quantifying catastrophe losses and risk exposures...
TRANSCRIPT
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2015/FMP/SEM1/010 Session: 5
Quantifying Catastrophe Losses and Risk Exposures: Proposed OECD Contribution to Cebu
Action Plan
Submitted by: OECD
Seminar on Disaster Risk Finance – APEC Roadmap for Resilient Economies
Bacolod, Philippines29-30 April 2015
Disaster Risk Finance—APEC Roadmap for Resilient Economies Bacolod City, Negros Occidental
29-30 April 2015
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Quantifying Catastrophe Losses and Risk Exposures:
Proposed OECD Contribution to the Cebu Action Plan
Executive Summary
The OECD was invited to suggest a possible contribution to the Cebu Action Plan under the
action program for Enhancing Financial Resiliency. The following note provides further details
on a possible OECD contribution on quantifying catastrophe losses and risk exposures, including
the support that would be required from APEC member economies through the completion of a
questionnaire and, potentially, the development of relevant case studies.
Required Action/Decision Points It is proposed that Senior Finance Officials:
1. Approve the OECD proposal on “Quantifying Catastrophe Losses and Risk Exposures” as a
deliverable under the Cebu Action Plan.
2. Oversee the circulation and collection of a survey for APEC economies (once circulated) and,
where applicable, volunteer to support the development of case studies on approaches to
quantifying catastrophe losses and risk exposures based on their experience.
Disaster Risk Finance—APEC Roadmap for Resilient Economies Bacolod City, Negros Occidental
29-30 April 2015
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Background
Recent years have seen a rise in the frequency and impact of disasters in a great number of
economies around the globe resulting in a broad range of direct and indirect impacts, including
loss of life and damage to public and private property and infrastructure as well as fiscal
impacts arising from recovery and reconstruction expenditures and decreased tax revenues. In
many economies, particularly low income economies, annual disaster losses account for a
significant and growing share of GDP. Economies in the APEC regions are particularly prone to
natural disasters, accounting for approximately 55% of significant events between 2005 and
2014.1
Source: Swiss Re sigma annual reports on natural catastrophes and man-made disasters, 2006-2014.
The development of effective strategies for the financial management of disaster risks is critical
for building resilient economies. The OECD has supported the development of strategies for the
financial management of natural and man-made disaster risks, including the elaboration of an
OECD Recommendation on Good Practices for Mitigating and Financing Catastrophic Risks. In
cooperation with other international organisations, the OECD has also developed the G20/OECD
Framework for Disaster Risk Assessment and Risk Financing for G20 Finance Ministers and
Central Bank Governors and a report on Disaster Risk Financing in APEC Economies: Practices
and Challenges for APEC Finance Ministers.
Quantification catastrophe losses and risk exposures provides the foundation for the
development of disaster risk financing strategies by providing the information that is necessary
for: (1) underwriting disaster insurance products; (2) effectively managing possible fiscal
1 Based on natural disaster events reported in Swiss Re sigma annual reports on natural catastrophes and man-
made disasters for 2005 to 2014 (available at:
http://www.swissre.com/rethinking/climate_and_natural_disaster_risk/).
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exposures to disaster risks; and (3) identifying the most cost-effective approach to mitigating
disaster impacts.
Proposed OECD contribution to the Cebu Action Plan
With the support of APEC member economies and international organisations, the OECD could
prepare a report for APEC Finance Ministers outlining the types of information that are required
for the quantification of catastrophe losses and risk exposures, the availability of that
information across APEC economies and case studies on approaches to establishing the
necessary infrastructure and processes for collecting this information based on the experience
of selected APEC economies. If useful, and subject to the support of APEC economies, case
studies could also be prepared on the use of this information for the development of private
insurance markets, sovereign risk transfer mechanisms such as catastrophe bonds and regional
risk pools and/or cost-benefit analysis on different approaches to mitigating disaster risks.
The completion of this work would require input from APEC member economies through
responses to a questionnaire on existing practices and through offers of support for the
development of relevant case studies. The OECD circulated a questionnaire on this issue in 2011
(attached) which provides an illustration of the types of questions that may be included in the
questionnaire to support this work. A notional timeline for this work is presented below. The
support of other international organisations with experience/expertise in these areas would
also be welcome.
Action Deadline
Circulation of Survey May 4
Completed Responses from APEC Economies May 29
Circulation of draft report August 7
Comments on draft report August 14
Circulation of final report August 21
Fatal flaw comments August 28
Submission to Finance Ministers September 4
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Annex A: OECD Questionnaire on the quantification of catastrophe losses and exposures
(2011) (for illustrative purposes only)
QUANTIFYING CATASTROPHE LOSSES AND RISK EXPOSURES
The availability, accuracy and reliability of data and information on the economic and social
impacts of catastrophic (“CAT”) events play a fundamental role in the design and implementation of
efficient financial management strategies to cope with large-scale disaster risks.
Notwithstanding the existence of several long-standing, well-respected initiatives, there is a
general lack of international consensus regarding good practices for collecting, elaborating and
disseminating these data, especially with respect to the quantification of total economic losses which
encompass not only insured but also uninsured losses, and not only residential and business losses but
also government losses. Catastrophe loss quantification is characterised by variability in definitions,
methodologies, tools and sourcing, which reduces comparability.
Moreover, there appears to be scope for certain geographical areas, including Asia, to be better
represented in current initiatives. Also, a recent initiative, the Global Earthquake Model, has
demonstrated the scope for improved data on economic and social losses on, and exposures to,
earthquake risks2.
To improve the current situation, consideration could be given to promoting standardised
definitions and terminology, and more consistent data gathering and dissemination methodologies,
regarding:
a) Losses from past catastrophes, be they natural (e.g. floods, wind-related, earthquake, tsunami,
etc) or man-made (e.g. terrorism, technological accidents, etc).
b) Current exposure to potential catastrophe loss (residential, business and governmental
exposure).
While these are difficult tasks, the OECD could potentially play an important role in
promoting standardisation and/or harmonisation and enhanced data gathering.
The purpose of this questionnaire is to obtain information from OECD member and selected non-
member countries on their experiences and perspectives regarding the quantification of catastrophic
losses and risk exposures. The questionnaire seeks to assess the possible difficulties encountered by
countries in the quantification of catastrophe losses and risk exposures, identify relevant national
initiatives, and assess the priority attached by countries to the quantification of losses and risk
exposures. Questionnaire responses will provide a basis for determining the appropriate role (if any)
of the OECD in this area. Based on the level of interest, a special seminar could be organised to
discuss issues with relevant stakeholders.
2 See http://www.globalquakemodel.org.
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The results of this questionnaire will be shared with the OECD’s Insurance and Private Pensions
Committee (IPPC) and its Task Force on Insurance Statistics at their forthcoming meetings in 2011.
The results will also be circulated to the OECD’s High-Level Advisory Board on the Financial
Management of Catastrophes. In addition, they will be shared with non-OECD countries participating
in the survey.
QUESTIONNAIRE ON QUANTIFICATION OF LOSSES AND RISK EXPOSURES LINKED TO
CATASTROPHES IN OECD AND SELECTED NON-OECD COUNTRIES
COUNTRY
ORGANISATION
CONTACT PERSON
(with e-mail address)
Please also indicate relevant contact
persons or organisations in your
country who might be interested in
participating in any seminar organised
on this topic. Please include e-mail
address(es).
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This questionnaire should be filled in by governmental authorities (government ministry or
supervisory authority). If the information/data provided are not from governmental source,
please indicate the source.
For the tables: Please mark with an “X” as appropriate in the last line of each table.
1. Disasters : extent of country exposure and definition
1.1. Would you consider your country to be prone to natural or man-made catastrophes? If yes,
please provide details (including nature of principal hazards).
Risk of natural catastrophe Risk of man-made catastrophe
High Medium Low High Medium Low
1.2. Is there a definition of natural or man-made “disaster” or “catastrophe” that is commonly used by
governmental bodies in your country (e.g. definition provided by national law / used to trigger
government spending, etc.)? The source of such definition can be a public or private institution.
Natural catastrophe Man-made catastrophe
Yes No Yes No
Please provide this(these) definition(s) if it(they) exist(s).
1.3. Is the government or any other official body responsible for declaring that an event is a disaster or
catastrophe?
Natural catastrophe Man-made catastrophe
Yes No Yes No
If so, what are the criteria (if any)? What is the purpose of such official declaration (e.g., trigger of
payments under insurance/compensation schemes, allocation/disbursement of public funds)?
2. Quantifying insured losses
2.1. Is data3 on insured losses linked to natural and man-made catastrophes in your country collected
and disseminated at a national (or sub-national) level?
Natural catastrophe Man-made catastrophe
Yes No Yes No
2.2. If yes, is this process undertaken by:
a) the private sector?
3 Including estimates.
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Natural catastrophe Man-made catastrophe
Yes No Yes No
b) the public sector?
Natural catastrophe Man-made catastrophe
Yes No Yes No
c) other data collector/provider(s) (e.g., NGOs)?
Natural catastrophe Man-made catastrophe
Yes No Yes No
Please provide details, including geographical scope of the exercise (national, regional, or
international), whether the exercise is voluntary or mandatory and its frequency.
2.3. If yes, please provide information on the definition / methodology for each identified exercise,
including:
a) How are “insured losses” linked to catastrophes defined:
How is the catastrophic event defined in this context (type of peril, quantitative
threshold for losses and linkage (if any) of that threshold with governmental
declaration/statutory definition or possible industry definition):
Insurance lines that are covered (property only versus life, liability, business
interruption, etc):
Whether it includes insured losses incurred by publicly backed insurance schemes:
Geographical scope of definition (losses incurred by direct insurers licensed to
undertake business in your country and subject to your country’s authority or also
losses incurred on your national territory even if covered by foreign direct insurers on
a cross-border basis):
b) If the exercise provides information on the split between insured losses retained by direct
insurers versus reinsurers:
c) How data on insured losses are collected, and frequency of this data
gathering/dissemination (including updates and revisions to loss figures):
d) Other methodological notes:
2.4. If yes, does your authority (government ministry or supervisory authority) regularly review this
information (e.g., as part of monitoring of insurance sector, development of approaches to overall
catastrophe risk management)?
Natural catastrophe Man-made catastrophe
Yes No Yes No
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If yes, please provide details (if any):
2.5. If yes, please identify, from your perspective, the benefits and costs related to this ongoing data
gathering/ dissemination:
2.6. If no to 2.1. above, how is such data obtained (or might be obtained)
a) ad hoc requests (please provide details on experiences with such requests)
Natural catastrophe Man-made catastrophe
Yes No Yes No
b) Reliance on regional and/or international data gathering exercises (please provide details,
including nature of the exercise(s), geographical scope, experiences (if any) with respect to
accuracy and reliability):
Natural catastrophe Man-made catastrophe
Yes No Yes No
2.7. Please rate the difficulty you would have in providing the aggregate amount of insured losses
linked to natural and man-made catastrophes in your country for a given year. If the answer is low,
please provide this data for each of the last five years (2006 to 2010) and indicate the data source.
Natural catastrophe Man-made catastrophe
Yes No Yes No
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3. Quantifying uninsured economic losses
3.1. Is data on uninsured economic losses linked to natural and man-made catastrophes collected and
disseminated at a national (or sub-national) level?
Natural catastrophe Man-made catastrophe
Yes No Yes No
3.2. If yes, what is the definition of uninsured economic losses used for this purpose?
Please provide details on the scope of the definition, and whether it encompasses:
a) All uninsured loss to private and public property/assets/infrastructure
b) All resources (money, time, machinery) spent on post event clean-up and restoration
(private and public, including emergency crews, army equipment and troups, temporary
housing, emergency aid by private and international institutions, etc.)
c) Loss of production and service delivery due to destroyed assets (direct and indirect effects
like unavailability of power and transportation or work force, etc).
3.3. Please provide any other details regarding data collection of uninsured economic losses (e.g., data
sources at private, federal, state or municipality level, etc).
4. Quantifying government spending
Is data available on government spending incurred to cover uninsured
economic losses (e.g., emergency response costs, temporary housing, payments to households for
physical damage, reconstruction, including public assets and infrastructure) related to natural and
man-made catastrophes?
Natural catastrophe Man-made catastrophe
Yes No Yes No
If yes, please provide details, explaining how such data is collected (e.g. through national catastrophe
insurance programs if they exist) and stored, and indicating whether and how it is made publicly
available:
5. Quantifying disaster loss
5.1. Please rate the extent to which you consider disaster loss quantification to be an important issue
for your country:
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Risk of natural catastrophe Risk of man-made catastrophe
High Medium Low High Medium Low
5.2. Please provide rationale for rating (if possible):
5.3. If medium or high, please provide information on your specific priorities or needs (if any):
6. Quantifying insured exposures
6.1. Is data on insured exposures to natural and man-made catastrophes in your country collected or
disseminated at a national (or sub-national), regional, or international level?
Natural catastrophe Man-made catastrophe
Yes No Yes No
If yes, please provide details (including nature of the exercise, geographical scope, definitions used,
whether exercise is voluntary or mandatory (e.g., for prudential supervision), frequency, whether data
is easily accessible, examples of data and their source):
6.2. Please rate the extent to which you consider insured risk quantification to be an important issue
for your country:
Risk of natural catastrophe Risk of man-made catastrophe
High Medium Low High Medium Low
Please provide rationale for rating (if possible). If medium or high, please provide information on
your specific priorities or needs (if any):
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7. Work in progress and future work on the quantification of disaster risk and losses
7.1. Are you aware of any work-in-progress concerning improvements being made to data
gathering/dissemination exercises regarding insured losses or risk exposures, at a domestic, regional,
or international level, be it by private or public stakeholders?
Natural catastrophe Man-made catastrophe
Yes No Yes No
If yes, please provide details:
7.2. Please provide any further information or any views on potential work by the OECD in this area: