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Perils & climate change Pricing for climate risk – dealing with insurance data shortcomings Tim Andrews
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Does the ability to re-price and re-underwrite annually get us off the hook?
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Today’s presentation
Summary of technical approach to setting
natural peril premiums
Adequacy of approach for climate change
impacts
Possible additions to approach
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What has the recent natural
perils experience been like?
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Cost of events >$100m
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Infla
ted
Cos
t ($b
)
Inflated Cost Average
Source: Insurance Council Natural Disaster List Years ending June
Catastrophe cost was well
below average
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Home insurance total natural peril costs by year
0%
10%
20%
30%
40%
50%
60%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Loss
Rat
io
Years ending MarchStorm and flood Bushfire Cyclone
Source: Insurance Statistics Australia – Home Insurance
Natural peril loss ratio in year ending June 2018:
27%
or around 8% below average
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Natural peril pricing
– a technical approach
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Need to assess the pool, and the shape of rates
Not only location but also sum insured, age, construction,
height etc
Loss
Rat
io
Earthquake
Flood
Cyclone
Bushfire
Storm
Shape Pool
Storm claims as big as all other perils combined
• Ideally analysis undertaken by peril • But may need to combine perils to implement
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For both pool and shape, blend model results with claims experience and RI cost allocation
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Prem
ium
($)
Sum Insured ($'000)
Analysis of past events can be
useful for assessing shape
across sum insured age etc
Model results may be useful for indication of
geographic shape
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Adequacy of approach
for climate change impacts
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Trend in cost of events >$100m
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Infla
ted
Cos
t ($b
)
Inflated Cost Average
Source: Insurance Council Natural Disaster List Years ending June
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Trend in natural peril costs by year
0%
10%
20%
30%
40%
50%
60%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Loss
Rat
io
Years ending MarchStorm and flood Bushfire Cyclone
Source: Insurance Statistics Australia – Home Insurance
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An example of the challenge that insurers face
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Unless they are careful insurers will be chasing the trend
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Possible additions to process
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• Weather station data
• Follow the science
• Attribution studies
• Are stress scenarios useful?
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Some of the physical impacts are clear
Source: Insurance Statistics Australia – Home Insurance
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And its not always an increase
Source: Insurance Statistics Australia – Home Insurance
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Follow the science
Just in the last two months papers on: Intensification of rainfall extremes (Selma B. Guerreiro, Hayley J. Fowler, Renaud Barbero, Seth Westra, Geert Lenderink, Stephen Blenkinsop1, Elizabeth Lewis1 and Xiao-Feng Li)
Poleward shift of cyclones (S. Sharmila, K. J. E. Walsh)
Cyclones moving more slowly (James P. Kossin)
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Record wet winter in southeast Australia in 2016
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Author: Andrew D King • High number of synoptic lows
• 2016 extreme wet is not part of a trend towards wetter conditions in SEA
• Warmth in the east Indian Ocean increased the likelihood of the record wet by at least a factor of two
• The role of climate change was minimal
• Role of CC was estimated using climate models to assess change in probability of a wet JAS using current CO2 and natural CO2 (1901-2005)
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Stress testing – a possible future
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Could you learn anything by considering the following effects on pricing?
• 2 degrees warmer
• Extreme rainfall intensity 20% higher
• 50% increase in bushfire risk
• Sea levels 60cm higher
• Storm surge frequent in some areas
• Twice as many category 4 and 5 cyclones and polewards shift
• 30% more thunderstorms and hail in east
• More variability and uncertainty
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Distribution & Use
Reliance & Limitations The information in this presentation is being provided on a confidential basis to assist the company to understand the nature of the analysis and output proposed. All results shown should not be relied upon. The presentation is not intended, nor necessarily suitable, for any other purpose. The contents of this presentation and the particulars of our offering are not to be used for any other purpose and are not to be distributed to or discussed with anyone outside of the company. Third parties, whether authorised or not to receive this presentation, should recognise that the furnishing of this presentation is not a substitute for their own due diligence and should place no reliance on this presentation or the data contained herein which would result in the creation of any duty or liability by Finity to the third party.
The information in this presentation is being provided on a confidential basis to assist the company to understand the nature of the analysis and output proposed. We have relied on the accuracy and completeness of all data and other information (qualitative, quantitative, written and verbal) provided to us for the purpose of this presentation. We have not independently verified or audited the data but we have reviewed it for general reasonableness and consistency. It should be noted that if any data or other information is inaccurate or incomplete, we should be advised, so that our advice can be revised, if warranted.
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