IMIA Conference Amsterdam – September 2011 IMIA WG 72 (11) CECR – Specific of covers and experience made

Chairman: Thomas Gebert (Infrassure Ltd / Zurich Insurance as of June 2011) Group Members: Ivan Blanco (XL) Eric Brault (AXA Corporate Solutions) Brendan Dunlea (Zurich Insurance) John Forder (Willis) Blas Gomez (Seguros Atlas) Kun Hong Ho (Scor) Federico Pereira (Hannover Re) Thierry Portevin (Allianz) Gero Stenzel (Partner Re) David Walters (ACE) IMIA EC Sponsor: Volkan Babür (Mapfre)

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1.0 Executive Summary 3

2.0 Introduction 3

3.0 What is CECR? 4

4.0 Customers 5

5.0 Scope of Coverage 6

6.0 Sums Insured 8

7.0 Underwriting Considerations 8

8.0 Risk Selection and Criteria for individual Types of Risk 9

9.0 Maintenance / Benefits of standardised Inspections 13

10. PML Assessment 16

11.0 Interesting Claims 20

12.0 Summary 29

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CECR Insurance & General Underwriting Considerations

1.0 Executive Summary This report is an IMIA paper dealing with the subject of Civil Engineering Completed Risks insurance (CECR). It has been written to provide background into the coverage and the drivers for buying CECR insurance and underwriting aspects. CECR insurance is a relatively new form of insurance and there is a lot of uncertainty regarding whether it should be written by engineering or property underwriters. It may also be described as ‘Completed Construction Insurance’ (CCI) or simply Property Insurance. CECR is an insurance cover for existing structures where fire is not the predominant exposure. The cover can be on an “all risk” or “named perils” basis.

2.0 Introduction Although many people consider civil engineering structures to be immune from losses recent global events have highlighted the large losses that may arise. Recent catastrophic events in Australia, Chile, Haiti, Japan and New Zealand have given rise to concerns with regard to the coverage provided by this insurance and the large losses that may occur;

• In Australia extreme rainfall caused flooding to an area the size of France and Germany combined in Northern Queensland alone. 15 people are believed to have been killed and the cost to repair the damage is estimated at approximately Euro 7 billion.

• In 2010 Chile suffered an earthquake of 8.8 magnitude which killed hundreds

of people. It was so powerful it is also believed to have shifted the earth from its axis.

• In 2010 Haiti also suffered an earthquake that is believed to have killed

220,000. Sadly Haiti does not apply the same building codes as Chile which resulted in many more buildings collapsing and a much higher loss of life. Unfortunately Haiti also has far less insurance coverage which results in a lack of funds to rebuild to previous standards, let alone improved earthquake resistant standards.

• The Japanese earthquake in 2011 is believed to have been the most serious

disaster in Japanese history. It is estimated that there were over 10,000 people killed and there remains a high number unaccounted for. The disaster continues to have unresolved problems as the Fukushima nuclear power plant suffered damaged reactors, which continue to leak.

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• The New Zealand earthquake, which occurred in 2011, was of a magnitude of 6.3 close to Christchurch. At least 166 people were killed and a further number unaccounted for. Rebuilding is taking place which is expected to cost approximately Euro 8.5 billion.

All of the above events caused extensive damage to infrastructure that is normally covered under ‘CECR’ insurance policies.

3.0 What is CECR? CECR is a form of property insurance and predominantly covers operational mass concrete structures rather than manufacturing or residential facilities. The fundamental purpose of the CECR insurance is to protect the property insured against unforeseen and sudden physical damage. Natural catastrophe events are generally considered to be the main risks, rather than fire, but fire can still have high exposure for some risks. It is for operational risks and is normally renewable annually. Such structures include the following:

• Bridges • Canal systems • Dams of all kinds • Dry docks • Harbours • Irrigation systems • Overhead lines • Pipelines (conveying non- combustible substances) • Roads • Runways • Sewer systems • Transmission & distribution lines • Tunnels • Water reservoirs • Weirs

Typical exposures include the following:

• Earthquake • Windstorm (particularly to transmission & distribution lines) • Flood – severe flood causing erosion of structures • Impact – i.e. motor vehicle (tunnels, bridges) or marine vessel (bridges, portal

structures) • Fire – as a result of vehicle impact in tunnels and on bridges, and also fires

under structures (arson, human error)

Increasingly this type of cover is purchased for Concession / Public Private Partnership (PPP) Projects by the project company and is subject to a multitude of specific requirements as may be set out in the concession agreement and / or loan agreement (i.e. minimum levels of cover, maximum deductibles etc). As many of

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these project companies have major shareholders such as Barclays, Macquarie or Meridam involved, such companies are increasingly placing global property programmes capable of insuring any project where they have a financial interest and the property damage / business interruption is placed as a declaration to such a programme. This business is normally written by engineering/construction underwriters, although in some companies it may be written by property underwriters. CECR is considered by many to be an insurance coverage mainly for natural catastrophe events. Given that many of the objects covered are generally fire resistant (except for extreme fire loads noted in this paper) it typically takes extreme events to cause damage.

4.0 Customers Customers for this class of business are typically:

• Government / state entities • Joint ventures / public private partnership (PPP) at the request of lenders

(banks, financiers, etc) • Private parties

Until the advent of the PPP approach, infrastructure was almost exclusively built on a public works basis and transferred to government / publicly owned property upon its completion. Typically government entities did not insure these completed projects and thus there was little if any demand for a suitable insurance product. All of that changed dramatically from the early 1980’s onwards as governments adopted the “Design-Build-Operate-Transfer (DBOT)” model that is these days more generically referred to as “Private-Public-Partnership (PPP)”. Customers for CECR insurance were created in the form of the project companies who signed the contracts with the government and financing agreements with lenders. These project companies are contractually obliged, by both the concession issuing government entities and financiers, to purchase “Property Damage” insurance. Financiers require the project company to also purchase a “Business Interruption” coverage following an indemnifiable material damage loss. Typically both the PPP Contract and the financing agreement contain very specific “insurance requirements” that often go into great detail as regards policy coverage - extensions, exclusions, insured parties, maximum deductible levels, etc. Failure to comply with any aspect of these “insurance requirements” may put the project company in breach of contract. It is therefore highly important that these requirements are realistic, achievable and acceptable to the potential insurers. The project company’s insurance consultants (normally a specialist insurance broker) seek to negotiate achievable “insurance requirements” during the bid stage, normally in discussion with the insurance and / or legal advisors of the government entity and financiers.

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In consequence of this whole process, CECR insurance is required by the customer to be fully compliant with their contractual commitments and there is normally little or no flexibility in that regard. In addition to policy cover and deductible levels etc, both the government entity and financiers impose their own endorsements to ensure that their interests are fully covered. Whilst in the vast majority of instances the customer for CECR is indeed a project company, there are also occasions when private companies own or lease infrastructure (e.g. ports / harbours) and on rare occasions government entities also purchase this type of cover.

5.0 Scope of Coverage CECR Insurance provides annually renewable coverage for existing structures, much in the same way as a traditional property policy. There are generally two approaches to providing coverage for CECR which are a ‘Named Perils’ or ‘All Risk’ basis. The basis of which coverage is provided may depend on the market and/or the market cycle. The named perils basis covers the insured against any unforeseen and sudden physical loss or damage necessitating repair or replacement. The normal named perils are:

• Impact of landborne or waterborne vehicles or aircraft or articles dropped therefrom

• Earthquake, volcano, tsunami • Storm (air movements stronger than grade 8 on the Beaufort Scale) • Flood or inundation • Subsidence, landslide, rockslide or any other earth movement • Frost, avalanche, ice, snow • Vandalism by individual persons • Fire, lightning, explosion.

The ‘All Risk’ basis provides coverage for sudden and accidental physical loss or damage to the property insured unless caused by an excluded peril. The main differences between ‘Named Perils’ or ‘All Risk’ policies is that in an `All Risks’ contract the onus of proof is reversed. In a named perils contract the insured must prove that the loss was caused by one of the perils covered. In ‘All Risk’, the insured needs merely to provide evidence that their property suffered loss or damage; it is then up to the company to prove that the claim did not arise from an excluded peril. The onus of proof is an additional reason for absolute clarity in the exclusions of an ‘All Risk’ policy. In terms of cover the difference between a broad ‘Named Perils’ wording and a well worded (e.g. including the exclusions as per Zurich Edge Property wording) ‘All Risk’ wording is minor. Additional coverage in an ‘All Risk’ policy allows for human error/accidental damage.

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The coverage may be extended to include: • Debris removal • Expediting costs • Machinery breakdown • Strike, riot and civil commotion • Terrorism • Consequential loss (separate BI section)

Standard exclusions include the following:

• Loss or damage caused by or aggravated by latent or inherent defects • Mechanical or electrical breakdown of machinery or electronic

installations • Wear and tear, corrosion, erosion, normal settlements • Wilful acts or negligence • War • Nuclear risks

It is common practice to establish a loss limit for the material damage exposure, particularly in locations which have a high natural catastrophe exposure such as earthquake, storm, flood, etc. Guide to typical exposures (depending on location)

Brid

ges

Dam

s

Har

bour

s

Pip

elin

es

Roa

ds

Rai

lway

s

Run

way

s

Tran

smis

sion

lin

es

Tunn

els

Sew

er &

W

ater

Wat

erw

ays

EQ (named peril) x x x x x x x x x

Tsunami (named peril) x x x x x x x x

Flood (named peril) x x x x x x x x x x

Frost, ice (named peril) x x x

Fire (named peril) x x

Explosion (named peril) x x

Landslide / rockfall (named perils) x x x x x x x

Aircraft impact (named peril) x x x x x

Vessel impact (named peril) x x x x

Motor vehicle impact (named peril) x x x

Sabotage / burglary (normally excl.) x x x x x x

Collapse (normally excluded ) x x x x

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6.0 Sums Insured For risks that are transferring from the project phase to the operational phase, typically the project (CAR policy) sum insured is sufficient. However, in many cases the risk to be insured under a CECR policy is an existing, not a newly built construction, the definition and calculation of the sum insured is vitally important. The sums insured should not be less than the full cost of replacement of the insured items (‘New Replacement Value’). It is recognized that there are difficulties in calculating this value in the current market place due to the age of some insured properties and the fluctuation of prices depending on areas, technologies, materials and many other components that directly affect the sum insured.

7.0 Underwriting Considerations Underwriting assessment is critical to establishing terms and conditions for any risk. Premiums calculated must take into account the long term exposures for infrastructure risks. In 1960 Chile suffered an earthquake measuring 9.0 on the Richter scale. The 2010 earthquake, which some think could be a result of the 1960 quake, measured 8.8 on the Richter scale. It would be interesting to know if the premium collected since the first event – purely for earthquake – was enough to cover insured losses in 2010. Before granting cover under a CECR policy, it must be clear that a CECR policy is not a substitute for regular maintenance and overhaul. Further, the underwriter must be convinced that the risk to be insured does not constitute an anti-selection in respect of object and location. In this context, the following factors must be assessed in detail:

- Type of risk and condition. - Geographical and topographical location. - Exposures to natural hazards. - Special construction methods and experience during the construction

period. - Special exposure to fire, explosion, blasting work or other hazards. - Inspection reports indicating design parameters in respect of natural

hazards and use of the risk. - All previous damage and repair details. - Maintenance schedule. - Has the originally intended purpose and use of the object changed in any

way? - Presence and qualifications of operating personnel

Where underwriters have been involved with the project insurance this will provide a greater understanding of the risk.

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8.0 Risk Selection and Criteria for individual Types of Risk The risk assessment process will determine whether companies are committing to risks and at what terms and conditions. The risk assessment by the underwriter will be based to a large extent on the technical information which the insured must provide and which must include all details which are necessary for the risk assessment. Apart from the standard information which is required for the understanding of the insurance contract, a survey report and/or underwriting submission is necessary to evaluate the risk. For CECR risks the surveys should be specific to the type of object to be insured. For single structures the information that the underwriter should gather for their technical file should include (non exhaustive list)

• A proposal form with a description of the risk. • A technical description of the risk including specifications, plans, descriptive

notes, etc. • Breakdown of costs. • Information regarding the parties involved in the construction. • Geotechnical report including soil analysis. • Reports of technical inspections (i.e. Bureau de Contrôle)

Following are a number of considerations that should be made by risk type; Bridges Different types of bridges have different exposures. • Following types of bridges are possible.

Arch Beam Cable stayed Cantilever Floating Frame Girder Suspension

• Technical info Age Use (i.e. road, rail, pedestrian – including number of lanes, tracks, etc) Length, including spans between piers/abutments Number of piers Height

• Nat cat exposure Earthquake Wind Flood

• Depending on the different construction types the exposure due to the impact of land borne and waterborne vehicles, impact of aircraft, EQ / tsunami / volcano, storm, flood / inundation / waves is different and has to be assessed case by case.

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Dams • Type of construction

Arch dams / concrete dams (are based on the principle that the load is transferred to abutments by the structure).

Gravity dams (rely solely upon their weight for stability like roller compacted dams and embankment dams).

Additional elements: spillways / diversion works • Technical info

Age Length Height Width

Nat cat exposure Earthquake Flood

Harbours • Technical info

Age Quay Breakwater Building Equipment

• Nat cat exposure Flood Storm

Pipelines (conveying non-combustible substances) • Technical info

Age Length Diameter Commodity Material of pipe (i.e. concrete, steel, plastic, etc) Information on pumping stations, etc., if they are to be included

• Topography Landslide Avalanches

• Nat cat exposure Earthquake Flood

Railways • Technical info

Age Use – passenger, goods, funicular, etc Length No of bridges No of tunnels Information of control/signalling equipment if to be included.

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• Topography Landslide Avalanches

• Nat cat exposure Earthquake Flood

Runways • Technical info

Age Length Width

• Nat cat exposure Earthquake Flood

Roads • Technical info

Age Length Use – urban, motorway, etc. Number of lanes No of bridges No of tunnels

• Topography Landslide Avalanches

• Nat cat exposure Earthquake Flood

Tunnels • Technical info

Age Number of tunnels (i.e. twin tube, single tube, etc) Type of construction (i.e. bored, cut & cover, etc) Length Number of lanes Diameter Use – pedestrian / road / railway

• Safety measures Transmission lines • Technical info

Age Above ground or below ground (if below ground how deep) Type of power lines/voltage Length

• Topography Landslide Avalanches

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• Nat cat exposure Earthquake Flood Storm

• Climate situation Frost Snow

Water & Sewer systems • Technical info

Age Above ground or below ground (if below ground how deep) Length Diameter Foundation Bridges Culverts Material of pipe (i.e. steel, concrete, plastic, etc)

• Topography Landslide Avalanches

• Nat cat exposure Earthquake Flood

• Climate situation Frost

Waterways (canals) • Technical info

Length Width Locking for ships Aqueducts

• Environment Traffic/use

• Nat cat exposure Earthquake Flood Storm

• Climate situation Frost

Summary of underwriting information The following table provides guidance as to areas of special attention depending on the type of risk to be covered under the scope of a CECR policy, and which should also be addressed in surveys:

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Type of object

Brid

ges

Dam

s

Har

bour

s

Pip

elin

es

Roa

ds

Rai

lway

Run

way

s

T &

D L

ines

Tunn

els

Sew

er &

W

ater

W

ater

way

s

General description x x x x x x x x x x x

Age of construction x x x x x x x x

Topography x x x x x x x

Natural perils x x x x x x x x x x x

Surroundings x x x x

Design standards x x x x

Route x x x x x

Exact location x x x x x x x x x x x

Inspection and maintenance procedures x x x x x x x

Bridges: max span, length, height x x x Tunnels; double/single tube , length, height, fire protection x x x x

Fire protection of control centres x x

Number & location of toll stations (for BI purpose) x

Type and structure of the object x x

Rolling stock included x

Maintenance facilities x

Substations x x x

Monitoring concept of dams x

Emergency plan x x x x

Cost breakdown x

EML study x x x x x x x x x x x

Loss history (including construction) x x x x x x x x x x x

9.0 Maintenance / Benefits of standardised Inspections Regular maintenance is essential for all man-made structures, implementing mitigation measures to avoid deterioration or to maintain their function. Maintenance of today’s infrastructure presents many challenges. Infrastructure includes particularly bridges that are a special element of the total road and a critical link in the highway network.

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Bridges are considered separately from the maintenance of the approach road. Preventative bridge maintenance is undertaken that will preserve bridge components in their present condition, forestalling development of a structural defect occurring. Preventative maintenance activities can be classified into two groups: scheduled and response. 1) Scheduled (programmed at intervals): typical activities that are conducted on a

scheduled interval basis include: • Cleaning decks, seats, caps, and salt splash zones • Cleaning bridge drainage systems • Cleaning and lubricating expansion-bearing assemblies; and • Sealing concrete decks or substructure elements

2) Response (done as needed and as identified through the inspection process): typical activities that are performed on an “as-needed” basis include: • Resealing expansion joints • Painting structural steel members • Removing debris from waterway channels • Replacing wearing surfaces • Extending or enlarging deck drains; and • Repairing damage from a vehicle hitting the structure.

Maintenance contracts on concession projects There are three areas of the concession agreement that focus on the condition of the asset throughout the concession period and also at the end of the term. These requirements are, by design, meant to ensure the ongoing, responsible management of the asset and the transfer of well-maintained infrastructure assets by the concessionaire back to the government at the end of the concession period. Maintenance requirements are designed to encourage best practices in accordance with contract conditions and sound management techniques. The activities governed by these requirements maximize the reliability, safety and availability of the concession projects. This objective is achieved through the use of a well-defined asset inventory and asset condition requirements to which the concessionaire must adhere. Inspection / monitoring It is essential to establish standardized inspection procedures to ensure systematic implementation at regular intervals. Standardized inspection will provide the following benefits:

• Ensure public safety and confidence in structural capacity • Protect public investment and allow efficient allocation of resources

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• Effectively schedule maintenance and rehabilitation operations • Provide a basis for repair, replacement, or other improvement such as retrofit

railings • Ensure government funding will remain available for bridge rehabilitation and

replacement • In addition: Basis for a proper underwriting and risk assessment of CECR

covers Possible interval:

• �Regular inspection: once every 6 months • Detail structure inspection: every 2 years • Detail structure safety inspection: 10 years from the completion and then once

every 5 years thereafter. Inspections should be carried out by specialised agents who are approved by the government. Regular inspection is mainly visual inspection to find critical problems such as structural cracks. Detail structure inspection involves testing methods such as concrete strength test, concrete carbonation test and NDT (Non-Destructive Test). The results of all inspections and tests should be kept for review and approval by the authority in charge. In addition to the regular inspections, daily visual inspection will also be carried out by the staff during regular patrols. Monitoring systems on bridges Modern cable-supported bridges are designed to carry enormous loads across great distances. In some of the worlds longest span suspension bridges carrying both road and rail traffic as well as other long-span cable supported bridges, it can move from several centimetres to several meters under different types of loading conditions. Although such displacement or deformation may not create an immediate danger to the traffic, but as they increase in size it will significantly affect the bridges structural integrity and maintenance needs. Monitoring the displacement of the main suspension cables, decks and bridge towers can be done efficiently and accurately by using the Global Positioning System (GPS) technology. The main feature of this system is the interactive display of real-time motions of the global bridge structures. The monitoring system comprises GPS receivers and associated accessories such as fibre optic data transmission networks, data acquisition systems for data collection and archiving, and computer systems for data control, analysis and storage. The system monitors the motions of key bridge locations in real time. Measuring the variations in geometrical configurations and incorporating results from other sensors, which will provide a more accurate and reliable monitoring and evaluating structural performance and health conditions of major cable-supported bridge components.

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The results will help in the planning and implementing inspection and maintenance activities. Similar maintenance / monitoring concepts also apply to other infrastructure facilities, which require routine inspections at regular intervals dependent on their importance and the level of usage.

10. PML Assessment PML assessment is critical so as to assess the exposure for 100% and for the supported share. • It takes into consideration the most extreme hazards (e.g. nat cat event, impact,

collision) which can result in maximum damage. • PML is a topic in the industry on a regular basis and has been treated in

numerous studies and publications. • Probable maximum loss versus possible maximum loss

Probable maximum loss is an estimate of the maximum loss which could be sustained by the insurers as a result of any occurrence considered by the underwriter to be within the realms of probability. This ignores such coincidence and catastrophes that are possibilities, but which remain highly improbable.

Possible maximum loss is the largest loss that may be expected equal to any given risk when there is an exceptional combination of the most unfavourable circumstances.

• Based on the events of the recent past (e.g. flood Pakistan), a loss that was considered in the past as a possible maximum loss might become a probable maximum loss in current assessments.

• Types of risk, areas and locations can influence the PML scenario and the PML amount

Information required for a proper PML assessment As for other types of cover, satisfactory underwriting information must be available in order to allow for satisfactory risk assessment and particularly to determine a reliable PML calculation. A large part of the CECR covers are dealing with widespread risks (e.g. roads, railways) with individual exposures and require adequate information. The following information should be available: • Geographical situation • Overall plan of the object • Plans and sections of key structures of the object • Technical key figures • Construction costs per major elements and in total • Exposure to

Fire, explosion Impact of land borne and waterborne vehicles Impact of aircrafts

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EQ / tsunami / volcano Storm Flood / inundation / waves Landslide / rockslide / avalanches Frost, ice

The following are a number of considerations for PML assessment that should be considered by risk type: Bridges • Scenarios

Earthquake Flood Aircraft impact Vessel impact Motor vehicle impact Sabotage (normally excluded) Collapse (normally excluded (wear / tear, bad maintenance))

• PML Range

Depending on the different construction types the exposure due to the impact of land borne and waterborne vehicles, impact of aircraft, EQ / tsunami / volcanism, storm, flood / inundation / waves is different and has to be assessed case by case.

30% (vessel impact) up to 100% (storm impact) of TSI PD Depending on the cover up to 100% of the TSI BI has to be taken in

consideration Dams • Scenarios

Earthquake / tsunami Flood / overtopping

• PML Range

Gravity dams: 100% due to flood / internal erosion Arch dams/ concrete dams: 50% to 100% failure due to earthquake

Harbours • Scenarios

EQ / Tsunami (named peril) Flood (named peril) Vessel impact (named peril)

• PML Range

20% (vessel impact) up to 100% (Flood / Tsunami) of TSI Pipelines • Scenarios

Flood Storm Landslide

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• PML Range

Spread of risk PML calculation depends on the topography and as a consequence on the

flood / landslide exposure. (Due to the anti selection process of the insured good local knowledge is an advantage).

A loss limit is a must to avoid catastrophic events which have the possibility to exceed calculated PML’s.

Roads • Scenarios

EQ / Tsunami Flood Landslide / rockfall

• PML Range

PML calculation depends on the topography and as a consequence on the flood / landslide exposure. (Due to the anti selection process of the insured, good local knowledge is an advantage).

A loss limit is a must to avoid catastrophic events which have the potential to exceed calculated PML’s.

Depending on the cover up to 100% of the TSI BI has to be taken into consideration

Railways • Scenarios

EQ / tsunami Flood Landslide / rockfall Sabotage (normally excluded) Fire in rail yard (if rolling stock is covered)

• PML Range

PML calculation depends on the topography and as a consequence on the flood / landslide exposure. (Due to the anti selection process of the insured, good local knowledge is an advantage).

A loss limit is a must to avoid catastrophic events which have the possibility to exceed calculated PML’s.

Depending on the cover up to 100% of the TSI BI has to be taken in consideration

Runways • Scenarios

EQ / tsunami Flood Aircraft impact

• PML Range

PML calculation depends on the situation and as a consequence on the tsunami / flood exposure.

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Rough assumption 30% to 50%, in non tsunami / flood exposed areas 10% to 20%

Transmission lines • Scenarios

EQ Flood Landslide / rockfall / avalanches Aircraft impact Frost / ice Sabotage / burglary (normally excluded)

• PML Range

PML calculation depends on the topography and as a consequence on the landslide / rockfall / avalanche exposure. The destruction of a section of 500 m and some domino effect leads to the destruction of 1000 m. The PML calculation will be done with an average price plus “ROD”.

In function of the local climate situation frost and ice can lead to a too heavy load and to a collapse with the consequence of 100% loss.

A loss limit is a must to avoid catastrophic events which have the possibility to exceed calculated PML’s.

Depending on the cover up to 100% of the TSI BI has to be taken in consideration

Tunnels • Scenarios

EQ Flood Motor vehicle impact Fire Explosion Sabotage (normally excluded) Collapse (normally excluded)

• PML Range

The EQ and flood exposure is quite small. The highest exposure comes from the motor vehicle impact / fire / explosion.

A destruction of roughly 100 m seems practical. The PML calculation will be done with an average price per running meter (plus removal of debris, plus increased costs of working etc).

A limit with a tunnelling clause (analogue to CAR Covers) and a maximum percentage of the average costs to be indemnified should be part of the cover.

Depending on the cover up to 100% of the TSI BI has to be taken in consideration

Sewer & Water • Scenarios

Earthquake Flood

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Storm Landslide

• PML Range

PML calculation depends on the topography and as a consequence on the flood / landslide exposure. (Due to the anti selection process of the insured good local knowledge is an advantage).

A loss limit is a must to avoid catastrophic events which have the possibility to exceed calculated PML’s.

Waterways • Scenarios

Earthquake Flood / overtopping Vessel impact

• PML Range

Flood: rough assumption up to 30% of the TSI for flood. Vessel impact: Small and only local consequences.

PML conclusions • Good underwriting information for a proper assessment • Good knowledge of the situation through local representation. • High exposure of geographical spread of risk (roads, railways, waterways,

transmission lines). • Difficult to make a proper PML assessment (e.g. flood events in Pakistan August

2010 and Queensland 2011). • Request to have a section limit, a loss limit each and every loss or a loss limit in

the aggregate

11.0 Interesting Claims Unfortunately there are far more losses than people realise and even a quick Google search for ‘dam failures’ will reveal quite a number. Following are a few examples of losses for risks deemed to be CECR type exposures: The Banqiao Reservoir Dam The main risk to dams is collapse. The Banqiao Reservoir Dam lies on the River Ru in Zhumadian Prefecture in China. Building started in 1951 with a number of improvements before its 1975 failure. It was 25 metres high, 3,700 metres wide and produced 18 GW of power. It was principally constructed of clay. It failed as a result of cracks in the dam and sluice gates which had previously been repaired by Soviet Engineers. The failure in the dam wall caused a 10 kilometres wide and 7 metre high wave which broke downstream killing approximately 171,000 people and leaving a further 11 million homeless.

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Banqiao dam after the failure. The Mont Blanc Tunnel Tunnels are mainly subject to collapse and/or fire. Fires have been the most notorious events over the last 20 years and one of the most tragic was the fire in the Mont Blanc tunnel. The tunnel connects Chamonix in France with Courmayeur in Italy. It is 11.6 km’s long with two lanes. On 24th March 1999 a fire started on a truck loaded with margarine and flour. People were trapped in the tunnel and had no chance to escape; thirty nine people lost their lives. The tunnel was shut for three years to repair the damage and ensure new fire safety equipment was installed, including new surveillance equipment, safety bays, and improved fire rated doors. Repair costs are believed to be approximately Euro 206 mio and with the economic cost in the region of Euro 250 mio.

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Other tunnels While the Mont Blanc tunnel was closed there was also a vehicle accident in the Gotthard Tunnel in Switzerland in October 2001. A collision between two trucks caused a fire resulting in the death of eleven people. The 16 km Gotthard Tunnel was shut for two months in order to repair the tunnel and improve safety. Repair costs were estimated to be approximately Euro 5 mio.

Amazingly while the Mont Blanc and Gotthard tunnels were closed for repair the 6.6 km San Bernardino Tunnel, also in Switzerland and part of the link from Northern Switzerland to Southern Switzerland and Italy beyond, another vehicle accident occurred. Closing the San Bernardino together with the closure of the Gotthard and Mont Blanc tunnels would effectively shut much of Switzerland and France off from Italy and the Mediterranean ports. Fortunately this accident was close to the entrance of the southern portal of the tunnel and could be cleaned up relatively quickly. Who would have considered a PML for these risks, especially if tolls were involved and Business Interruption covered? The Channel Tunnel, the 55.5 km link between Folkestone in the UK and Calais in France completed in 1994, has also suffered fires in 1996, 2006 and 2008. The 1996 fire was caused by a truck on board a train which caused damage to a 46 metre section of the tunnel and reduced operational activity for 6 months. In 2006 another fire on a truck on board a train occurred. In 2008 a freight train caught fire requiring repair costs of approximately Euro 60 mio and reducing operational activity for 5 months. http://en.wikipedia.org/wiki/Mont_Blanc_Tunnel http://en.wikipedia.org/wiki/Gotthard_Road_Tunnel http://en.wikipedia.org/wiki/San_Bernardino_(road_tunnel) http://en.wikipedia.org/wiki/Channel_tunnel#2006 Bridges The most common causes of loss for bridges are considered to be wind and water. However, impact has caused numerous losses over the years for water bridges, particularly those that handle freight vessels. Vessel impact is often the PML risk for bridges and assessment of this risk is critical to underwriting. One of the most notorious bridge collisions was that of the Sunshine Skyway on May 9, 1980, one of the most expensive bridge disasters in American history. The

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Sunshine Skyway Bridge was a steel cantilever bridge near St Petersburg in Florida (now replaced by a newer cable-stayed bridge). Heavy rain and fog impeded vision for the pilot captain of the freighter Summit Venture. The Summit Venture, reported to be as long as two football pitches, rammed into the south pier causing a 366 metre section of the bridge to collapse into the water. On the bridge at the time were a Greyhound bus and other vehicles which fell into the water causing loss of life to 35 people. Tragically in this same location four months earlier a coast guard cutter and a tanker collided causing the deaths of 23 crew members. Recently ‘Dolphins’ (structures to protect the piers) surrounding the new bridge piers were inspected and all were found to be damaged by vessel impact, some Dolphins being 70 metres outside the normal shipping lanes. This demonstrates how feasible it is for vessels to ram bridge piers.

http://en.wikipedia.org/wiki/Sunshine_Skyway_Bridge In January 1980 the Tjörnbridge in Sweden was hit by a vessel during fog. The impact caused the collapse of the main 217 metre span. Eight people were killed.

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In 1981 the bridge was replaced (in 17 months!) with a new cable-stayed bridge with a greater span of 366 metres which greatly reduces the possibility of impact by ships.

Bridges can also collapse as a result of floods. Fast and high waters can undermine the piers and abutments, weakening the bridge to the point where collapse is imminent. In the UK floods of 2009 many structures where affected in the north of England. At one point 25 roads and 16 bridges were shut by authorities. In Workington a 3 metre section of a bridge collapsed. Police arrived on the scene in heavy rain to direct traffic away from the bridge. Tragically whilst a policeman was standing on the bridge a further section broke away causing him to fall into the fast flowing waters and drown.

Collapsed Northside Bridge in Workington 2009.

http://www.bbc.co.uk/news/uk-england-cumbria-11531057

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During the same floods the Calva Bridge, also in Workington, suffered damage. It sank approximately half a metre and was expected to collapse. Fortunately it held. A collapse would have been further complicated as power lines were actually attached to the bridge linking both sides of the river. It was feared it was a total loss but repairs were carried out by underpinning the stone columns so that scour didn’t erode the bases. Repairs cost approximately Euro 5 mio. The bridge is 160 years old and it is not known what indemnity would have been payable – new for old, heritage value?

Calva Bridge, Workington nearly collapsed. http://www.bbc.co.uk/news/uk-england-cumbria-12434227 The Camberton Bridge also collapsed in the same floods. The collapse was caught on video and can be viewed on Youtube; http://www.youtube.com/watch?v=5iawOOq8pz0 Eighteen hundred bridges in the region had to be inspected to ensure they were safe. Many bridges were closed for days, cutting off communities, until the inspections could be carried out. During floods in Freeport, Maine video footage captured the gradual collapse of a bridge/road. The footage covers the structure while it is still in one piece before gradually eroding and finally collapsing into the water. The footage can be found using the following link; http://www.youtube.com/watch?v=p_uqPR4Ir5o Railways Railways generally suffer most damage as a result of storm/hurricane/flood. Control cabling (overhead lines) and equipment are generally more susceptible to such events. Sometimes flood can undermine track foundations. There have been a number of closures in the US in the past due to hurricanes, some derailing trains with their strong winds and also storm surges.

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The photo shows the result of flood undermining the tracks. Fortunately in this case the damage was found before a train passed by. A train being derailed on this track would have been a certainty and if a passenger train had passed, it could have resulted in a catastrophic loss of life. For risks including rolling stock material damage costs would also be high.

Severn Valley Railway's John Leach looks at the damage caused by overnight flash floods to rail lines outside the village of Highley, Shropshire http://www.dailymail.co.uk/news/article-463273/Clear-begins-Britain-battered-storms--theres-way.html#ixzz1NAREaLz3

Roads Roads are mainly affected by earthquake, flood/inundation and landslides. Recent earthquakes in Chile, Japan and New Zealand caused heavy losses to infrastructure.

The following photos show the Great Kanko Highway after the recent Japanese earthquake. Amazingly the second photo shows the highway six days later. Whilst a quick fix was available in this instance, in order to have the highway available to transport aid and supplies, it is certainly a rarity rather than the norm.

http://grumpy.blog.co.uk/2011/03/24/japan-repairs-earthquake-road-damage-in-six-days-10883126/

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Another peril that may not usually be considered for roads is malicious damage. In April 2011 arsonists set fire to material in a scrap yard under the M1 motorway just outside of London. 50 fire-fighters were required to fight the fire as concrete exploded and 50 people were evacuated from nearby houses. Several lanes of the motorway were shut for weeks while temporary shoring could be put in place and repairs made. Repair costs are estimated to be Euro 5 mio.

Shoring carried out for the M1 motorway after the fire.

http://www.bbc.co.uk/news/uk-england-london-13090742

Harbours/breakwaters Some would think that harbours/breakwaters would be able to withstand any amount of water. Storm tides raging for two days and accompanied by force 8 to 9 winds caused damage to a breakwater at an oil tanker unloading facility. Pipelines, which the breakwater was protecting, were damaged and parts of the harbour installations were hurled 100 metres into the sea. The material damage loss was approximately Euro 33 mio with Business Interruption loss at Euro 24 mio.

Swiss Re / IMIA Interesting Claims

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Transmission and distribution lines Power lines are often damaged to the point where many reinsurance treaties exclude them from coverage. Storm causes most damage and this is often seen in hurricane prone areas (Gulf of Carpentaria – Caribbean, Florida, Mexico, etc), tornado prone areas (Iowa, Illinois, Okalahoma, Kansas, Missouri, and Texas) and also from ice storm where the Canadian losses in 2000 were a prime example. Below is a photo of damage suffered from a tornado in Prairie County US in 2001.

http://www.srh.noaa.gov/lzk/?n=tor022401.htm In 1998 an ice storm hit large swathes of Canada. Ice formed on a number of transmission and distribution cables and pylons, where its weight eventually caused the collapse of kilometres of cables and pylons in an area 100 x 250 kilometres. Some communities went without power for 33 days until repairs were carried out, the conditions and remoteness making the work very challenging - also consider the contingent business interruption possibilities for this! Costs to repair the lines, pylons and also pole transformers were in the region of Euro 550 million.

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In 2001 a number of insurers started litigation against Hydro Quebec for failing to adequately maintain their equipment. http://en.wikipedia.org/wiki/Hydro-Qu%C3%A9bec's_electricity_transmission_system Probably the most interesting IMIA loss ever! A new mindset in underwriting analysis might be required after this loss. A road in northern England was shut after a blockage in a sewer pipe caused it to burst and damaged a 10 metre section of the road above. The local water authority had to dig down to the damaged sewer pipe and found that the pipe had been blocked by a double ‘D’ bra. Repairs were estimated to be relatively small at approximately Euro 20,000. It is not known whether underwriters are including such items in their list of exclusions……. http://news.bbc.co.uk/2/hi/uk_news/england/6766657.stm This is a classic example of drainage systems not being able to cope with storm waters either through design or blockages. As noted in the maintenance and inspection section above, cleaning of drainage systems is a vital element of risk management.

12.0 Summary The above losses have demonstrated a number of high profile catastrophic losses, along with a few more bizarre ones. A quick browse through the internet will reveal hundreds more. This paper has been created to show that, contrary to common perception, there are quite a number of losses for civil engineering infrastructure. CECR is designed to provide the necessary material damage coverage for infrastructure owners/managers, however such coverage should only be provided after sound underwriting assessment and adequate premium consideration. These risks also require a structured risk engineering programme.