june 2, 2003
DESCRIPTION
June 2, 2003. Assessing the World Bank Contribution to the Development of Global Insurance Markets: A Market Perspective. Sean Mooney New York. Agenda. Introduction to Guy Carpenter What the “Market” wants What the World Bank is doing What the World Bank can do Case Study Conclusion. - PowerPoint PPT PresentationTRANSCRIPT
Sean Mooney New York
Assessing the World Bank Contribution to the Development of Global Insurance Markets: A Market Perspective
June 2, 2003
Guy Carpenter 2
Agenda
Introduction to Guy Carpenter
What the “Market” wants
What the World Bank is doing
What the World Bank can do
Case Study
Conclusion
Guy Carpenter 3
Guy Carpenter & Co., Inc.
The reinsurance intermediary subsidiary of Marsh & McLennan Companies
MMC is a global professional services firm with annual revenues exceeding $10B. Core businesses:
– Risk and insurance
– Investment management
– Consulting
MMC has approx. 59,000 employees who provide analysis, advice and transactional capabilities to clients in more than 100 countries.
Guy Carpenter 4
Guy Carpenter & Co., Inc.
49 offices in 22 countries - 2200 employees
Leading catastrophe risk reinsurance intermediary:
– Over $3B in catastrophe reinsurance premium
– Over $35B in Limits placed annually
Intermediary for numerous governmental catastrophe programs
Guy Carpenter 5
What the “Market” wants
Reinsurance is a global business
Reinsured natural disaster exposures are heavily concentrated - USA, Europe, Japan
Better diversification = better risk profile
Strong desire for additional diversifying risk
As such, the “Market” welcomes the development of new catastrophe insurance markets
Preference for market-based solutions
Guy Carpenter 6
What The World Bank is Doing
TCIP is the case study for Public/Private partnership:
– World Bank worked with Turkish Govt throughout
– Brought together the necessary resources and expertise.
Successful first effort
Enthusiasm for the efforts of the World Bank
Reinsurers support efforts in other countries
Guy Carpenter 7
What The World Bank Can Do
Reinsurers recognize that developing economies can benefit from external funding and expertise in:
– Risk mitigation
– Set up of catastrophe insurance programs
– Catastrophe risk transfer techniques Reinsurance Capital markets
Organization and funding required for these
– World Bank is well suited to this task
Guy Carpenter 8
What The World Bank Can Do
Reinsurers recognize that The World Bank is unique:
– Mission to help the World’s poor
– Expertise in large, complex project management
– Not profit motivated
– Can provide low-cost funding
– Important to developing countries
Private market natural disaster experts do not share all of these attributes
Guy Carpenter 9
What The World Bank Can Do
Reinsurers see key roles of World Bank:
– Impartial Interface with Government bodies
– Project management, if required
– Funding for studies: Mitigation Feasibility Insurance and risk transfer Low cost financing of “retained” risks -- e.g.
reinsurance program deductibles.
Guy Carpenter 10
What The World Bank Can Do
Reinsurers expect even smoother future projects:
– Benefits of experience
– All parties understand processes and approaches better e.g.:
Reinsurance broker and reinsurer interaction World Bank tender process
Reinsurers applaud and encourage World Bank efforts
Guy Carpenter 12
Case Study: Taiwan Residential Earthquake Insurance Pool (TREIP)
Formed April 1, 2002
Formed as a result of Chi-Chi Earthquake, 9/21/1999
Lack of Residential Earthquake Insurance cover
Vulnerability of Taiwan to Earthquakes
Guy Carpenter 13
Chi-Chi Earthquake
September 21, 1999, 1:47 am (local time)
Magnitude 7.3 -7.7
Central part of Taiwan
Guy Carpenter 14
Chi-Chi Earthquake
Over 2,400 lives were lost
More than 10,000 people were injured
Over 5,000 buildings collapsed
Taiwan’s worst disaster since the Shin-Chu Taichung earthquake of April 1935, magnitude 7.1, where 3,325 lives were lost.
Guy Carpenter 15
Vulnerability of Taiwan to Earthquakes
Taiwan is a seismically active region Affected by many earthquakes each year Taiwan is being compressed and forms a
transitional zone between two areas of subduction, as a result of the collision between the Philippine and Eurasian plates
Guy Carpenter 17
Lack of Residential Earthquake Insurance cover
Prior to the Chi-Chi earthquake, only about 1% of the residences in Taiwan had earthquake insurance
Earthquake insurance was available as an endorsement to long term fire policies
Guy Carpenter 18
Taiwanese Government’s Main Goal
Availability of earthquake damage compensation to Taiwan residents
– Concern as to whether compensation would be available to most residents following an event
– Includes a quasi-mandatory purchase of earthquake cover
Guy Carpenter 19
Secondary Goals
Affordable Insurance
Minimize government budget exposure
– Ministry of Finance (MOF) required all insurance companies to provide coverage for residential earthquake risk
Public/Private cooperative solution
Guy Carpenter 20
Characteristics of Taiwan
Taiwan is a small island, but is one of the most densely populated countries in the world.
The earthquake risk is very high. Taiwan has numerous fault lines, and relatively high probabilities of activity along the fault lines.
Traditionally residents are reluctant to purchase property insurance. This is a global trait, but appears to be relatively higher in Taiwan.
Guy Carpenter 21
Characteristics of Taiwan (Continued)
Until TREIP, residential insurance policies in the main were purchased for the life of the mortgage.
Single family western-style residences are rare (seven percent of all households).
Guy Carpenter 22
Insurance Policy
Fixed Premium per Household: NT$ 1,459
Building, maximum sum insured amount: NT$1.2 million
Contingent Living Expenses (CLE): NT$180,000
No cover for contents
Flat Rate (no variation by location or type of structure)
Guy Carpenter 23
Goals How Achieved
AvailabilityQuasi-mandatory, Links earthquake insurance to fire and mortgage policies, resulting in relatively high penetration into market place
AffordabilityLow cost CTL Feature, No contents cover, Limit of NT$ 1.2 million max. insured amount
Minimize government budget exposure
Insurance companies participate at high frequency layer. Program capped, Reinsurance purchased from international market
Public / PrivateNational earthquake scheme - creating risk sharing partnership
Guy Carpenter 24
FundingStructure of TREIP
Excess NT$ 50 Billion: Pro Rata
NT$ 10 Billion xs. NT$ 40 Billion: Government
NT$ 20 Billion xs. NT$ 20 Billion: International Reinsurers
NT$ 18 Billion xs. NT$ 2 Billion: Government Foundation
NT$ 2 Billion: Private Insurers
Pro Rata
Layer 4
Layer 3
Layer 2
Layer 1
Guy Carpenter 25
Program Administration
TREIP managed by Central Reinsurance Corporation (CRC)
– Part owned by the Government
– Long time reinsurer of Taiwanese and international risks
– Professional/ well established expertise in reinsurance
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Current Situation
Number of Policies as of 12/31/2002: 495,824
Total Exposure: NT$ 750 Million
Take-up Rate: 8.7%
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Summary
TREIP successfully launched
Stable financial support
– Excellent public/private partnership
– Strong reinsurance support
Achieving key goal of availability
Guy Carpenter 28
Achieving Strong Support from Reinsurers: Lessons Learned
Professional Management of TREIP
High Quality Data
Adequate original pricing
Legal structures in place to manage disputes
Defined claims settlement process
Guy Carpenter 29
Role for the World Bank?
Taiwan is a relatively wealthy economy with substantial resources thus able to:
– Fund Feasibility studies Earthquake risk assessment (modeling)
– Domestically retained substantial risk
Other economies not in the same position:
– World Bank can provide the foregoing for less developed economies
Guy Carpenter 30
Conclusion
World Bank should continue its efforts:
– Improve economies of developing nations
– Simultaneously, help the international risk transfer markets function more efficiently