Natural Perils Insurance without Equal. 18 october 2011

Transcription

1 Natural Perils Insurance without Equal 18 october 2011

2 2 Imprint Recipients: Interested parties within and outside the insurance industry Published by: Swiss Insurance Association SIA Conrad-Ferdinand-Meyer-Strasse 14 PO Box 4288 CH-8022 Zurich Your Contact: Martin Wüthrich Head of Non-Life Insurance Delivery address: Morena Pisani

3 Introduction 3 Introduction The Swiss people and economy are exposed to a number of natural hazards. In the past 60 years most of the economic loss has been caused by floods and storms, while almost all deaths have been due to natural catastrophes such as the heat wave in 2003 and avalanches, land-slides and rockslides. Climate change (new weather constellations) and the increase in and concentration of insured assets are increasing the loss potential. On the other hand, the constant expansion of preventive measures at federal and cantonal level is helping to reduce risk. The situation in Switzerland is unique, as can be seen from the UN s Global Assessment Report on Disaster Risk Reduction Out of 180 countries, Switzerland is best prepared to deal with natural catastrophes, and its long-term objective is to maintain this position. An important factor in this respect is broadly based, coordinated cooperation between federal bodies, cantons, municipalities and the insurance industry. Private insurers wish to ensure that natural hazards remain insurable over the long term. This brochure illustrates how the insurance of natural hazards is being managed by private insurers and shows its significance for the Swiss economy. Your Swiss Insurance Association SIA Urs Berger Chairman SIA Lucius Dürr CEO SIA Martin Wüthrich Manager of Swiss Elemental Pool

4 4 Natural Perils Insurance without Equal The emergence of natural hazards insurance in Switzerland Natural hazards insurance goes back a long way. In the 19th century, Switzerland was hit by natural events of catastrophic dimensions, such as one in 1868 that resulted in 50 deaths and led to massive destruction of buildings and their contents. People suffered greatly, since there was no insurance. The first natural hazards insurance became available by the beginning of the 20th century. Following the dramatic 1950/51 winter of avalanches, fire insurers started including losses due to natural hazards in fire insurance. Earthquakes were not insured, since at the time they were regarded as uninsurable in the absence of scientific basis. Swiss private insurers introduced natural hazards coverage around 60 years ago, and this has developed over the years into comprehensive natural hazards insurance covering almost the entire country. Since the late 1950s, natural hazards insurance covering all the main natural hazards has been included with every private fire insurance policy for chattels and buildings and with every fire business interruption insurance policy. Natural hazards insurance not only has great economic importance but is also social in character. In the past 30 years ( ), private insurers, combined in the Natural Hazards Pool, have paid compensation totalling CHF 6 billion for property damage (chattels and buildings, excluding business interruption). In view of the high social and economic importance of private natural hazards insurance, legislation was needed to create the necessary preconditions for its continued long-term existence. Switzerland s unique and highly efficient insurance system is envied the world over. Private insurers also intend to do their bit not only to maintain the system but also to improve it for the future. Insurance protection for the whole of Switzerland Over 99% of all buildings and chattels in Switzerland are insured against natural hazards. In 19 cantons there are monopoly cantonal building insurance companies that insure buildings against fire and natural hazards. In the cantons of Geneva, Uri, Schwyz, Ticino, Appenzell Innerrhoden, Valais and Obwalden and in the Principality of Liechtenstein, buildings are insured by private insurers. Chattels are covered by private insurers throughout Switzerland, with the exception of the cantons of Vaud and Nidwalden. This ensures that the entire population enjoys this valuable protection at favourable premiums. Private insurers Cantonal buildings insurance providers Basic map: SFSO GEOSTAT/L+T Figure 1: Private insurers insure buildings in seven cantons and in the Principality of Liechtenstein.

5 Natural Perils Insurance without Equal 5 Statutory basis of natural hazards insurance Natural hazards insurance has its statutory basis in article 33 of the Insurance Supervision Act (ISA): All companies that offer fire insurance in Switzerland must also at the same time include natural hazards in the corresponding insurance policy. The scope of coverage, premium tariff and rules governing deductibles are regulated by statute. Natural hazards insurance is described more clearly in the Supervision Ordinance (SO). The insured risks, insured objects, insured benefits and deductibles to be borne are regulated. Insured risks High tide Flood Storm Hailstorm Avalanche Snow pressure Rockfall Rockslide Landslide Insured benefits Insurance covers destruction, damage or loss of the insured objects caused by the nine natural hazards listed above. Maximum limit of liability The insurance companies liability is not unlimited. The maximum compensation per event is CHF 2 billion (CHF 1 billion for chattels and CHF 1 billion for buildings). Compensation per insured person is limited to CHF 25 million. This ensures that the solidarity is not excessively burdened and that the compensation in any loss event benefits every insured person. Integrated mandatory and private insurance solution Statutory natural hazards insurance is intended to cover the basic needs of insured individuals and businesses. Further benefits concerning objects, risks or insured amounts can be individually insured with private insurers. Insured objects As a basic principle, all objects located in Switzerland chattels (household effects, contents of buildings, manufactured products, etc.) and buildings are insured at their full value (replacement cost). Exposure (property, perils, amounts, location) Contractual individual coverage Policyholders/insurers Policy exclusion (art. 172, Supervision Ordinance [SO]) Higher amounts (art 176, SO) Lower deductibles (art. 175, SO) Events exluded unter SO (art. 173, SO) Natural hazards insurance according to SO Insured perils Insured property Insured amounts Deductibles Premiums Property Interruption of business Vehicles Special items Cost etc Core covered by mandatory insurance Market forces coverage and premiums as per agreement Æ Figure 2: Core of natural hazards insurance Both items must be clearly separated and reported in the policy.

6 6 Natural Perils Insurance without Equal Dual solidarity system The concept of natural hazards insurance is based on a dual solidarity system. This is because natural catastrophes can be insured with the necessary amounts and appropriate premiums only if both insured persons and insurers conduct themselves with solidarity and share the risk. This has been the necessary condition for introducing any private natural hazards insurance at all and for its subsequent extensive distribution. Solidarity among insured persons Thanks to a comprehensive coverage for nine different natural risks, all individuals and businesses in Switzerland can benefit from this insurance. The main risks in the Swiss central region are floods, storms and hailstorms, while rockslides, rockfall, earthslides and avalanches are the chief concerns in the mountainous areas. This broad spreading of risks means that all insured persons can enjoy very low premiums. All homeowners pay the same premium rates for their buildings as do individuals for their household effects and businesses for their movable goods. A uniform solidarity premium for all holders of fire insurance policies ensures solidary natural hazards coverage. This uniformity of premiums in all parts of the country means not only that insured persons in areas at particular risk can take out insurance against natural hazards but also that they are insured at affordable premiums. Solidarity of insurers Solidarity among insurers means that, given the different structure of their natural hazards portfolios depending on the region and the risk-neutral uniform premium, they have adhered almost without exception to the Natural Hazards Pool with the aim of redistributing the claims made in accordance with their market shares. In concrete terms, this means that in any loss event the insurers are affected differently; depending on market share in the region where the damage occurs, one or other company is affected more heavily. The mechanism works as follows: 80% of each natural hazard loss is ceded to the pool. The part corresponding to its market share is then reallocated to each company, resulting in an offset. The retention of 20% corresponds to each insurer s underwriting risk. This ultimately results in the claims burden being spread. Reinsurance of the Pool The pool does not only serve to diversify losses across insurers, it does also provide the basis for access to reinsurance. The board of the pool defines the maximum amount of losses that will be covered within the pool, the so-called aggregate priority limit, at the moment up to 450 mio CHF. The pool buys insurance for losses exceeding thisamount of annual aggregate losses a so-called stop-loss cover. Reinsurance covers losses up to 1.2 bn CHF, the so-called aggregate cover limit. In case losses exceed this amount, the remaining loss would again be borne by the pool insurance companies in the true spirit of solidarity. Reinsurance payments were made 1978, 1986, 1987, 1993, 1999, 2000 and 2005: In these years the pool had to manage losses in exceedence of the pools aggregate priority limit. Reinsurance hence allows to further diversify the risk and beyond national borders. This proves to be a cost-effective arrangement, cheaper than capitalizing the pool within Switzerland. The international reinsurance market does attribute a price to the risks managed by the pool. This provides the pool member companies with an independent view on their risk, a benefit in addition to the capacity provided.

7 Natural Perils Insurance without Equal 7 Benefits of natural hazards insurance Families, businesses and public authorities that have taken out fire insurance all profit from protection against natural hazards. The premium can be kept low by spreading the solidarity-based insurance solution throughout Switzerland. The resources for reconstructing and replacing destroyed chattels are available within next to no time, and damaged buildings can be repaired, so reconstruction is paid for without private insurers making any allowance for write-offs. Thanks to this unique insurance, claimants are able to resume their everyday lives fairly rapidly. The biggest natural hazard event in Switzerland to date occurred in August 2005, when private insurers met claims totalling CHF 1 billion. Payments were made immediately, with 90% of claims being met within 12 months. Figure 3: Payout pattern in private insurance Environment The constant construction activity in Switzerland, the concentration of assets and climate change mean that risk exposure is expected to increase in the future. Cooperation between public authorities, the federal government, the cantons and the insurance industry is therefore crucial. Deployment of the emergency services fire brigades, civil protection services, etc. is of the utmost importance. Proper training combined with quick and effective deployment helps to prevent greater losses. But it also pays to learn lessons from events and, after repair and reconstruction, to factor in proper and sustainable prevention and precaution measures. Prevention Each year the federal government invests more than CHF 250 million in risk prevention. The cantons are required to prepare definitive risk maps, with over 95% of the country expected to be mapped by the end of Theses maps will then form the basis for planning additional measures to increase safety and thus ensure the long-term insurability of natural hazards. Figure 4: Integral Risk Management Cycle Source: FOCP

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