World Forum of Catastrophe Insurance Programmes

  • September 17, 2014
  • David Middleton

New Zealand is privileged to be hosting the IX meeting of the World Forum of Catastrophe Programmes this month in Christchurch. This is an annual forum that has its origins from a meeting of like minds in 2005.

At that time the CEOs of two of the oldest and most respected national disaster insurance schemes, the Iceland Catastrophe Insurance Fund and the New Zealand Earthquake Commission (EQC), met in London and decided it would be of value to arrange a forum where many schemes could share experiences and work together to resolve common problems. The World Bank and the OECD were encouraging the establishment of national disaster schemes to counter the diversion of aid from development projects to emergency use when a natural catastrophe occurred. Both disaster schemes had hosted delegations from other countries, visiting to learn more of how a national scheme could be organised.

An opportunity was presented by the special conference in San Francisco to mark the centenary of the 1906 earthquake. Executives of government natural disaster insurance programmes were hosted by the California Earthquake Authority and agreed that regular meetings would benefit both new and well-established schemes. As CEO of EQC I was elected the first chair of the World Forum and held the position for five years.

Since then annual forum meetings have been hosted in Spain, Iceland, Taiwan, Romania, Jamaica, Switzerland and Norway. And this month (September 2014), it is New Zealand’s turn, with EQC once again in the chair. Of course, the appeal is to experience the Canterbury earthquake recovery. The visitors will be taken around the city, visiting CERA and EQC offices as well as the “Cardboard Cathedral” and will be addressed by the mayor, university vice-chancellor, head of the Chamber of Commerce and representatives of the insurance industry and people of Christchurch.

Over 20 delegates from 12 different country schemes are expected from Europe, America and Asia. The first scheme was set up in Spain in 1939 and the newest member is still in formation.

The various national or regional programmes have both similarities and wide differences. All are designed to provide compensation for damage to homes, but some also insure commercial buildings and assets. A few also cover indirect losses such as loss of rents and costs of temporary accommodation.

Most schemes legally oblige the homeowner to purchase disaster insurance; in others the objective is to make disaster insurance available but it need not be purchased. Few schemes handle their own claims (EQC is one of them), most programmes outsourcing this to the insurance industry or operating in a reinsurance role.

About one third have some form of government financial guarantee, others have provision to pay the proportion of claims that their capital and reserves are able to finance. About half have simple standard pricing like EQC while the others employ some form of risk-assessed premium.

Despite this diversity there is always much to talk about. In past forums, members have heard about Icelandic earthquakes and volcanic eruptions, a large Norwegian forest fire exercise, innovative risk transfer mechanisms such as catastrophe bonds, the challenges of establishing new schemes, various technical issues such as the collection of reliable data, and the world’s first regional scheme (the Caribbean Catastrophe Risk Insurance Facility which covers sixteen separate countries).

With news from members about their recent developments and debates on insurance aspects such as risk-rating versus a flat premium, the reliability of computer hazard models, how to utilise the reinsurance market and how best to cope with sudden spikes in claims, the forums are always a lively occasion.

More information on the Forum and scheme members can be found here.