Canadian Underwriter
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Herding Cats


April 1, 2017   by Angela Stelmakowich, Editor; and Greg Meckbach, Associate Editor


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C4 2017

CatIQ’s Canadian Catastrophe Conference

Toronto

 

Those gathered for Catastrophe Indices and Quantification Inc.’s Canadian Catastrophe Conference (C4 2017) in downtown Toronto learned about all manner of topics, including natural catastrophe losses, the Fort McMurray wildfire, terrorism insurance, Cat modelling, geomagnetic storms and wildfire risk management.

RETHINKING TERRORISM INSURANCE

Terrorism insurance programs need a reset to ensure that clients are appropriately covered given the continuing shift from attacks on property to attacks on people designed to produce mass casualties, said Scott Bolton, the United Kingdom-based director of business development and network relations for Aon Risk Solutions.

“We can’t just keep having conversations around property damage and business interruption,” Bolton told those attending Terrorism Risk: International & Canadian Perspectives.

The Canadian Catastrophe Conference (C4), produced by Catastrophe Indices and Quantification Inc., was held in February at the Allstream Centre in Toronto.

“We’ve got to start looking at impact on life, impact on liability, impact on all these other things that mass-casualty attacks bring,” he said during the panel discussion.

The innovation in the terrorism insurance space will come from looking at the gap “between PDBI (property damage, business interruption) – the core of your terrorism insurance program – and the actual impacts that are resulting,” explained Bolton.

“We could have zero property damage from a mass casualty attack, but the impacts are going to be broader when you start seeing the deaths and injuries to people,” he said.

“From an insurance perspective, you start hitting on the life lines of business – medical, benefits potentially, potential liability,” Bolton pointed out.

Citing the 2016 attacks in Nice and Brussels as examples, he noted that there was little property damage.

Terrorism events are shifting “certainly in the last 24 months, to the mass-casualty space, the impacts from a mass-casualty attack,” he said. Liability issues do not “really come into play if we’re talking about PDBI,” he told session attendees.

To reassure clients that their terrorism programs will respond in mass-casualty, low-property damage events, it is a good idea to look “at these other lines of business,” Bolton advised.

PINNING DOWN WILDFIRE LOSSES

When determining accumulation of risk, wildfire presents an “additional complexity” for insurers and reinsurers, Manuel Chirouze, managing director of natural hazards and geoscience for the Americas at Guy Carpenter & Company LLC, said during C4 2017.

Noting that wildfire is a really complex peril, “most of the losses will be coming from the wildland-urban interface and that’s an area that is both rapidly evolving and where the built environment is rapidly changing,” Chirouze pointed out during the panel discussion, Wildfire Risk Management.

“We have no model for Canada, which is strange,” said Andreas Siebert, head of geospatial solutions at Munich Re. “Wildfire on a global scale has always been a poor cousin in the modelling community due to the amount of affected values,” Siebert suggested.

“In the end, doing an accumulation of that purely based on a sum of the assets that is within an area that is exposed is not enough,” Chirouze said.

Though Canada saw big wildfires in Kelowna and Slave Lake over the last decade and a half, panel moderator Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, argued that “the Canadian insurance industry never really concerned (itself) with wildfire.”

Canada probably has “billions, if not trillions, of assets in the wildland-urban interface and deep in the woods,” McGillivray pointed out.

HAIL DENTS NAT-CAT PICTURE

2016 was a year of records: the largest catastrophe-related insured losses in Canada’s history, the biggest loss for a single Cat and the most hail events in the month of July, Carolyn Rennie, managing director of Catastrophe Indices and Quantification Inc. (CatIQ), reported during C4 2017.

Across the country, incurred losses for the Canadian insurance industry as a result of 2016’s 13 Cat events and at least eight notable events totalled roughly $5.2 billion, Rennie said. The notable events – causing less than $25 million in losses – “are estimated at about $17.5 million each,” she told attendees.

The Fort McMurray wildfire was the largest Cat loss, accounting for approximately $3.7 billion in insured losses, but hail made its own dent in a number of provinces.

“Nine of the 13 Cat events involved the peril hail,” Rennie said. Among other places, hail pelted Alberta, Saskatchewan, Manitoba, Ontario and Quebec, she pointed out.

The impact of hail is demonstrated by overall losses by line of business. In 2016, 58% of losses were due to personal, 32% to commercial and 10% to auto, Rennie reported.

However, removing Fort McMurray from the mix reveals a different story. “Auto is now 33% of the losses, primarily due to the hail damage this year,” she relayed. Even excluding the Fort McMurray loss, Alberta “still went over half a billion,” she added.

BLACKOUTS IN PERSPECTIVE

The insurance industry needs “a better understanding” of the probable impact of a coronal mass ejection or other extreme space event rather than rely on pessimistic estimations, Balz Grollimund, Swiss Re’s head of underwriting for Canada and the English Caribbean, suggested during a session at C4 2017.

“We are worried about a big coronal mass ejection, or CME, from the sun hurling charged particles towards the earth, affecting the geomagnetic field and then inducing some potential problems in the infrastructure,” Grollimund relayed during the panel discussion, Geomagnetic Storms: The Next Black Swan.

“We need a better understanding of the probability, effects and really model through the full chain from the CME to the impact on the grid, on society – the financial impact,” he argued.

“The big thing that we are worried about when we talk about solar storms is the blackout scenario,” Grollimund said. “How much money do I really need to put aside for a 1 in 500 year solar storm event?” he asked. “At the moment, I really don’t know.”

A geomagnetic disturbance can “increase the number of particles” in the ionosphere, Luis Marti, director of reliability studies, standards and compliance for Hydro One, explained. “If I have a current moving very slowly up in the ionosphere, I am going to have voltage induced into the wires,” Marti noted.

“It is a big deal because we design our power network to work at 60 Hertz; we design the transformers to work at 60 Hertz, alternating current,” he said. A geomagnetic disturbance could induce electrical current at a much lower frequency, he pointed out.

North American Reliability Corporation released a report from a task force in February 2012, Marti said.

“What they concluded was that the most likely thing that would happen in a major event would be the voltage would be so depressed that you would end up having to turn off the system, so to speak, or there would be a voltage collapse,” he reported.

If a geomagnetic disturbance causes damage to transformers, “the main liability to insurance comes from the fact that manufacturers cannot produce,” Grollimund said.

WIND FED MASSIVE BLAZE

Weather and cross-over conditions before and during the Horse River Fire in Alberta last May made it clear that dousing the blaze was unlikely, Darby Allen, former regional fire chief for the Regional Municipality of Wood Buffalo, suggested during C4 2017.

“Certainly in a fire of this magnitude ended up being, we weren’t going to put that out,” Darby said during his keynote address at the conference.

Noting that spring “was very, very dry, low-humidity conditions, extremely hot,” there was also cross-over conditions, “when the relative humidity is lower, generally much lower, than the actual temperature,” he said. “We had cross-over conditions four days out of the first seven,” he said of the so-called Fort McMurray wildfire.

“It just means that when that thing gets going, nothing, naturally, is going to stop it,” Darby said. “There is no humidity, the wind will come, it (wildfire) will get oxygenated and it will start ripping around there at an incredible rate.”

A few days into the fire, there were maps showing some spotting of fire on the other side of the river. At a distance of approximately 1,200 feet or about 365 metres, “the largest jump before that that I was aware of was about 240 metres, so we were pretty confident it wouldn’t do that,” Darby relayed.

But it did end up jumping the river and that was combined with a change in wind direction. The wind had been going west to east and then changed drastically. “That wasn’t in the prediction,” he said.

Asked if there are things homeowners could have done to make their properties more resistant, Darby said that he is not so sure.

Adopting certain materials for siding and shingle types, for example, “in general circumstances, your home will outlast something that has got cedar siding and regular shingles,” he said. However, that likely would not have been the case in this fire, Darby added.

“Having said that, if you live in a community such as Fort McMurray and you’re plunked in the middle of the boreal forest and you’re thinking about building a property, I think it’s wise to think about that investment (preventive measures),” he emphasized.

HIGHER QUAKE RISK IN BASIN THAN PREVIOUSLY THOUGHT

New modelling seems to indicate seismic risk in the so-called Vancouver Basin is greater than previously thought, Justin Moresco, manager of model product management for Risk Management Solutions, said during a panel discussion at C4 2017.

The Vancouver Basin – the region south of Vancouver straddling the Fraser River Delta, which sits on deep layers of soft soils and includes the City of Richmond – has less exposure than Vancouver, Moresco noted during the session, CAT Models: Model & Hazard Uncertainty.

That said, “the seismic risk there is greater both in a relative sense that is averaging a loss per unit of exposure and also in an absolute sense that is its contribution to the average annual loss of all British Columbia,” he explained.

What jumps out is there is a stark difference between the City of Vancouver, which shows losses are going down, and the Vancouver Basin, which shows losses are going up, Moresco reported, citing findings of his company’s upcoming 2017 model for Canadian quake.

“The 2017 model is estimating that average annual loss in the City of Vancouver is now going down by more than 10%. The total insured value as a percentage of British Columbia is about 13% and its average annual loss as a percentage of British Columbia is about 15%,” he reported.

However, “in the Vancouver Basin, our 2017 model is saying that losses are going up by more than 10%. The total insured value as a percentage of B.C. is about 9% and average annual losses as a percentage of B.C. is about 18%,” he told session attendees.

Why higher risk in the basin matters, Moresco pointed out, is that Richmond and other cities within the area “have been growing rapidly in the last 10 years and so if this trend continues, it means that the seismic risk is only going to intensify.”