions to, and benefits from, resiliency in the RFH industry may hinge on the development of more modern port facilities and well-functioning insurance markets.     

Increasing the resilience of financial intermediaries through portfolio-level insurance against natural disasters

Financial intermediaries [FIs] in developing and emerging economies are poorly equipped to manage natural disasters. These events create losses for FIs, eroding capital reserves and compromising their ability to lend. Portfolio-level insurance against disasters can improve FI management of these events. We model microfinance intermediaries [MFIs] exposed to severe El Ni?o in Peru that can now insure against this disaster risk. Our analyses suggest that insurance allows these lenders to manage this risk more efficiently and effectively. These risk management improvements can translate into better financial performance, expansion of banking service outreach, lower interest rates, and reduced volatility in access to credit. Based on these analyses, a large MFI in Peru with which we collaborated is now managing its disaster risk using El Ni?o insurance.     

基于RS/GIS的城市财产保险洪灾损失评估研究

如何快速,有效地进行投保户洪涝灾害损失评估是保险行业急需解决的一个重要课题.从洪涝灾害的成灾机理出发,针对保险公司对具体受灾体理赔需求,提出了计算每个投保户洪灾损失率方法,建立基于遥感(RS)和地理信息系统(GIS)的城市财产保险洪涝灾害损失评估模型.建模时较全面地考虑了与投保物性质有关的承灾体易损度和与投保物所处环境有关的地基承载力等因素,并使用RS/GIS将其定量化提取.最后使用广东省深圳市洪灾数据进行模型检验.验证结果表明,模型对于各个投保户均能得到较好的精度.     

An integrated flood risk assessment model for property insurance industry in Taiwan

Taiwan is located in an area affected by Northwest Pacific typhoons, which are also one of the most important sources of rainfall to the island. Unfortunately, the abundant rainfall brought by typhoons frequently produces hazards. In recent years, typhoons and floods have caused serious damage, especially Typhoon Morakot in 2009. In this study, a probabilistic model is developed based on historical events which can be used to assess flood risk in Taiwan. There are 4 separate modules in this model, including a rainfall event module, a hydraulic module, a vulnerability module, and a financial loss module. Local data obtained from the Taiwan government are used to construct this model. Historical rainfall data for typhoon and flood events that have occurred since 1960, obtained from the Central Weather Bureau, are used for computing the maximum daily rainfall for each basin. In addition, the latest flood maps from the Water Resources Agency are collected to assess the probable inundation depth. A case study using the local data is carried out. Assessment is made to predict possible economic loss from different financial perspectives such as the total loss, insured loss, and loss exceeding probabilities. The assessment results can be used as a reference for making effective flood risk management strategies in Taiwan.