Transcript Insuring the uninsurable The French Natural Catastrophe System

Insuring the uninsurable
The French Natural Catastrophe System
Paris 1910 - French Parlement
What perils menace France ?


Windstorms and hurricanes
• Lothar & Martin (1999) EUR 7-8 Billion
• Cyclone Hugo (1989) : EUR 700-750 Million
Floods
Centennial flood in the Paris area (IIBRBS estimate)
• EUR 3.2 billion for direct damages
• EUR 1.5 billion for indirect damages
• 200 towns
• 250 000 persons
What perils menace France ?



Landslides (including subsidence)
• At least EUR 2.6 billion since 1989
Earthquake
• EUR 61 million for the small Annecy earthquake
• “The Big One” : a major earthquake in south of
France would cause very important damage
Avalanches
Insurability of natural perils
France has split natural perils in two categories :


Perils considered as insurable :
 windstorms/hurricanes
 hail
 snow pressure
 freeze
Perils considered as uninsurable :
all others (floods, earthquake, landslides,
avalanches…etc).
The border between these two categories is not
fixed.
For uninsurable risks

Public funds
 State systems
 Financed by taxes
National Fund for Agricultural Disasters - 1964 Law

A mixed scheme
 State and Re/insurance industry
 Certain conditions fixed by the State
 Solidarity
Natural Catastrophe Scheme - 1982 Law
The 1982 Law

Prevention
“…non insurable direct material damage arising solely as a
result of a natural element of abnormal intensity,
…when normal preventive measures have not been
respected“

Compensation
The damaged property must be covered by a “property
damage” insurance policy
Main characteristics of the
“Natural catastrophe” insurance
Solidarity – obligatory extended guarantee on fire
policy (direct damage and/or business interruption)

Security – guarantees replacement value of insured
property, no time depreciation


Factors fixed by the State




declaration of the state of natural catastrophe,
definition of the perils,
deductibles,
rating.
Declaration of an Event
by inter-ministerial decree
Compensation
Decree
Inter-Ministerial
Commission
Prefecture
Prefecture
Mayor
Mayor
Inter-ministerial Commission
Distribution of accepted files by type or peril
(from 1982 to June 2002)
Others 0.7 %
Windstorms 0.5 %
Subsidence 29.9 %
Earthquakes 0.5 %
Avalanches 0.5 %
Floods 56.7 %
Landslides 11.2 %
Deductibles and Rating


Deductibles fixed by the State and cannot be bought back
Rating : percentage of damage guarantees of the basic
policy (or, failing this, 0,50% of the damage premium).
Non
professional
Property
Deductibles
except
subsidence
EUR 380
EUR 1520
10% minimum EUR
1140
Professional
Business
3 working days
Interruption minimum EUR 1140
Property
Automobile
EUR 380
Rating
12% of fire
premium
EUR 3050
-
6% of fire premium
or 0.5% of damage
premium
Prevention
Risk Prevention Plans (“PPR”) : mapping of the
risk used to develop durable urban planning (land
use and construction codes)


13,000 towns have a PPR
Deductibles : multiplicative factor applied to
towns without a PPR where events are frequent :





1 or 2 decrees
3 decrees
4 decrees
5 or more decrees
:
:
:
:
basic deductible
doubled deductible
tripled deductible
quadrupled deductible
Market Premiums and losses –Non Auto
(data source : ceding company accounts as at May 2002)
M EUR
1000
200
%
900
800
150
700
600
500
100
400
300
50
200
100
0
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
323
411
447
428
437
448
468
505
500
559
597
634
665
661
653
623
711
596
Net charge
18
13
54
189
289
258
580
259
463
729
320
673
645
406
347
641
289
206
C/P (%)
6
3
12
44
66
58
124
51
93
130
54
106
97
61
53
103
41
35
Earned premiums
0
CCR’s Role
CCR is able to offer the market a reinsurance
scheme with unlimited cover, backed by the
State guarantee : a guarantee of solvency.

CCR’s duty : increase the responsibility of those
involved in the scheme, to insure the continuity
and the viability of the system.

CCR and prevention : develop an effective
prevention policy

Evolution of cessions to CCR
(loss occurring basis - millions of Euros)
900
800
700
600
500
400
300
200
100
0
Market earned premiums
(*) Estimates
Average rate of cession
CCR earned premiums
2001
1999
1997
1995
1993
1991
1989
1987
1985
1982/83
90
80
70
60
50
40
30
20
10
0
Evolution of CCR’s equalization reserve
(Accounting years - millions Euros)
591
600
525
550
500
467
424 416
450
400
350
483
505
499
300
250 223
268
427
406
349 351
331 338
295
238 239 230 234 241
261
486
536
321
300
358
310
309
294
261
231
200
155
150
Equalization reserve
Premium income
20
03
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
100
The French System : is it ideal ?
The 1982 law has shown to be adapted to the
situation in France. However, France benefits
from:


Moderate exposure to natural risks
A well developed insurance sector
While it is not adapted to every situation, the
French system can be used as a reference. Each
market can find its own answer to financing
natural risks depending on its exposure to perils,
insurance market, culture and history.
For further documentation on the French Natural
Catastrophe Scheme:
http://www.ccr.fr