The Strategic Risk Forum –
The Insurance Institute of South Africa –
Breakfast Session on “HAIL”
30 May 2014
Hail exposure and risk management in crop production –
Global view and focus on South Africa
30.05.2014
Holger Schwarz
Agenda
Part 1 – Meteorology
Loss Experience
Meteorology
Climate Change
Part 2 – Crop Hail Insurance
Characteristics and Development from Hail towards MPCI
(Multi Peril Crop Insurance)
Part 3 – Summary and Conclusions for South Africa
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Statement
South African farmers are ever more exposed to hail and other natural perils.
They need comprehensive insurance cover as a risk management tool.
How can this be achieved in South Africa?
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Part 1 - Meteorology
Hail exposure and risk management in crop production – Global view
30.05.2014
and focus on South Africa / Holger Schwarz
NatCatSERVICE
Loss events in Africa 1980 – 2013
Geographical overview
Floods, flash floods 2002
Morocco
Overall losses*: US$ 200m
Insured losses*: US$ 140m
Fatalities: 63
Earthquake 1992
Egypt
Overall losses*: US$ 1,200m
Fatalities: 561
Drought 2000
Morocco
Overall losses*:
US$ 900m
Floods 1988
Sudan
Overall losses*: US$ 66m
Insured losses*: US$ 2m
Fatalities: 8,000
Earthquake 1980
Algeria
Overall losses*: US$ 3,000m
Fatalities: 2,590
Earthquake (series), tsunami 2003
Algeria
Overall losses*: US$ 2,500m
Insured losses*: US$ 10m
Fatalities: 2,200
Floods 2012
Nigeria
Overall losses*: US$ 500m
Fatalities: 363
Severe storms, floods 2012
South Africa
Overall losses*: US$ 250m
Insured losses*: US$ 140m
Fatalities: 11
Floods Dec 2010 – Feb 2011
Southern Africa (esp. South Africa)
Overall losses*: US$ 435m
Insured losses*: US$ 5m
Fatalities: 198
Floods 1997
Somalia
Fatalities: 2,000
Limnic eruption Lake Nyos 1986
Cameroon
Overall losses*: US$ 25m
Fatalities: 1,746
Hailstorms, flash floods 2013
South Africa, Swaziland
Overall losses*: US$ 200m
Insured losses*: US$ 110m
Fatalities: 2
Tornado 1990
South Africa
Overall losses*: US$ 380m
Insured losses*: US$ 115m
Fatalities: 2
Drought 1990 – 1993
Southern Africa (esp. South Africa)
Overall losses*: US$ 1,400m
Floods 2000
Southern Africa (esp. Mozambique)
Overall losses*: US$ 520m
Insured losses*: US$ 50m
Fatalities: 1,000
Wildfires 2008
South Africa
Overall losses*: US$ 430
Fatalities: 34
Floods 1987
South Africa
Overall losses*: US$ 520m
Insured losses*: US$ 250m
Fatalities: 487
Loss events
Geophysical events
(Earthquake, tsunami, volcanic activity)
Hydrological events
(Flood, mass movement)
Selection of catastrophes
Meteorological events
(Tropical storm, extratropical storm, convective storm, local storm)
Climatological events
(Extreme temperature, drought, wildfire)
*Losses in original values
Source: Munich Re, NatCatSERVICE, 2014, © 2014 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at March 2014
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NatCatSERVICE
Weather-related loss events in South Africa 1980 – 2013
Overall and insured losses
million US$
Overall Losses US$
(adjusted to 2013 values based on local CPI)
Insured Losses US$
(adjusted to 2013 values based on local CPI)
© 2014 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at March 2014
30.05.2014
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NatCatSERVICE
Weather-related loss events in South Africa 1980 – 2013
Percentage distribution
445 Loss events
2,500 Fatalities*
56%
30%
30%
61%
14%
8%
Overall losses** US$ 9bn
Insured losses** US$ 1.4bn
29%
54%
28%
45%
1%
42%
Meteorological events
(Tropical storm, extratropical storm, convective storm, local storm)
Hydrological events
(Flood, mass movement)
*Number of fatalities without famine, **Losses in 2013 values, adjusted to inflation based on country CPI
© 2014 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at March 2014
Climatological events
(Extreme temperature, drought, forest fire)
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Areas prone to hail in South Africa
Average ground stroke density from a lightning detection network,
period Dec 2005 – March 2006
Source: Pyle, 2007
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Observed changes
in annual number of warm days
19502010
Donat et al., 2013
Brown to red colours
indicate increasing linear
trend of
1-3 days per decade since
1950.
Warm days are defined as
the annual percentage of
days when the daily
maximum temperature
exceeds the 90th percentile
within the reference period
1961-1990.
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Basic physics: How does atmospheric moisture
respond to increasing temperature?
Physically determined relationship between temperature and humidity:
per 1° C warming the moisture content (saturated air) increases by ~7%
1973–2012
Source: Willett et. al. (2013), Clim. Past, 9, 657–677.
Black dots: significant trend
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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Extreme events (cont.) –
Severe thunderstorms (hail, gusts, tornadoes)
Observation:
Some studies show increases in large hail / hail at all in Europe or America (France, Italy,
Germany, Canada), others have mixed signals (Argentina, USA) or decreases (China).
AR5 assessment: There is low confidence in observed trends in small-scale events
(data inhomogeneities, inadequate monitoring systems).
Projection:
Increased potential convective energy(humidity-driven), decreased shear (N-America)
increase in fraction of severe thunderstorms with non-tornadic winds
(But: new paper von Diffenbaugh et al., August 2013: shear not decreased, more tornadic
storms)
AR5 assessment: Overall, for all parts of the world, the results are suggestive of a trend
toward environments favouring more severe thunderstorms, but small number of
studies precludes any likely assessment of this change.
IPCC WG1, September 2013
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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Likely analogy: moisture-driven increase
in severe thunderstorm activity in the U.S.
Source: Sander, J., J. Eichner, E. Faust, and M. Steuer, Weather, Climate, and Society, March 2013, DOI:
10.1175/WCAS-D-12-00023.1
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Changing severe hailstorm frequency in Europe
Condensation of water vapor releases
heat energy. Higher loads of moisture more severe / frequent convection &
thunderstorms.
Number of days
with hail damage
(SV Stuttgart)
Observational studies in Europe:
Trentino (Italian Alps): Increase in
total kinetic energy of extremely strong
hail events (90th percentile) 1975 –
2009 (Eccel et al., 2012).
Potential for strong
convection is rising
strongest
France: increase in hail intensity by
70% between 1989 – 2009 (Berthet et
al., 2011).
Southwest Germany: Substantial
increase in available energy for severe
thunderstorm genesis (Kunz et al.,
2009)
(data) source: M. Kunz et al. (2009), Int. Journal of Climatology
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Projection of hail losses
Results from a project by the German Insurance Association
Projected changes of mean annual loss ratios („Sturm/Hagel“)
in summer relative to 1984-2008
1984/2008
2011/2040 – 1984/2008
2041/2070 – 1984/2008
Mean loss ratio:
0.034 per mille
Mean change +15%
Mean change +47%
Loss ratios are foremost due to hail (residential building insurance).
Source: GDV-Studie „Auswirkungen des Klimawandels…“, Abschlussbericht zum Teilbereich Sturm/Hagel, Dezember 2011
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Losses in Germany 2013
Event
Ins. Property Loss in Mio. €
Flood 05-06/2013
1.800
Hail Storms 07-08/2013
Storms Autumn 2013
Sum
3.000
700
5,5
bn. EUR
Property
+ 1,5 bn. EUR
Motor
Compare:
Storm Kyrill 2007
2.060
Floods 2002
1.800
Storm Lothar 1999
800
„Munich Hail“ 1984
900
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Experience of SV Sparkassen-Versicherung AG
Stuttgart, Germany
Hail storm 28 July 2013
15min hail
Hailstones up to 10cm diameter
5mio tonnes of hail
40mio € loss per minute
67,214 buildings damaged
4,751 cars damaged
Average loss per building: 8,576 €
Average loss per car: 3,587 €
Overall loss: ≈ 600mio €
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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SV Sparkassen-Versicherung AG (contd.)
Hail Loss adjustment and findings and consequences of the hail storm 28 July 2013
Inspect the damage as soon as possible
Non-stop work of 300 adjusters, also over weekends
33,000 out of the 70,000 cases assessed after 1 week
Setting a trigger for assessment of 3,000 €
Payment rule: inspection +1 day
Emergency program: agreement with the German Association of Roofers
Providing hands-on support through specialist companies
Savings in loss amount by 33%
Damage on solar installations (units are only protected against hailstones up to 8cm)
Appeal to policy-makers: regulations for new buildings
New and better roofing tiles (experience from Switzerland)
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Loss Ratios for Property in the German Market
Industry/Commerce/Agriculture
Time series of Combined Loss ratios and their constituents
Kommission Technische Versicherungen
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Part 2 - Characteristics and Development
from Hail towards MPCI for Agriculture
Comparison of Crop and Property Hail
Characteristic
Crop Hail
Property Hail
No. of hail days with loss
High
Low
Damaging effect of hail
High
Low
Hail rates
High
Low
Deductibles or Franchise
Low
Low
Loss adjustment
expensive
Less expensive
Risk accumulation
Occasional*
Occasional**
*usual SI/Ha= $ 300
High SI/Ha= $ 15.000
Plus accumulation of high
value crops like fruit,
veggies, tobacco, grapes
** usually light damage on
cars and buildings. Extreme
accumulations possible at
car manufacturers.
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Important aspects for successful crop hail underwriting
Build up a loss data base per crop and region
Calculate technical adequate rates
Manage your portfolio composition by crops and regions
Use specialist know how and expertise
Organize professional and efficient loss adjustment
Continuously develop your products
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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South Africa
Premium Split Hail vs. MPCI
1600
Premium (R mio)
1400
1200
1000
MPCI
800
Hail
600
400
200
0
2009/2010
2010/2011
2011/2012
2012/2013
2013/2014 e.
Hail: Continuous Growth MPCI: stabilizing at R 300 mio
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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International Markets
Premium Split Hail vs. MPCI
International Markets, Insurance premium in 2012
Mio. €
9.357
…
8.616
…
MPCI
Crop Hail
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
*incl. Livestock and Forestry
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Public Private Partnership (System Agro) –
The why`s and how`s
Key components of
SystemAgro
Exposure
Systemic nature risk:
entire regions may be affected
High frequency of catastrophe
losses
Climate change
Open-air production with limited
loss prevention options
Economic environment
Global markets, financial crisis
Public Sector
Central
Agency
InReinsurers System surers
Agro
Price fluctuations
Food/feed/fibre/fuel
Need to grow and/or specialise
Political interest
Self-sufficiency
Stable rural areas/ economies
Clear budgeting
Farmers
1. Integrated in ag law and
ag policy
2. Public co-financing of
premiums
3. Public co-financing of
cat losses
4. Transparent and
uniform terms and
conditions and uniform
settlement of claims
5. Central agency
6. Open to all farmers
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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EU: Premium Split Hail vs. MPCI
EU: Trends in insurance market
Share of multi-peril crop insurance in EU
[% of total EU crop insurance premium ]
100%=1,3 bn €
40
2007
100%=1,8bn €
60
Share of subsidized crop insurance in EU
[% of total EU crop insurance premium]
100%=2,1 bn €
75
100%=1,3 bn €
100%=1,8 bn €
85
100%=2,1 bn €
90
80
2013
2018
Source: Munich Re
2007
2013
2018
Source: Munich Re
Trends in insurance market
Most European markets have already implemented a PPP
Most EU countries provide subsidies for crop insurance
Increasing use of EU budgets for the subsidization
Source: SFR6, RID
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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US Crop Insurance
US Crop Insurance Premium 2013 (m$)
MPCI
Federally Subsidised
Program
959
Uniform Terms and
Conditions
MPCI
Crop Hail
Catastrophe
Reinsurance
Program
Administration
11,782
Crop Hail
MPCI:
Crop Hail:
No Competition over price
Competition over price
Private Product
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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Aggressive Crop Hail Underwriting in the US
jeopardizes overall crop insurance profitability
Loss Ratio Crop Hail in %
Peer 1
250%
200%
150%
100%
50%
0%
Peer 2
Peer 1
Peer 3
Stable MPCI
business volume,
solid Crop Hail
Underwriting with
profitable results.
Peer 2 + 3
Expanded MPCI
business by selling
cheap crop hail
policies
led to volatile crop
hail results
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
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Part 3 – Summary and Conclusions for South Africa
Hail exposure and risk management in crop production – Global view
30.05.2014
and focus on South Africa / Holger Schwarz
In South Africa, Crop Hail is becoming unprofitable
Total market loss ratios
140%
120%
100%
80%
60%
40%
Average
20%
0%
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
2013/14e
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Summary and Conclusions for South Africa
South African farmers are ever more exposed to hail and other natural perils like
Storm, Flood and Drought.
Therefore they need a comprehensive insurance cover as a risk management
tool, reflected by the movement from Hail to MPCI cover in many countries.
A Public-Private-Partnership between Government and the insurance
industry is needed in South Africa!
Hail exposure and risk management in crop production – Global view and focus on South Africa / Holger Schwarz
30.05.2014
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Thank you very much
for your attention
Holger Schwarz
© 2014 Münchener Rückversicherungs-Gesellschaft © 2014 Munich Reinsurance Company