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Urbanisation: a trend where (re)insurance can support with risk-solutions

ICRM Symposium 201523 April 2015

Thomas PeterChief Underwriting Officer, Munich Re Singapore

Agenda

2Thomas Peter (Munich Re)

1. Development of urban population

2. Risks in Megacities and impact to our industry

3. Solutions and Products

� Risk management implications for (re)insurers

� Role of the (re)insurance industry

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1. Development of urban population

Population development by major regions

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Increase in urbanisation levels concentrated on developing countries, in particular China and India.

Estimated development of world population 7.2bn (2014) to 9.6bn (2050)

0.0

1.0

2.0

3.0

4.0

5.0

Africa Asia Europe LA &Caribb.

NA0.0

1.0

2.0

3.0

4.0

5.0

Africa Asia Europe LA &Caribb.

NA

RuralUrban

2014 2050Source: World urbanization prospects –The 2014 revision (United Nations)

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Urban population by city size

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Megacities with >10m population will experience the highest relative increase.28 Megacities in 2015 and 40 projected for 2030

Estimated development of urban population (in bn) by city size

0.0

1.0

2.0

3.0

4.0

5.0

2011 2025

> 10m5m to 10m1m to 5m500k to 1m< 500k

Source: World urbanization prospects –The 2011 revision (United Nations)


Jakarta

• In 1980 population of 6.5m

• Current population of 10.2m expected to increase 35% to 13.8m by 2030

• In 2007 the worst flood in memory inundated 70% of Jakarta killing 57 people

• Land subsidence is a threat due to the exploitation of groundwater and high rise building

• Insurance penetration estimated at 2.1%

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Manila

• Current population of 12.8m expected to increase 31% to 16.8m by 2030

• Only 11% of population live in housing properly connected to waste-disposal facilities

• People even living next to flood defenses or with dead to find space

• Spread of diseases

• Insurance penetration low at 2%


2. Risks in Megacities and impact to our industry

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Special risk situation: Potential risks

• Natural CatastrophesExamples: Earthquake in San Francisco (1906), Thailand Flood (2011)

• Technological and infrastructural catastrophes,e.g. chemical explosions of ammonium nitrate store in Toulouse in September (2001), Power Failure Amsterdam (2015)

• Epidemics and infectious diseases,SARS (2003), H1N1 (2009), H7N9 (2013), Ebola (2014)

• Social / political risks and terrorism,as in the past in New York (2001), Bangkok (2010 & 2014)

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Further aggravating factors for natural catastrophe losses in urban agglomerations

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Megacities are specifically exposed to losses from natural catastrophes.

Reasons why losses can further increase in urban areas

• Cities have a high degree of sealed surfaces, where precipitation cannot percolate, which increases flash flood risk.

• The social structure of big cities can cause additional problems in post-disaster management (social unrest, crime).

• Climate change will increase the intensities of wind storms, and in combination with climate change related sea level rise storm surge hazards will increase significantly.

This is in particular relevant for megacities, the majority of which are located at the coast.

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Explosion Chemical Plant in a MegacityExample: Fertilizer explosion in Toulouse, France in 2001

• Explosive substance: 400 t of ammonium nitrate

• Fatalities: 30

• Number of persons injured: 2,240

• Radius of severe property damage: 350 m

• Radius of shattered windows: � 3 km

• Economic loss: €2.3bn

• Insured loss: €1.9bn

• 75,000 claims


3. Solutions and Products

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Role of the (re)insurance industry


Multiple insurance solutions available, but insurance penetration in most Asian countries are still very low and a big event can erode a country’s wealth base.

• Increase public awareness of high natural catastrophe risk

• Make risks more transparent (loss examples, publications, accumulation tools)

• Actively share construction knowledge (e.g. building codes) in Megacities

• Provide tools (e.g. Nathan, Geo-Coding)

Increase public risk awareness?

• Life, Health, Personal Accident

• Public, Products and Environment Liability Covers

• Workers Compensation and Employment Liability

• Construction Covers (Planning and Operation)

• Property Covers• Covers for Natural

Catastrophes• Bond Insurance• …

• Alternative Risk Transfer (e.g.Cat-Bonds, Weather Derivatives)

• Microinsurance• Global “Pandemic

Emergency Facility”• Land Value Insurance• Cat in a Box• Disaster Relief Cover• Urban resilience scheme• …

Facilitate (re)insurance solutions?

• Life HeaTraditional

• Alternative RiskAlternative (New)

Megacities - Construction Engineering

• Construction globally has been rapidly increasing since 2000

• Asia has been driving the trend and this will continue

• Buildings are getting bigger and bigger!

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Petronas Towers1998 452m

Shanghai TowerE 2016 660m

Burj Khalifa2010 828m

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Megacities - Construction Engineering

• Today high rise buildings are more and more complex

• MRT, tunnels, high speed railways, bridges, land reclamation projects

• Different technologies (e.g. faster elevators, Green Technology, sport facilities

• TPL & Design Error considerations

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Earthquake Risk: Land Value Insurance & Parametric Solutions

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Land Value Insurance

• Insured interest: devaluation of land value after an EQ

• Building cannot be reinstated due to lack of financial means ->Possible gap of cover

• Damage Trigger precondition: building destroyed minimum 70% (Eng. survey)

“Cat in a Box”

• Triggering EQ with an epicentre in the defined box in a depth less than or equal 50 km

• Predefined magnitude greater or equal to e.g. 6


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Disaster Relief Products

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• Insured: each town and/or region

• Payment basis: Indemnity

• Nat-Cat peril can be defined

• Trigger for payment:

o Actual or emerging disaster

o Instruction or advisory recommendation for evacuation

• Losses covered: Provision of accommodation, food, drinking water, medical care, school articles, clothing, distribution of supplies etc.

• Various limits (per event/annual) imposed per loss type / per evacuated person / per municipality

• Payment immediate, if necessary independently of the financial situation of a city


Coverage area 1:“Inhabitant’s fatality / injury”

Lump sum payment for• death• injury

(table defining the exact compensation scheme for injuries according to the severity � max. RMB 100,000)

NatCat perils

�Storm�Torrential rain

�Cliff avalanche�Lightning strike�Flood�Tornado�Squall line�Typhoon�Tsunami�Debris flow�Sudden landslide

�Hail�Water logging

�Earthquake (4.5)

Coverage area 2: “Evacuation of inhabitants due to nuclear contamination caused by NatCatperils”

Coverage area 3:

“Recovery allowances”(e.g. tents, food, damage on housing)

Aggregate

Deductible

To be paid by power plantoperators

Current trends - government initiated urban resilience insurance covers

Urban resilience scheme 1 Inhabitants in the defined urban area (e.g. Megacity)

Coverageprovided byinsurance / reinsurance

Parametric trigger solutionRMB 2bn

RMB 30mn fund Funding bycentral government

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Thank you for your attention and your contribution!

Thomas Peter

Backup

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History of megacities 1950

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In 1950, New York and Tokyo were the only megacities with > 10m inhabitants.

10m20m

30m

40m

Sources: Esri, DeLorme, USGS, IFL, NGA, NOAA;World urbanization prospects –The 2011 revision (United Nations)


Current megacities2014

22

Currently, there are already 28 megacities.

10m20m

30m



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Current megacities2030

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Currently, there are already 28 megacities.

10m20m

30m



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