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2016 International Training Workshop on Natural Disaster Reduction
2016/09/29
Taipei
Page:
2016 International Training Workshop on Natural Disaster Reduction
Outlines
Global Natural Catastrophe Losses
Catastrophe risk modeling (CAT Model)
Natural Catastrophe Insurance Design- Using
CAT Model
TREIF (Taiwan Residential Earthquake
Insurance Fund) & CAT-Model
Q & A
1
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2016 International Training Workshop on Natural Disaster Reduction
Number of Natural Catastrophe events 1980-2015
2
Source: Munich Re NatCatSERVICE(2015)
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2016 International Training Workshop on Natural Disaster Reduction
Overall and Insurance Losses 1980 to 2015
3 Source: Munich Re NatCatSERVICE(2015)
2011 Japan 311
Tohoku Earthquake/tsunami
& Thailand Flood • Increasing Exposure
• Extreme events (Climate Change)
• Risk perception in high developed country
-Increasing Insurance loss
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2016 International Training Workshop on Natural Disaster Reduction
2015 Insured Losses vs. Overall Loss for each Continent
4 Source: Munich Re NatCatSERVICE(2015)
about 50% of Disaster economic losses
was undertaken by insurance.
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2016 International Training Workshop on Natural Disaster Reduction
Risk Transfer – an effective measures
UN Climate Conference of the Parties (COP)
mentions insurance solutions as a way to
facilitate adaptation to climate change.
At the G7 summit in Elmau in June 2015, the
member states agreed to launch a climate
insurance initiative (InsuResilience), highlighting
the importance of financial risk transfer
concepts, particularly for emerging and
developing countries.
5
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2016 International Training Workshop on Natural Disaster Reduction
How to Establish a Catastrophe Insurance?
How ?
How to Price the Catastrophe Risk?
QRA- Quantitative Risk Assessment
Actuarial ?
Because of the complexities of Natural Catastrophe, insufficiencies of historical loss data , and changes of environment, the general risk assessment method which based on the loss experience and actuarial method is not applicable for natural catastrophe risk assessment.
Cat-Model –Engineering Model
6
Page:
2016 International Training Workshop on Natural Disaster Reduction
Outlines
Global Natural Catastrophe Losses
Introduction of Catastrophe risk modeling (CAT
Model)
Natural Catastrophe Insurance Design- Using
CAT Model
TREIF (Taiwan Residential Earthquake
Insurance Fund) & CAT Model
Q & A
7
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2016 International Training Workshop on Natural Disaster Reduction
Catastrophe Risk Assessment and Management
8
RISK
Exposure
Risk Retention
Risk Reduction
Risk Transfer
Risk = Hazard * Vulnerability * Exposure
Risk Avoidance
Risk
Asse
ssme
nt
The Framework of Catastrophe Risk Model
9
Policy Portfolio risk
Policy 1 Policy 2 Policy N……….
Loc 1 Loc 2 Loc 1 Loc 1 Loc M……..
Policy Portfolio risk
Policy 1 Policy 2 Policy N……….
Loc 1 Loc 2 Loc 1 Loc 1 Loc M……..
Portfolio Data
Stochastic event
Hazard
Vulnerability
Financial
Deductible
Limit
Loss
Deductible
Limit
Loss
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
0 100 200 300 400 500 600 700 800 900 1000
Return Period (yr)
Ev
en
t L
os
s / T
SI (%
)
EQ-Zone
EQ-ZipCode
EQ-Policy
Exposure
Earthquake Flood Typhoon
10
Exposure Module Store and provide the information of exposure( risk type, risk loca-tion, value, policy conditions)
Event Module
Generate a series of possible typhoon events with full spectrum to the target area.
Hazard Module
Calculate wind speed (intensity) of interested sites, based on typhoon’s parameters (track, central pressure, translation speed) & site conditions (terrain, land cover).
Vulnerability Module
Calculate damage ratio of interested target based on wind speed (intensity) at site.
Financial Module
Calculate possible losses based on different financial perspective, e.g. ground up loss, insurance loss (event losses , loss exceeding probabilities, annual average loss).
The Framework of Korean Typhoon-Wind Model For Crop
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2016 International Training Workshop on Natural Disaster Reduction
General Framework of Catastrophe Risk Model
11
Catastrophe Event Module
Event
ID
Annual
Occurrence Rate
Event Parameters
(Magnitude, …)
#0001 0.00001 …
#.... … …
#9998 0.00020 …
#.... 0.00065 …
Mean
of Event Loss
CV
of Event Loss
11.2 bn 0.35
…
5.8 bn 0.42
0.5 bn 0.93
Hazard Module
Exposure Module
Location of
properties
Event
Parameters
Vulnerability
Module
Characteristics
of Properties
Financial Module
Financial
Conditions
Hazard Intensity Damage Ratio
Average Annual Loss,
Loss Exceeding Probabilities,
Loss scenario….
Event Table Event Loss Table
Event Losses
Major Output of Cat-Model- PML Curve and
Application (Capacity of the Scheme)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
0 100 200 300 400 500 600 700 800 900 1000
Return Period (yr)
Ev
en
t L
os
s / T
SI (%
)
EQ-Zone
EQ-ZipCode
EQ-Policy
12
ZONE11
ZONE10
ZONE9
ZONE6
ZONE5
ZONE12
ZONE4
ZONE1.1
ZONE3
ZONE8
ZONE2
ZONE7
ZONE1
ZONE11
ZONE10
ZONE9
ZONE6
ZONE5
ZONE12ZONE4
ZONE1.1
ZONE3
ZONE8
ZONE2
ZONE7
ZONE1
TSI (Million)
53,1 - 291
292 - 1,130
1,140 - 4,060
4,070 - 10,300
10,400 - 19,900
Policy
Taiwan
TREIF-400 Year
New Zealand
2000 Year
Turkey
TCIP-150 Year
Traditional Reinsurance
Cover
250 Year
USA
CEA-520 Year
New Zealand-EQC
Wellington fault Mw7.5
(1/600 Year)
地震與颱風洪水風險(38.5億 xs 1.5億)
颱風洪水風險(0.5億 xs 1億)
地震風險(60億 xs 40億)
自留(1億)
PML Curve (Loss Exceeding Prob.)
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2016 International Training Workshop on Natural Disaster Reduction
13
Major Output of Cat-Model- AAL(Average Annual
Loss) & Application (Pricing)
i i
i
AAL L i
iLi iCVL )1( 22
Event
ID
Annual
Occurrence Rate
#0001 0.00001
#....
#9998 0.00020
#.... 0.00065
Mean
of Event Loss
CV
of Event Loss
11.2 bn 0.35
5.8 bn 0.42
0.5 bn 0.93
iLi iLCV
Premium = AAL + Risk Load Factor* σ + Expense + Profit
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2016 International Training Workshop on Natural Disaster Reduction
14
Exposure Module Store and provide the information of exposure( risk type, risk loca-tion, value, policy conditions)
Event Module
Generate a series of possible typhoon events with full spectrum to the target region(e.g. Western North Pacific or Korea)
Hazard Module
Calculate wind speed of interested sites, based on typhoon’s parameters (track, central pressure, translation speed) & site conditions (terrain, land cover).
Vulnerability Module
Calculate damage ratio of interested target based on wind speed at site.
Financial Module
Calculate possible losses based on different financial perspective, e.g. ground up loss, insurance loss (event losses , loss exceeding probabilities, annual average loss).
The Framework of Korean Typhoon-Wind Model For Crop
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2016 International Training Workshop on Natural Disaster Reduction
Validation- Typhoon Tracking Model (Historical vs. Model)
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
Historical (1,052) Historical- Typhoon Tracks Model- Typhoon Tracks
Warm
Season
Cold
Season
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2016 International Training Workshop on Natural Disaster Reduction
Validation- Typhoon Tracking Model (Historical vs. Model)
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
Historical (1,052) Historical- Typhoon Tracks Model- Typhoon Tracks
Typhoon
tracks
made landfall
in Korea
Typhoon
tracks
pass through
Korea buffer
100km
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2016 International Training Workshop on Natural Disaster Reduction
Gradient Wind Profile Model
17
Hurricane Wind profile proposed by Willoughby(2006) was adopted to simulate the gradient wind speed profile of Typhoon in TRM’s Typhoon model.
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
Wind Speed=0 Maximum Wind Speed (Holland, 2010)
Rmax: Radius of Maximum Wind (Vickery, 2006)
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2016 International Training Workshop on Natural Disaster Reduction
Hazard Module of Typhoon Model for Korea
18
Event
Module
Hazard
Module
Typhoon parameters: • Track(Time, Longitude, Latitude) • Head Direction • Translation Speed • Central pressure
Wind Speed
Profile model
Surface
Roughness
Orography
Roughness
Gradient Wind Distribution
Surface Wind (Land cover, Terrain)
Two Layer Model
of the Planetary
Boundary Layer
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
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2016 International Training Workshop on Natural Disaster Reduction
Validation- Wind Field – Historical vs. Simulated (1/3)
Simulated Grid Wind Speed
(500x500m) Historical Simulated
Interpolated by
the Recorded Wind Speed of Stations
Interpolated by
the Simulated Wind Speed of Stations
2010 Typhoon Kompasu
Simulated Wind Speed of Grids
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
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2016 International Training Workshop on Natural Disaster Reduction
Validation- Wind Field – Historical vs. Simulated (2/3)
Simulated Grid Wind Speed
(500x500m) Historical Simulated
Interpolated by
the Recorded Wind Speed of Stations
Interpolated by
the Simulated Wind Speed of Stations
2012 Typhoon Sanba
Simulated Wind Speed of Grids
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
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2016 International Training Workshop on Natural Disaster Reduction
Current exposure distribution for different
resolution level
21
Apple
Pear
Zone Prefecture Dong Policy
Event Module Hazard Module Exposure Module Vulnerability
Module Financial Module
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2016 International Training Workshop on Natural Disaster Reduction
Disaggregate the rough aggregated
exposure data to get more accurate results
22
City
Town
Exposure resolution
Zone
Province
Policy
Detail
Value -Grid 500m× 500m
By Coordinate
Rough
Prefecture
Dong
By detail policy
data distribution or
Land cover data
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
Prefecture Dong Zone
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2016 International Training Workshop on Natural Disaster Reduction
Build Vulnerability Curve (apple & pear )-
Relationship between Wind Speed & Loss
23
Damage Ratio vs. Wind speed Claim Data
Event
Time
Location
Loss
Meteorological data
Time
Location
Wind Speed
#of Claim data(2009-2014)
Pear – 42,633
Apple- 13,613
Wind Speed
Loss
Historical Data
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
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2016 International Training Workshop on Natural Disaster Reduction
Fragility Function of PEAR & APPLE- Beta
Distribution
Event Module Hazard Module Exposure Module Vulnerability
Module
Financial
Module
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0 2 4 6 8 10 12 14 16
Dam
age
Rat
io M
ean
Beaufort Wind Scale
Pear Historical Damage Ratio Mean
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Dam
age
Rat
io M
ean
Beaufort Wind Scale
Pear Damage Ratio Mean
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0 2 4 6 8 10 12 14 16
Dam
age
Ratio M
ea
n
Beaufort Wind Scale
Apple Historical Mean Damage Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Dam
age
Rat
io M
ean
Beaufort Wind Scale
Apple Mean Damage Ratio
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2016 International Training Workshop on Natural Disaster Reduction
Validation- Portfolio Loss Distribution (2010 Kompasu)
2010 Exposure
2010 Exposure
Historical Apple Loss
Historical Pear Loss
Model Apple Los
Model Pear Loss
Date:2016/04/17
COV = 0.87
COV = 0.96
Event Module Hazard Module Exposure Module Vulnerability
Module Financial Module
Page:
2016 International Training Workshop on Natural Disaster Reduction
Outlines
Global Natural Catastrophe Losses
Catastrophe risk modeling (CAT Model)
Natural Catastrophe Insurance Design- Using
CAT Model
TREIF (Taiwan Residential Earthquake
Insurance Fund) & Cat-Model
Q & A
26
Page:
2016 International Training Workshop on Natural Disaster Reduction
27
Money IN Money OUT
Loss & Loss Expense
Risk Financing Cost
Operating Expense
Profit
Premium
Post event Assessments
Investment Income
Balance
Concept of “Money In = Money Out” for Ratemaking
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2016 International Training Workshop on Natural Disaster Reduction
28
Money IN Money OUT
Pure
Premium
Loss & Loss
expense
Balance
CAT Model
Projected
Portfolio
CAT Model
Portfolio AAL or PML
AALs of different type
of standard risk at different Geo Unit
Projected
Portfolio
Ratemaking – Using Catastrophe Risk Model
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2016 International Training Workshop on Natural Disaster Reduction
The Flow of Catastrophe Ratemaking
29
Define Risk Factor
(Building Type、
Height、Built Year…..)
Define basic Territory
Level (County, Town,
Village)
Calculate the risk for
each type of risk in each
basic territory unit by
Cat-Model
Decide the Zone based
on the risk of each basic
territory (e.g. Natural
break, 3 territories)
Calculating Zone Rate
(Consider the weighted
AAL of each basic
territory unit )
Forecast portfolio Loss
parameters(AAL, PML) by
Cat-Model
Balance between
portfolio loss cost and
premium
=> Off Balance Factor
Adjust the rate by Off
Balance Factor
=> Rate plan
Discussion and
Modification
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2016 International Training Workshop on Natural Disaster Reduction
Ratemaking Results of a Hypothetical Sample
30
Territory Rate TSI
(NT$ billion) # of Town
(Basic territory)
1 0.24 9,680 220
2 1.81 1,820 75
3 4.12 390 51
(for content only)
ALAE=0.03*AAL; Risk Load Factor=0.15
ALAE: Allocated Loss Adjusted Expense
Page:
2016 International Training Workshop on Natural Disaster Reduction
Outlines
Global Natural Catastrophe Losses
Catastrophe risk modeling (CAT Model)
Natural Catastrophe Insurance Design- Using
CAT Model
Brief Introduction of TREIF (Taiwan Residential
Earthquake Insurance Fund)
Conclusions
31
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2016 International Training Workshop on Natural Disaster Reduction
Origins and Development of TREIF
On September 21, 1999, a magnitude 7.3 earthquake, known as
the "Chi-Chi earthquake" or "921 earthquake," struck central
Taiwan.
The earthquake prompted the government to set up an earthquake
insurance pool system and build consensus to strengthen the
earthquake insurance mechanism.
At the end of 1999, the competent authority also introduced
amendments to Article 138-1 of the Insurance Law to include
provisions on underwriting residential earthquake insurance by the
insurers and establishment of a mechanism for assuming
earthquake risk.
Effective from April 1, 2002, all residential fire insurance policies
must automatically include basic coverage for residential
earthquake risk. 32
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2016 International Training Workshop on Natural Disaster Reduction
Coverage of Residential Earthquake Basic Insurance
Coverage
Policies provide coverage for actual total loss or constructive total loss (damage ratio >= 50%) of residential building due to fire, explosion, landslide, land subsidence, land movement, land fissure, land rupture, or tsunami, sea surge and flood caused by an earthquake.
Premium
Origin premium in 2002 – The annual flat premium is NT$1,459 based on an insured amount of NT$1.2 million and the contingent living expense NT$180,00 .
From January 1, 2012-Tthe annual flat premium for the insurance was reduced to NT$1,350 based on an insured amount of NT$1.5 million and the contingent living expense NT$200,000
33
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2016 International Training Workshop on Natural Disaster Reduction
Risk Spreading Mechanism of TREIF
34
Tier 1: NT$3 billion, undertaken by the Co-insurance Pool.
Tier 2: NT$67 billion, undertaken by the TREIF and transferred to various risk takers.
NT$70 billion
Insured Loss with 400
years Return Period
Each tier of risk limit is calculated
on the basis of the insurance loss
for each earthquake incident. If
the total amount of the insured
loss from the same earthquake
incident exceeds the total amount
of Risk Spreading Mechanism, the
claim amount paid to the
policyholder shall be on a pro rata
basis proportionally reduced.
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2016 International Training Workshop on Natural Disaster Reduction
Coverage of TREIF
As of June 30 2016, the cumulative liability amount for the residential earthquake insurance system was NT$4.5 trillion (NT$4,541,319,288,217).
There were 2,757,462 policies in force, representing a take-up rate of 32.79% (based on a total of 8,409,079 households in Taiwan).
35
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2016 International Training Workshop on Natural Disaster Reduction
Scheme Design of TREIF–Using Cat-Model
36
Cat Model
Projected Residentila
Portfolio
Co-Insurance
NT$??? Billion
NT$??? Billion
NT$70 Billion
NT$??? Billion
NT$??? Billion
Government
Fund
Fund
Reinsurance market or Capital
Market
Loss Exceeding Prob.-PML
Curve
Annual Average
Loss (AAL) & std. dev
Liability Limit
Reinsurance arrangement &
rate
Premium Allocation P
rem
ium
Liability(NT$700bn) Premium(NT$1350
2016 International Training Workshop on Natural Disaster Reduction
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2016 International Training Workshop on Natural Disaster Reduction
Income determines catastrophe class
38 Source: Munich Re
The classification of a natural catastrophe depends on where it occurs. If the
World Bank attributes a country to a low-income class (IC), the highest
catastrophe level is already reached with losses of US$ 100 million or more. In
the case of rich countries, the value needs to be 30 times greater. The number
of victims also plays a decisive role.
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2016 International Training Workshop on Natural Disaster Reduction
39
Sources: Munich Re NatCatSERVICE, World Bank
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2016 International Training Workshop on Natural Disaster Reduction
Total Sum Insured (TSI) of TY/FL Insurance in
Taiwan
40
Typhoon Nari (2001)
31 Times (2001 vs. 2012)
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2016 International Training Workshop on Natural Disaster Reduction
Gross Written Premium(GWP) of TY/FL Insurance in
Taiwan
41
NT$3.2 billion
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2016 International Training Workshop on Natural Disaster Reduction
Overall Rate of TY/FL Insurance
42
The premium rate of Typhoon/flood insurance
in Taiwan was decreased year by year. It’s
caused by the vicious competition between the
property insurance companies.