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Reinsurance and other Risk Transfer Mechanisms National Policy on Disaster Management

Reinsurance and other Risk Transfer Mechanisms National Policy on Disaster Management IRDA,NDMA and FICCI. 11 th August 2010. Agenda. Disaster Risk financing : Availability of Reinsurance support

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Reinsurance and other Risk Transfer Mechanisms National Policy on Disaster Management

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  1. Reinsurance and other Risk Transfer Mechanisms National Policy on Disaster Management IRDA,NDMA and FICCI 11th August 2010 www.rahejaqbe.com

  2. Agenda • Disaster Risk financing : Availability of Reinsurance support • Alternative Risk Transfer : Development of Insurance linked securities, Insurance linked warranties and CAT bonds for managing risks • Partnership for risk transfer and financing formation of natural catastrophe pool www.rahejaqbe.com

  3. Concerns • How should the cover be priced? • How should the Sum Insured be selected? • How should the claims be determined and paid? • Will international reinsurance support be available for such a large scale cover? • Will the Government be willing to subsidize the premium and give tax breaks? www.rahejaqbe.com

  4. Challenges • CAT : Super CAT • Historical data : not good enough anymore • Economic losses : Insured losses • Benefit : Indemnity • Indemnity based mindset; slow to recognize climate change as a factor • Micro : Big Ticket www.rahejaqbe.com

  5. Challenges • Lessons from US and China • Going beyond physical assets • Man made : AOG • ‘Activism’ : Insurance Industry • Reactive : Proactive • Solvency of insurers/pools : Risk Based Capital www.rahejaqbe.com

  6. Implications of Climate change • The most direct risk to insurers from climate change is that the probabilities of loss are changing quickly • Not easy to identify by looking at extreme events themselves, given the low frequency • Looking at the global weather scene, noteworthy that great disasters appear in clusters Source : CII (UK) www.rahejaqbe.com

  7. Great Weather catastrophes 1950-2009 Source:Munich Re

  8. Implications of Climate change • Chart shows one year in three the costs are 50% higher than the trend line • Given this trend, it seems very likely that there will be a ‘peak’ year that will record costs of over USD 1 trillion before 2040 • With so much development taking place in coastal zones, the figures may achieve considerably before 2040 Source : CII (UK) www.rahejaqbe.com

  9. Way forward • How should the cover be priced? • District wise Average Annual Loss from pre-calculated peril matrices to determine exposure • Analysis of historical data keeping in mind today's economic value/s • Greenhouse Factor • How should the Sum Insured be selected? • Low insurance penetration and density implies coverage for a few • Coverage based on benefit, to start with, instead of indemnity. Helps pricing as well • How should the claims be determined and paid? • Linkage to UID or Government verification • Micro insurance model to reach the grass roots www.rahejaqbe.com

  10. Way forward • Will international reinsurance support be available for such a large scale cover? • Best practices from other markets can be adopted to suit Indian needs. E.g.- • Turkish Catastrophic Insurance pool • FONDEN Of Mexico • Caribbean Catastrophe Risk Insurance Facility • The Indonesian Earthquake Reinsurance Pool • Will the Government be willing to subsidize the premium and give tax breaks? • There needs to be legislation, regulations and incentives to ensure that insurance is used to share the burden of disaster relief www.rahejaqbe.com

  11. Way forward • Other steps • Separate CAT reserve for companies? • Public Private partnership? • Consider widening Terrorism pool to cover other perils? • Cooperation with international reinsurers? • Regional pooling? www.rahejaqbe.com

  12. Not a Child’s play! • Z:\Temp1\simcitysocietiesthedisasterswww.wmv

  13. Thank you

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