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Presentation slides, Seminar 3 about societal risk in an insurance
Societal risk in an insurance and re-insurance perspective Seminar in Oslo, 23 and 24 August 2009 BI Norwegian School of Management Programme and presentation slides Societal risk in an insurance and re-insurance perspective Seminar in Oslo, 23 and 24 August 2009 BI Norwegian School of Management Campus Nydalen Room C2-005 Updated programme as of 19th August 23rd August 2009 (Sunday): Paper presentations (room C2-005); open to all; focusing on dialogue and exchange between active researchers in the field) 12.00-13.30 Registration (outside room C2-005) 12.45-13.30 Lunch in the Department of Strategy& Logistics (B 3; phone JB’s cel +4746410457 if you can’t get in) 13.45-14.15: Welcome (Johannes Brinkmann, BI/Roff, Aaron Doyle, Carleton University and BI/Roff). Introductions and brief discussion of research interests and seminar themes. 14.15-15:45: Paper presentations with discussion I Magne Aarset, Høgskolen i Ålesund and Roff: Marine Insurance: Alliances between marine insurance companies – do good partners exist? Aaron Doyle, Carleton University and BI: Catastrophe Risks, Government and the Insurance Industry: Some Challenges 15:45-16.00 16.00-16.30 Update on Samrisk-related project in progress: The Swine Flu Pandemic and the Norwegian Media. John Berg and Johannes Brinkmann Coffee break 16.30-17.30: Paper presentations and discussion II Linmei Nie, SINTEF Building and Infrastructure: Water and Flood Damage and Regulation for Insurance in a Dynamic Society Jyri Liukko, University of Helsinki: Genetic Discrimination and the Justifications for Insurantial Solidarity 17.30-18.30 (approximately): Day one wrap-up/discussion of potential research directions (discussion moderators: Aaron Doyle and Johannes Brinkmann) 19.00 Dinner (BI, Department of Strategy& Logistics, B3). Societal risk in an insurance and re-insurance perspective Seminar in Oslo, 23 and 24 August 2009 24th August 2009 (Monday): Room C2-005 Keynote lectures (addressing a broad range of target groups) 10.00 Day two opening remarks – Johannes Brinkmann and Aaron Doyle 10.15-11.00: Martin Johanntoberens, Munich Reinsurance: Emerging Risks for the Insurance Industry 11.15-12.15: Switch to Room B2-040: Tom Baker, University of Pennsylvania Law School (Recorded TV presentation; live two-way discussion, Oslo-Jerusalem): Studying Insurance from a Socio-Legal Perspective 12.30-13.30 Lunch (cafeteria, 7th floor; look for reserved table) Return to Room C2-005: 13.30-14.15: Luis Lobo-Guerrero, Keele University: Insurance and Power: A Geneaology of Securing Emerging Life 14.30-15.30: Aaron Doyle and Johannes Brinkmann (moderators): Wrap-up discussion, future research projects and possibilities for collaboration; potential academic-insurance industry co-operation. 15.30 End of network meeting; if necessary, further meetings of smaller groups re future research, publication possibilities, grant applications etc Welcome to the Seminar Societal risk in an insurance and re-insurance perspective 23 and 24 August 2009 Johannes Brinkmann BI Norwegian School of Management 1 Welcome 23rd August • Introductions and brief discussion of research interests and seminar themes (participant presentation) • 14.15-16.00: Paper presentations with discussion: • • • Magne Aarset, Høgskolen i Ålesund and Roff Aaron Doyle, Carleton University and BI Update on Samrisk-related project in progress: The Swine Flu Pandemic • 16.00-16.30 Coffee break • 16.30-17.30: Paper presentations and discussion: • • Linmei Nie, SINTEF Building and Infrastructure Jyri Liukko, University of Helsinki • 17.30-18.30 (approximately): Day one wrap-up/discussion of potential research directions • 19.00 Dinner (Dept of Strategy&Logistics, B3) 2 Johannes Brinkmann, presentation • See websites: http://www.bi.no/users/fgl92025 , http://www.bi.no/roff • Project coordinator with reporting responsibility • Primary concern: to stage networking as an end in itself • Secondary concern: hopefully also encouraging • • • Future joint relevant research, R&D cooperation between academia, insurance industry Academic and popular publications • Joint learning from one another and pooling/sharing competence, such as • • • SwissRe work and presentations about disasters is obviously relevant to samrisk Swineflu as a more or less innocent illustration Corporate social responsibility of the insurance industry: taking actively part in the samrisk discussion about large size risks/ catastrophes and societal security 3 Aaron Doyle, presentation • Primary academic responsibility for this seminar… 4 In alliances between marine insurance companies - do good partners exist ? Magne Aarset Centre for risk and insurance research, BI Norwegian School of Management Ålesund University College Societal risk in an insurance and re-insurance perspective Seminar in Oslo, 23 - 24 August 2009 BI Norwegian School of Management Insurance Insurance Non-life insurance is an agreement that an insurance company will cover the economical loss for the organization after the occurence of a sudden and unpredicted event. For this service the organization pays the insurance company an amount in advance (a premium). Calculating Calculating the the premium premium Theoretical Premium = Expected claim = E(Cijf) Premium = Estimated Expected Claim = E(Cijf) Non-life Non-life insurance insurance Marine and transportation insurance is covering risks regarding transportation at sea, on land and in the air. Marine Marine insurance insurance Partner A 20% Partner B 10% Lead insurance company ... Partner Z 15% 8 The The history history • 3000 BC Chinese merchants trading on the Yangtze River are reported to have distributed their cargoes over a number of vessels so as to ”average” the risk of loss. • 2200 BC in Babylon there are traces of insurance concepts. • 215 BC the Roman Government was required by the suppliers of military stores to accept ”all risks of loss, arising from the enemies or from storm, to the suppliers which they have placed in the ships”. History History • 1063 AD ”Ordo et Consults Domaris” • 1255 AD Maritime Statutes of Venice • 1200s the Lombard Merchants in Northern Italy ”Polizza” = ”Promise” or ”Undertaking” = Policy Lombard street in the City of London • 1200s the Hanseatic Merchants in Germany • 1200s Denmark formed a ”Navigator’s Guild” • 1601 An Act passed in the English Parliament established a special mercantile tribunal, ”The Court of Policies of Insurance” • 1800s London became the most influential insurance market in the world Lloyd’s Lloyd’s • 1688 Edward Lloyd, a coffee house owner in London Great Tower Street → Lombard Street • 1734 Published a newsletter which was a precursor to Lloyd’s List • 1760 Lloyd’s Register • 1769 Lloyd’s became formally an insurance market 11 LONDON MARKET GROSS PREMIUM INCOME Marine Marine insurance insurance • The capital interest in the vessel – – – – Hull and Machinery policy Builders risk Freight interest insurance War risk cover • The income interest in the vessel – Loss of Hire (LOH) insurance – Freight interest insurance • Liabilities – P&I insurance (Protection and Indemnity) P&I P&I Clubs Clubs • • • • • • • • • • • • • The American The Britannia Assuranceforeningen Gard The Japan The London Steam-Ship The North of England The Shipowners Mutual Assuranceforeningen Skuld The Standard Steamship The Steamship Mutual The Swedish Club The United Kingdom The West of England Regressions Model X1 β1 X2 β2 X3 β3 X4 X5 X6 X7 β4 Y ε β5 β6 β7 15 Regressions Model A regression model Yt = β0 + β1x1t + … + βkxkt + εt 16 Factor Model δ1 X1 λx11 δ2 X2 λx 21 δ3 X3 λx 32 δ4 X4 λx42 δ5 X5 λx53 δ6 X6 δ7 X7 λx63 ξ1 ξ2 ξ3 λy 1 λy 2 Y ε λy 3 λx73 17 Factor Model X1 = λx11ξ1 + λx21ξ2 + λx31ξ3 + δ1 X2 = λx12ξ1 + λx22ξ2 + λx32ξ3 + δ2 X3 = λx13ξ1 + λx23ξ2 + λx33ξ3 + δ3 Y = λy1ξ1 +λy2ξ2 +λy3ξ3 + ε 18 Structural Equations Model θδ21 δ1 X1 λx11 δ2 X2 λx21 δ3 X3 λx32 δ4 X4 λx42 δ5 X5 λx53 δ6 δ7 λx63 X6 X7 λx λy11 ξ1 γ21 ε1 Y2 ε2 λy33 Y3 ε3 λy43 Y4 ε4 γ11 γ12 η1 ξ2 λ ζ2 ζ2 β31 γ22 β21 γ13 ξ3 Y1 η3 β32 γ23 74 21 ψ31 λy52 η2 y Y5 ε5 λy62 Y6 ε6 ζ2 ε θ 65 19 Structural Equations Model θδ21 δ1 X1 λx11 δ2 X2 λx21 X3 λx32 δ4 X4 λx42 δ5 X5 λx53 δ3 δ6 δ7 λx63 X6 X7 λx λy11 ξ1 γ21 ε1 Y2 ε2 λy33 Y3 ε3 λy43 Y4 ε4 γ11 γ12 η1 ξ2 ζ2 ζ2 β31 γ22 β21 γ13 ξ3 Y1 β32 γ23 η2 74 η3 λy52 λ ζ2 λy21 ψ31 y 62 Y5 ε5 Y6 ε6 θε65 20 LISREL Measurement Model X = Λx ξ + δ ⎡ λx ...λ1xm ⎤ ⎡ x1 ⎤ ⎢ 11 ⎥ ⎢ ⎥ = ... ... ⎢ ⎥ ⎢ ⎥ x ⎥ ⎢λqx1...λqm ⎢⎣xq ⎥⎦ ⎣ ⎦ ⎡ δ1 ⎤ ⎡ ξ1 ⎤ ⎢ ... ⎥ + ⎢ ... ⎥ ⎢ ⎥ ⎢ ⎥ ⎢⎣δ q ⎥⎦ ⎢⎣ξ m ⎥⎦ 21 Structural Equations Model θδ21 δ1 X1 λx11 δ2 X2 λx21 X3 λx32 δ4 X4 λx42 δ5 X5 λx53 δ3 δ6 δ7 λx63 X6 X7 λx λy11 ξ1 γ21 ε1 Y2 ε2 λy33 Y3 ε3 λy43 Y4 ε4 γ11 γ12 η1 ξ2 ζ2 ζ2 β31 γ22 β21 γ13 ξ3 Y1 β32 γ23 η2 74 η3 λy52 λ ζ2 λy21 ψ31 y 62 Y5 ε5 Y6 ε6 θε65 22 LISREL Measurement Model Y = Λy η + ε ⎡ λy ...λ1ym ⎤ ⎡ y1 ⎤ ⎢ 11 ⎥ ⎢ ⎥ = ... ... ⎢ ⎥ ⎢ ⎥ y ⎥ ⎢λpy1...λpm ⎢⎣y p ⎥⎦ ⎦ ⎣ ⎡ η1 ⎤ ⎡ ε1 ⎤ ⎢ ... ⎥ + ⎢ ... ⎥ ⎢ ⎥ ⎢ ⎥ ⎢⎣ηm ⎥⎦ ⎢⎣ε m ⎥⎦ 23 Structural Equations Model θδ21 δ1 X1 λx11 δ2 X2 λx21 X3 λx32 δ4 X4 λx42 δ5 X5 λx53 δ3 δ6 δ7 λx63 X6 X7 λx λy11 ξ1 γ21 ε1 Y2 ε2 λy33 Y3 ε3 λy43 Y4 ε4 γ11 γ12 η1 ξ2 ζ2 ζ2 β31 γ22 β21 γ13 ξ3 Y1 β32 γ23 η2 74 η3 λy52 λ ζ2 λy21 ψ31 y 62 Y5 ε5 Y6 ε6 θε65 24 LISREL Structural Model η = Γξ + Βη + ζ ⎡η1 ⎤ ⎡ γ 11...γ 1n ⎤ ⎢ ... ⎥ = ⎢ ... ⎥ ⎢ ⎥ ⎢ ⎥ ⎢⎣η m ⎥⎦ ⎢⎣γ m1...γ mn ⎥⎦ ⎡ 0 ⎡ξ1 ⎤ ⎢ ⎢ ... ⎥ + ⎢ ... ⎢ ⎥ ⎢ ... ⎢⎣ξ n ⎥⎦ ⎢ ⎣ Bm1 B12 ... B1m ⎤ ⎡η1 ⎤ ⎡ζ1 ⎤ 0 ... ... ⎥⎥ ⎢ ⎥ + ⎢⎢ ... ⎥⎥ ... ... 0 ... ⎥ ⎢ ⎥ ⎢⎣ζ m ⎥⎦ ⎥ ⎢η m ⎥ ... ... 0 ⎦ ⎣ ⎦ 25 LISREL Structural Model η = Γξ + Βη + ζ Measurement Models X = Λx ξ + δ Y = Λy η + ε 26 δ1 Strategy δ2 δ3 Attractiveness of client δ4 ... Economic strength ... δ11 Strategy δ12 Claims/premium statistics δ13 Currency δ14 Insurers country Strategy of the insurance company ... ... ... Status and strategy of the assured ... δ21 Sum insured δ22 Insurance period δ23 Deductible amount δ24 Type of vessel δ25 GRT δ26 ISM code δ27 Age of vessel δ28 Flag δ29 Classification company δ30 Certificates δ31 Experience of crew Status and planned use of the insured object (incl. crew and officers) ... 11 11 284 284 xx 154 154 • • • • • • • • • • • • • The insurance year Currency Insured value The partner insurance company’s percentage Deductible amount Total premium Insurance days Insurer’s country code Object build year Gross register tonnage, GRT Object type Classification company Flag (2002-2005) (2002-2005) Claims ε Regressions Model X1 β1 X2 β2 X3 β3 β4 X4 Y ε β5 X5 β6 X6 β7 X7 29 Regression Regression model model II Coefficientsa Standardized Unstandardized Coefficients Model 1 B (Constant) Std. Error 1.330 .302 OurPercentage .001 .000 ObjectBuiltYear .000 .000 NIS -.018 .008 US$ .015 DEUInsurer Collinearity Statistics Coefficients Beta t Sig. Tolerance VIF 4.405 .000 .276 7.556 .000 .848 1.179 -.160 -4.468 .000 .884 1.131 -.091 -2.312 .021 .731 1.368 .003 .190 4.505 .000 .640 1.563 .010 .003 .142 2.790 .005 .439 2.278 NLDInsurer .011 .004 .132 2.710 .007 .475 2.107 NORInsurer .024 .005 .204 4.567 .000 .569 1.757 a. Dependent Variable: ClaimsQuota Adjusted R2 = 13.4 % Regression Regression model model II II Coefficientsa Standardized Coefficients Unstandardized Coefficients Model 1 B (Constant) Std. Error Beta t 159.329 20.911 OurPercentage .037 .005 ObjectBuiltYear -.084 .010 -1.889E-5 .000 -.081 .750 .235 -.815 .299 GRT BV GEUInsurer Sig. 7.620 .000 .239 6.864 .000 -.266 -8.007 .000 -2.184 .029 .106 3.194 .001 -.097 -2.726 .007 a. Dependent Variable: LNClaimsQuota Adjusted R2 = 21.8 % Findings Findings As the first regression model only explains 14.5% of the variation and the second 21.8%, it is difficult for the partner insurance company to make its own judgment regarding the risk to be insured based on the data available. This kind of common coverage of a risk is therefore fundamentally based on trust. Findings Findings As the most influential explanatory variable in the first regression model and the second most influential explanatory variable in the second regression model is “Our Percentage”, and this explanatory variable in both models has an estimated parameter with a positive sign, both models suggest that the higher percentage accepted, the higher estimated claims quota. 34 John E. Berg MD PhD Psychiatrist and economist Blakstad Hospital E‐mail: [email protected] Media perceived risk y Statistical health risks Fate of single persons under risk John E. Berg MD PhD 2 Aftenposten 19.8.09 John E. Berg MD PhD 3 Person focused media coverage and risk assessment y Probabilities cannot be based on individual cases y Health authorities fall into one of two pits: y Communicate a high risk, which turns out not to be true – you get blamed for not planning for a disaster y Communicate low risk, which turns out to be not so low – you get blamed for lack of executive ability and knowledge of the field John E. Berg MD PhD 4 Further consequences y Extreme media coverage over time y ”we have stopped counting the cases, as there are so many” y How do you measure the severity of a plague when you do not know the number infected? y The first fatal case may occur when the number of diagnosed cases is low. Media start calculating overall risk based on this. John E. Berg MD PhD 5 1976 outbrake of swine‐flu in USA (Vårt Land 15.8.09) Met with massive vaccination after one death related to the H1N1 virus 40 mill. people vaccinated 25 died of vaccine reactions, (GBS) John E. Berg MD PhD 6 1976 outbrake of flu (Dagbladet 15.8.09) y Lessons from this outbrake in the US: y Do not overreact y Ensure that the vaccine is not a worse killer because of major side effects than the flu itself y No reason to play down the risks for an imminent pandemia y Do not introduce silly measures like gloves in the grocery store y The recent reaction of the Norwegian people, ”6 out 10 would not take the vaccine when offered this autumn” is not based on well founded risk assessment John E. Berg MD PhD 7 Does it help to get the flu? y ”Krank werden schützt besser als impfen” y Tages‐Anzeiger, Switzerland 8.8.2009 y Suppose: swine‐flu develops like normal flu y Getting the swine‐flu is no catastrophe for almost all infected y Some immunity would be transported to the next generation of virus y If more people get the flu, more people would be under risk y This societal view implies that people take Tamiflu and later the specially developed vaccine John E. Berg MD PhD 8 Does it help to get the flu? 2 y Other experts, virologists, state that influenza‐viruses are very unpredictable y We cannot today say if taking the vaccine or not is the best strategy y Because we do not know how the flu‐virus would develop y We do neither know the degree of effect of a new vaccine y Giving advise on flu is like telling the weather for next month John E. Berg MD PhD 9 Does swine‐flu help the economy? y Economist 25.7.2009 y According to British Health Authorities a third of the population would catch the flu this winter y Imagine a week off work for all these people, global GDP would fall 5%. y 1918, excess mortality was 0.4% , o.5% effect on the economy (if World War I was not to blame) y 1957 and 1968 pandemic and the 2007 bird flu, not discernible effects on the economy or mortality rates John E. Berg MD PhD 10 Shut the schools? y Neue Zürcher Zeitung 6.8.2009 y Swiss cantons do not recommend closing schools y Norwegian authorities say maybe y British authorities plan not to open schools y All recommend increased hygiene allerts y To date, in Europe some 40 persons died of the swine‐ flu, ”all” with other immunity reducing illnesses John E. Berg MD PhD 11 Proposals for the young flu surviving students y Media coverage of different expert authorities (health, school, economic advisers) y Does health authorities convey a consistent balance between exageration and dimunition of risk? y Do different health authorities disagree in the open? y Is it at all possible to educate the public on the perception of risk under the current person and crisis oriented newspaper and TV regime? John E. Berg MD PhD 12 Piggy love in Britain this summer John E. Berg MD PhD 13 Has the swine flu something to do with the samrisk programme and/or our networking project and if yes what? • • • • A few media references among many References in the programme document Wise risk communication and risk perception? Insurance perspectives? 1 A few media references among many • When it comes to taking a skeptical look at media coverage, one can depart from this public Norwegian TV website: – http://nrkbeta.no/2009/05/12/svineinfluensa-er-overhypet/ • For quick and critical references see e.g. – http://www.realtruth.org/articles/090504-008analysis.html?s_kwcid=TC|7308|swine%20flu%20pandemic||S|| 3453382607&gclid=CMmYmYvnlpwCFcgSzAodBxzRgw – http://www.acceleratingfuture.com/michael/blog/2009/04/follow ing-the-flu-and-catastrophic-risk-in-general/ • As a contrast, the who-site, perhaps: http://www.who.int/csr/disease/swineflu/en/index.html 2 1 3 The samrisk programme plan found in the upper right corner of this site: http://www.forskningsraadet.no/servlet/Satellite?c=Page&cid=1228296552859&p =1228296552859&pagename=samrisk%2FHovedsidemal 4 2 5 6 3 And there is more… • http://www.artemis.bm/blog/2009/04/28/a-swine-flupandemic-and-the-catastrophe-bond-market/ • http://www.globalreinsurance.com/story.asp?storycode= 379601 • etc 7 The last slide… • Work more with swine flu for the november seminar about risk communication and/or the april seminar about case stories? • PR ethics bachelor programme class, perhaps selected as a term paper topic • Other ideas and suggestions? • Daily newspaper story (kronikk) for marketing our project? 8 4 GENETIC DISCRIMINATION AND THE JUSTIFICATIONS OF INSURANTIAL SOLIDARITY Societal risk in an insurance and re-insurance perspective, 23 – 24 August 2009, Oslo Jyri Liukko University of Helsinki Discussion on genetic discrimination • The use of predictive genetic information in underwriting » Unfair discrimination of insurance applicants? • New debate and regulations » Problematization of the right to select and rank life, health and disability insurance applicants » Growing discussion on solidarity and fairness of risk classification 1 Reseach questions and frame • Justifications for (the regulation of) genetic discrimination? • Different forms of insurantial solidarity? – Chance solidarity and subsidizing solidarity (Yves Thiery and Caroline Van Schoubroeck 2006) • Market, industrial, civic (Boltanski & Thévenot) Industrial justifications • Actuarial justifications for discrimination • But in most cases no actuarial reason to justify genetic discrimination (few exceptions like Huntington) • Possible misuse of actuarially irrelevant information – Can be used to justify subsidizing solidarity 2 Market justifications • A just deal – symmetry of information – Market logic justifies only the disclosure of already existing genetic information • Example: Council of Europe’s Convention of Human Rights and Biomedicine (1997): – In line with the market logic, the Convention prohibits only performance of genetic tests Civic justifications • Council of Europe’s Committee of Experts: – ’increasing general wish to avoid discrimination’ – ‘the notion that anti-discrimination clauses need explicit enlargement with health or health-related grounds is presently gaining momentum’ • In the case of insurance this relates only to genetic information • UK Actuarial Profession: – A much broader issue – ’there are social policy issues at stake’ • In the Finnish discussion no place for civic justifications 3 Implications for insurantial solidarity • Genetic ’risk carriers’ vs. life style ’risk takers’ • Market and industrial reasoning have remained strong in the discussion on genetic discrimination • The role of civic justifications and subsidizing solidarity in private insurance has increased • Broader problematization of discrimination? – Blurs the borderline of private and social insurance Entanglement of private and social insurance • The social task of private insurance? • ”A solidarity component within commercial insurance” (European Society of Human Genetics 2003) • • • • • Threshold levels State subsidies for high-risk insurants Group insurance and community rating Mandatory insurance against a positive test result Reinsurance pooling • Some degree of adverse selection may be feasible and from a public policy perspective desirable (Thomas 2008) ¾ Maximization of ’loss coverage’ (that is, overlap of all public and private insurance coverages and loss events in a population) • Compromises between industrial, market and civic justifications 4 Presentation for BI seminar: Societal risk in an insurance and re-insurance perspective Water and flood damage and regulations for insurance in a dynamic society Linmei Nie SINTEF Building and Infrastructure 23-24 August 2009 SINTEF Building and Infrastructure 1 Objectives Address water-related damages; Regulations for insurance with regard to water-related damages Trend of change and challenges Potential for research SINTEF Building and Infrastructure 2 1 Types of water-related damages according to insurances and rules Type of damage Insurance Conditions of insurance Water-pipe damage Insurance for “House and Home” Damage caused by a sudden and unforeseen water flow, or other liquid from building’s pipelines with connecting equipments due to break, leakage or inundation Damages caused by The Act on Natural natural disasters Damage Insurance Natural damage is understood to be damage directly caused by a natural event such as landslide, avalanche, storm, floods, storm surge, earthquake or volcanic eruption SINTEF Building and Infrastructure 3 Flood damage It is defined when the streams, rivers and lakes are over their capacities (inundated), water will release from the border of the water bodies, and as a consequence it may causes damage to exposed victims (e.g. people and livestock, buildings and properties, farm lands and the environment, etc. E.g. in 1995 the central parts of Norway were struck by a flood, costing damage about 1 billion NOK. It is regulated by the Norwegian Act on Natural Damage Insurance (Act NO. 70 16 June 1989; Act NO. 7 of 25 March 1994; Act NO. 98 of 17 December 2004, into force in 01 January 2005) and the Water Course Act. SINTEF Building and Infrastructure 4 2 Natural disaster occurrence by disaster type (UNISDR, 2008) Natural disaster occurence by disaster type Average 2000-2007 Disasters Total Wild fire Volcano Storm Flood Extreme temperature Earthquake Drought 0 50 100 150 200 250 300 350 400 450 Number of disasters * UNISDR (UN International Strategy for Disaster Reduction). SINTEF Building and Infrastructure 5 Water pipeline & flood damage Water pipeline damage Flood damage Number of claims 20 000 15 000 10 000 5 000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2005 2006 2007 2008 Year Water pipeline & flood damage Damage (Mill. NOK) Water pipeline damage Flood damage 1000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2007 2008 Year Skadestatistikk 1997-2008 (www.fnh.no) SINTEF Building and Infrastructure 6 3 Conclusions of statistics Water-pipe damage is dominated according to statistics of number of claims and total amount of monetary damage. Average damage Water pipe Flood Number_claims 17101 755 Damages (Mill.NOK) 583 67 Water pipe damage: the number of damage claim cases decreases & the amount of damage increases; Flood damage: the number of damage claim cases and the amount of damage increase. Water pipe damage usually happens more frequently in a small scale, i.e. an individual house or a small house groups in neighbourhood, and damage per event is not very significant. A large flood event is rare to happen, however, when it happens, has usually severe consequences in a large river basin We should prepare for the happening of both. SINTEF Building and Infrastructure 7 Regulations for flood damage compensation Clause 47 of the Water Courses Act (OED, 2000) declares that the municipality has full responsibility if flooding damage is caused by inadequate maintenance and operation of open and above ground drainage systems. Clause 24a of the Pollution Control Act (MD, 1981) states that “the owner of an underground sewerage or drainage system is responsible for the damage caused by the system, if the hydraulic capacity of the system is not designed sufficiently to avoid flooding.” SINTEF Building and Infrastructure 8 4 Return periods of design rains in sewer systems, Norwegian Water guideline Design raina (1 in “n” years) Main type of area Design floodingb (1 in “n” years) 5 Low damage potential areas (e.g. rural areas) 10 10 Residential areas 20 20 City centre/ Industrial/ Commercial areas 30 30 Very high damage potential areas 50 (Lindholm et al., 2008) SINTEF Building and Infrastructure 9 The power of “force majeure” The power of “force majeure” The old Act said that the owner should be free of all responsibilities if a rain exceeded an intensity with which it was reasonable to design a sewer system. The event was called “force majeure”, and the flooding consequences due to such an event would not imply liability to owners for damage compensation. In the new law, the concept of the force majeure is no more mentioned. What can we do if such an event occurs, e.g. a rain event with a return period rare than 1 in 100 years happens? SINTEF Building and Infrastructure LN4 10 5 A court trial in Fredrikstad, Norway A court trial after a flooding event in 2002 in the city of Fredrikstad in Norway. The represents of the prosecution (i.e. the insurance companies) claimed that, according to the new law, the municipalities should be always responsible if damage is caused by insufficient capacity of the drainage system, no matter the return period of the rain. The defendant (from the municipality part), however, claimed that the concept of force majeure must still be valid because it was unreasonable to design urban drainage systems that could cope with all rain intensities. The court concluded that it would be not reasonable, sometimes even impossible to develop a sewer system that is able to cope with all unexpected rain events. Therefore, the force majeure should still be an applicable although it is not mentioned in the new Act, then the event must have a return period close to 100 years or rarer (Fredrikstad, 2005). SINTEF Building and Infrastructure 11 Trend of water damages in dynamic society Statistics: Water pipe damage: the number of damage claim cases decreases & the amount of damage increases; Flood damage: the number of damage claim cases and the amount of damage increase. Cause: Water pipe damages are caused by technical failure in construction and rehabilitation LN2 Flood damage are induced by external drivers, e.g. climate change and change in land uses* Increase uncertainty in predicting meteorological events, e.g. precipitation, a random event, it is difficult to forecast when, where it will happen, and how much the magnitude will be, further it is difficult to prevent its happening and resulting adverse consequences*. Lacking of adaptation and mitigation SINTEF Building and Infrastructure LN3 12 6 Challenges Increase the knowledge to climate change Understand the correspondence of Damage-InsuranceLaw Strengthen public knowledge and concerns Share the increased risk and responsibility between owners – Insurance companies – Governments (municipality and the central government) Deal with other water damages, i.e. When water comes directly from, e.g. a wash tub, rain or snow melting and the damage that can lead to, instead of from a water pipeline, the damage will NOT be included in the insurance for house and home. Does it covered by natural damage insurance? Need for research and dissertation SINTEF Building and Infrastructure 13 Potential for research Assess additional damage due to climate change, e.g. intensive precipitation, high temperature and sea level rise, and strategy for adaptation and mitigation Reduce the risk by participating in the action for research, adaptation and mitigation* LN5 Deal with damage caused by joint natural disasters and LN6 rules for insurance* Assess intangible consequences to people, society and environment Play the role of reinsurance E-mail: [email protected] SINTEF Building and Infrastructure 14 7 Looking at the Samrisk programme (about large societal risks and societal security) in an insurance and re-insurance perspective? A few introductory reflections Johannes Brinkmann BI Norwegian School of Management Centre for risk and insurance research 1 SAMRISK? • Abbreviation for a Research council of Norway programme about Societal Security and Risks 2006 - 2010 • The point of departure for societal security efforts is that crises can and must be prevented. It is important to understand their causes and preventing them from taking place. Should crises nonetheless arise, they must be dealt with in the best possible manner • The research programme "Societal Security and Risks" - SAMRISK aims at increasing the knowledge about threats, dangers and vulnerability, about how unwanted events can be prevented and crises management be strengthened, whilst respecting basic human rights and privacy. To obtain this the programme will contribute to developing new knowledge, build networks and also qualify the research community to participate in the EU research programme "Security". 2 SAMRISK 2 • Among the general topics the programme plan underlines the interplay between technology, society, organisation and humans, risk, vulnerability and risk tolerance, political governance and regulations, crisis management and risk communication. • The programme intends to establish an open meeting space for research on societal security. In this and also in other connections Norwegian and other researchers in relevant EU projects will be included. • • http://www.forskningsradet.no/servlet/Satellite?c=Page&cid=122829655 2924&pagename=samrisk%2FHovedsidemal http://www.forskningsradet.no/servlet/Satellite?c=Page&cid=122829693 7134&pagename=samrisk%2FHovedsidemal 3 4 Samrisk 3 • This call for proposals is for small projects for networking activities only. The activities may be organising open seminar series or establishing of networks that organise workshops, exchange programmes, joint data collection, web pages, publishing, etc. The proposal must explain in what way the activities contribute to building networks. • The proposals must concern societal security and risks the way this is outlined in the Programme plan, see this, and must relate to the five mentioned general topics: • • • • • Technologies in interaction with society, organisations and individuals Patterns and magnitude of risks and threats, vulnerability and society's risk tolerance Policies, control and regulations Safety, security and society Crises management and risk communication • We represent one networking project among five, see http://www.forskningsradet.no/servlet/Satellite?c=Page&cid=1235469195593&pagename=sa mrisk%2FHovedsidemal • Our project: seminar series 2009-2010 about Societal risks and risk society: A cross-disciplinary and cross-stakeholder dialogue perspective , http://www.bi.no/Content/Article____73533.aspx 5 Could one and how could one (and should one) connect Samrisk and the insurance industry? • Perhaps rather not? • ”The Social Responsibility of Business is to Increase its Profits”? • by Milton Friedman The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company. http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html • Perhaps? • http://report.munichre.com/reports/munichre/annual/2008/gb/English/405040/corporat e-responsibility.html • Perhaps? • http://www.swissre.com/pws/about%20us/corp.%20responsibility/corporate%20respo nsibility.html • Perhaps? • • http://www.storebrand.no/site/stb.nsf/Pages/hovedsidecorporateresponsibility.html http://www.fnh.no/no/Nyheter/Finansnaringen-tar-samfunnsansvar/ 6 Draft of a proposal for future cross-disciplinary and cross-stakeholder cooperation • If there is mutual interest only • Potential collaborators: Roff, Prio, SwissRe, MunichRe, FNH, Norwegian insurance companies (at least their CSR functions), samrisk collaborators • We could have a preparatory meeting or workshop within some 2-4 weeks in Oslo • If there is sufficient interest, discuss possibilities of editing a JBE special issue about the insurance industry CSR • Fragments from a paper in progress, co-authored JB&AaD 7 In the insurance industry, CSR claims are closely related to the core of the business and its product • Look for and look at websites: • http://www.gjensidige.com/web/Front+Page/Corporat e+Social+Responsibility or http://www.storebrand.no/site/stb.nsf/Enter/forsideen glish.html. • http://www.wienerstaedtische.com/en/group/sponsori ng-csr/ or http://holding.generali.at/__C1256A6F0044EA06.nsf/0/ 5E48D5529773C44DC12570F8003444EF 8 Two theses 1. Insurance is originally and essentially an idealistic idea, based in and fostering solidarity or mutual support among individuals as part of a community. There is a tension between this idealistic heritage and the reality of present day business life, of surviving or maximizing profit in markets. 2. Because the insurance industry has mutuality, solidarity, safety and security as historical values, such values should be exploited and focused on in how insurance companies present their corporate social responsibilities, perhaps at the expense of more generic societal responsibilities. Similarly, responsibilities towards customers and pools as well as responsibility sharing with customers and pools should be emphasised clearly. 9 Two final theses 3. The samrisk programme issues and topics fit really well as a test case for a dialogue about the corporate social responsibilities of the insurance industry, perhaps even about what are and should be the primary 4. ”The Social Responsibility of the Insurance Business is to Increase Societal Security the best it can, in a sustainable fashion, profitability included” 10 Dr. Martin Johanntoberens Münchener Rück Emerging risks for the insurance industry Norwegian School of Management BI Centre for risk and insurance research - 24 August 2009 Dr. Martin Johanntoberens Content 1. New technologies - case studies A - Focus 3 B - Electromagnetic fields (EMF) 4 C - Genetic engineering 6 D - Nanotechnology 8 E - Summary 10 2. Risk community 13 3. Munich Re Emerging Risk Think Tank 15 4. Summary 16 2 Dr. Martin Johanntoberens Münchener Rück 1. New technologies - case studies A - Focus Public risk perception & public risk communication Interface Science, Technology and Society Social aspects EMF - GMO - Nanotechnology Consumer acceptance Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 3 1. New technologies - case studies B - Electromagnetic fields (EMF) Public debate time bar Sputnik 1 Ausnahme Labor 1930 1950 1967 1960 1970 1980 1990 colour TV set power lines pc screens mobile telephony illustrative!!! Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 4 Dr. Martin Johanntoberens Münchener Rück 1. New technologies - case studies B - Electromagnetic fields (EMF) Public worries in comparison: Germany 2006 Source: Infas 2006 Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 5 1. New technologies - case studies C - Genetic engineering Public debate time bar Dolly ‘97 laboratory 1973 1978 1985 1995 acceptance deficit in Europe exception 1999 general increase of acceptance & debates about certain fields of application Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 6 Dr. Martin Johanntoberens Münchener Rück 1. New technologies - case studies C - Genetic engineering Consumer acceptance in comparison: Europe + 11 A C C E P T A N C E 22 33 44 55 - 66 Source: Eurobarometer 58.0: Europeans and Biotechnology in 2002 (13ff.) Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 7 1. New technologies - case studies D - Nanotechnology Facts − ca. 800 commercially available consumer products on the market which contain nanoparticles − nanotechnology world market volume 2007: 147 billion US-Dollar − nanotechnology world market volume 2015: estimation 3,1 trillion US-Dollar − investment in nanotechnology research 2008: 18,2 billion US-Dollar − leading nations in R&D: USA and Japan − focus: application near research − natural scientific and social scientific risk research are at a starting point Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 8 Dr. Martin Johanntoberens Münchener Rück 1. New technologies - case studies D - Nanotechnology Australia, Canada, Germany, Japan, UK and USA − public knowledge still low − public perception predominantly positive (mainly in Europe) − no public risk conflict, so far ... − (media coverage mostly positive) − potential benefits will overrun potential risks Source: http://www.nanoned.nl − strong public support in the fields of medical and environmental technology − critical perception in food sector call for product labelling Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 9 1. New technologies - case studies E - Summary Concept of public risk perception Latency phase Emergence phase Post phase Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 10 Dr. Martin Johanntoberens Münchener Rück 1. New technologies - case studies E - Summary EMF, Genetic engineering and Nanotechnology Latency phase Emergence phase Post phase Genetic engineering food production ? EMF Mobile telephony Nanotechnology time Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 11 1. New technologies - case studies E - Summary Different risk assesments Science evidence-based risk assessment risk assessment by trend positive Society ethics & morality Politics / Legislation risk governing following prec.-principle Industry & Insurance doubtful legal framework risk assessment by trend negative risk assessment by trend negative insurability? Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 12 Dr. Martin Johanntoberens Münchener Rück 2. Risk community Research institutions Technology assessment means the observation and analysis of trends in science and technology & connected social developments. Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 13 2. Risk community Environmental organisations and consumer protection groups The public trusts environment organisations and consumer protection groups more than politicians and representatives from business Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 14 Dr. Martin Johanntoberens Münchener Rück 3. Munich Re Emerging Risk Think Tank Lateral thinkers − selected group of ca. 20 members of Munich Re staff − main departments: > Integrated Risk Management > Corporate Underwriting > Group Development − formal meeting once a month − latest topics: > demographic shift / aging population > obesity > recession − direct reporting to Chief Risk Officer and Board of Management − status report via Intranet to all Munich Re employees Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 15 4. Summary Central ideas Munich Re Emerging Risk Radar − emerging risks are showing the limits of risk knowledge − non-existing historical data − questions of (quantifiable) insurability − alternatives: > coverage exclusion > qualitative risk management − move away from quantitative risk assessments to qualitative knowledge production − development of creative solutions Emerging risks for the insurance industry - Norwegian School of Management - BI Centre for risk and insurance research - 24 August 2009 - Dr. Martin Johanntoberens 16 Dr. Martin Johanntoberens Münchener Rück Contact Thank you very much for your attention! Dr. Martin Johanntoberens Consultant - Corporate Underwriting Casualty Munich Reinsurance Company Königinstrasse 107 80791 München Tel.: +49 (0) 89/38 91 - 94 53 Fax: +49 (0) 89/38 91 - 7 94 53 E-Mail: [email protected] 17 Questions we asked Tom Baker and which he answered at the back end of his recorded presentation… (1) • • • What do you see as the biggest NEW practical and ethical challenges facing the insurance industry in the shifting risk environment of the 21st century? You have written a piece with Donald Moss recently about “Government as Risk Manager”. Could you comment on how that responsibility has been divided or shared in the past between government and the insurance industry concerning catastrophe risks? How could this division or sharing work better? With respect to some catastrophes we may expect the insurance industry to receive no claims for decades before some catastrophes occur. How do you believe the general public will feel about this in the future? And do you believe that the insurance business will be able to cope with really large catastrophes in the future? Questions we asked Tom Baker and which he answered at the back end of his recorded presentation… (2) • • • • Which kinds of criteria do you think are ethical for the insurance industry to use in pricing and excluding risks, particularly in the catastrophe context? Which criteria are unethical? What should the key underlying principles in determining what are ethical risk rating criteria? Could one say that taking actively part in the samrisk programme questions and dicussion represents an opportunity to demonstrate the CSR claimed by the industry on its websites and annual reports? In your presentation, you have discussed the “binary star” of insurance and tort law. What positive and negative influences do you think tort law has on the management of catastrophe risks by government and the insurance industry? Could you talk a little about national variations in the world of insurance, using the metaphors in your presentation: window, frame, and field (in two senses). For example, how might insurance work differently in the US from elsewhere when analyzed this way? 1 Insurance and Power a genealogy of securing emerging life Dr Luis Lobo-Guerrero Biopolitics of Security Research Unit Keele University, UK Presentation at the seminar: ‘Societal risk in an insurance and reinsurance perspective’ Oslo, 23-24 August 2009 Preliminary notes 1. Question guiding this project: – What is the relationship between insurance and ‘forms of life’? 2. Forms of life are complex political constructs. By political I mean the outcome of power relations. 3. I employ what I call a ‘biopolitics of security’ theoretical framework. – Biopolitics of security, briefly put, is the strategic imperative of governance that seeks to promote and protect ‘forms of life’. Andrew Bickford, Emerging Life /oil on canvas 2 1 Argument • Insurance is an archetypal liberal security technology. • The relationship between insurance and forms of life depends on the capacity of insurance to produce ‘securities’ (i.e. insurance products) • These insurance products, as epistemic objects, are always in emergence. • New forms of insurance ‘emerge’ when transformation events in forms of life take place. • Insurance, therefore, produces ‘emerging securities’ devised to promote and protect ‘emerging forms of life’. 3 1. Insurance makes uncertainty fungible • Emergence of the third-party form of insurance (medieval Renaissance) – Decretal Naviganti – Usury as sin – Commercial revolution – Sedentary commercial form of life – Fœnus nauticum (sea loan), cambium nauticum (maritime exchange), and third-party insurance 4 2 2. Life assurance capitalises ‘life’ - Emergence of life insurance in 18th C. England - Unfolding of probabilities in 17th C. – – New metric to calculate uncertainty Law of Large Numbers 1. New landless-gentlemen class uses life insurance to obtain credit 2. Insurers collateralise the lives of clients Thomas Nuthall and Hambleton Custance Francis Hatman (c. 1748) , Tate Gallery, London 3. Gentlemen promote and protect their lifestyle and that of their families 5 4. Insurers create value 3. Insurance as governance remains ‘an uncertain matter’ (21st C.) • What insurance does, and how insurers do it, depends on an understanding of the world as an uncertain universe. • Insurance is not deterministic and insurers make profit out of indeterminacy. 1. The case of the use of predictive genetic testing for life insurance underwriting 2. The use of insurance to underwrite ‘catastrophic risks’ 1. 2. 3. attractor in phase space This attractor is made up of the trajectory of a nonlinear system and gives the system's state at all times. Colour coding indicates state probabilitie Insuring drought in Ethiopia Insuring earthquakes in Mexico Insuring for ‘war’: decoupling of terrorism and piracy from hull risks 6 3 Conclusions and emerging lines of research • Analysing the role of insurers and insurance allows us to observe liberal forms of security in the making • Insurance discourses and practices are part of a wider order of governance that is constantly shifting. • Insurance renders uncertainty fungible and in so doing provides unlimited opportunities for individual and collective governance • In every form of insurance there is an implicit relationship between the spheres of the private and the public. In fact, insurance collapses this distinction. 7 Contacts and scholarship Luis Lobo-Guerrero [email protected] Websites: Main university website: http://www.keele.ac.uk/depts/spire/staff/lobo-guerrero/index.htm Insurance and the security of liberal governance: thematic priority of the Biopolitics of Security Research Unit @ Keele: http://www.keele.ac.uk/research/lpj/research/BiopoliticsResearchUnit/Insurance .html 8 4 1 “Catastrophe Risks, Government and Insurance: Continuing the Debate on Beck’s Uninsurability Thesis” by Aaron Doyle (abstract of a talk given at BI on 23rd August 2009) This paper continues a debate with social theorist Ulrich Beck about his uninsurability thesis. Beck argues again in his new book, World At Risk, that we live in a new kind of world, second modernity, in which human-made catastrophic risks (eg climate change, terrorism, computer viruses) present a fundamental challenge for existing institutions. The key defining characteristic of these new risks is that they are uninsurable, ie beyond the capability of the insurance industry to manage. More recently Beck has refined the argument to suggest that such risks are distinctive because the private insurance industry cannot deal with them alone and that government must step into prop up the insurance industry as the US government did after 911. In response, I suggest that the new catastrophe risks are very like much the old catastrophic risks in key ways and that the insurance industry has always had a very big challenge in managing catastrophic risks. Many of such risks have long blurred the distinction between natural and human-made and have elements of modernity running out of control, similarly to what Beck describes. I discuss the example of the San Francisco earthquake of 1906. I suggest further that the insurance industry has often partnered with or been supported by government in a variety of complex ways to deal with catastrophe risks. Despite neo-liberal arguments about the desirability of privatizing such risks, government is appropriately the insurer of last resort and is better positioned to deal with the particular challenges of such risks, such as their differential impact on the poor and marginalized. I conclude by discussing the explosion in use of catastrophe bonds as a privatized alternative for spreading catastrophe risks, suggesting some potential difficulties the bonds may create, and situating this development in relation to Beck’s theorizing.
