Prepare for Disasters and Severe Weather

(Mazdak Moini, VP Commercial Lines & Reinsurance Aviva Canada Inc.)

Aviva Canada, one of the country’s leading property and casualty insurers, is honored to serve over three million customers across Canada and actively support the communities where we work and live.

As one of the leading insurers, we see the devastating impact of severe weather and natural disasters firsthand. According to the Insurance Bureau of Canada’s 2015 Fact Book (page 16), for the past six consecutive years, insured losses caused by large natural catastrophes have been around or over $1 billion. By comparison, insured losses averaged $400 million a year over the 25-year period from 1983 to 2008.

We are committed to preventing damage before it occurs and helping Canadians prepare for unforeseen weather events and natural disasters. That’s why we launched Plan & Protect, a free emergency preparedness app, in partnership with the Institute forCatastrophic Loss Reduction (ICLR).

The app is available to all Canadians, and for every download, we’re donating $5 to the Canadian Red Cross to help communities affected by disasters*

Plan & Protect app features

• Free to download from the App Store and Google Play.
• Available in English and French.
• Access vital information about what to do before, during and after floods, earthquakes, wildfires, winter storms and severe wind.
• Receive a personalized risk report specific to your location, and customized list of items to include in your 72-hour emergency kit.
• Get notifications tailored to your emergency needs.
• Securely store your home and auto insurance information at your fingertips.
• All content is preloaded and accessible without internet connection. 

You can help us continue to be there for Canadians from coast to coast when they need it most by sharing the app with your colleagues, family and friends!

* For the first 10,000 downloads.

This blog post has been written by Mazdak Moini, who is vice president of Commercial Lines & Reinsurance at Aviva Canada Inc. Mazdak is responsible for leading Canadian and Group-wide strategic initiatives relating to underwriting, pricing, product and capital management, and providing risk management oversight to these activities. 

Mazdak Moini is a panelist/moderator at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Terrorism Risk: International & Canadian Perspectives and the Disaster Assistance sessions during the conference.

Canada’s $127-Billion-Dollar Disaster

Written by Joanne Kennell, CatIQ

Let’s set the scene: It’s a typical Thursday morning. The city of Vancouver is buzzing with morning commuters. People are lined up at their favourite coffee shop to get their morning caffeine fix, parents are dropping their children off at school, and on-route employees are busily weaving up and down sidewalks on their way to the daily grind. Then it strikes – a magnitude 9.0 earthquake ruptures 75 km from the city. The violently shaking earth crumbles buildings as if they are made of sand. It also cracks and breaks roads making them impassable, and knocks out power across the entire city. People are injured, and homes have been destroyed.

The societal impacts of such an event would be devastating, and the economic impact would be cataclysmic.

(United States Air Force/Wikimedia (Public Domain))

Catastrophic insured losses due to natural disasters, such as flooding, hail, wildfire, etc., have continued to increase in Canada over the past few years.  However, according to a study conducted by The Conference Board of Canada (McIntyre and Desormeaux, 2016), a large earthquake is likely the only event that could bring the industry down. And although such a dramatic event seems impossible here in Canada, according to Natural Resources Canada, there is a 30% chance a major earthquake will strike BC’s West Coast in the next 50 years – a statistic not to be sneezed at!

In order to determine the impact of a major B.C. earthquake, the IBC funded-study stress-tested for an earthquake that could result in more than $30-billion in insured losses – above the amount that the property and causality insurance industry could currently handle. This size of loss equates to a seismic event of magnitude 9 that occurs close to Vancouver. Following an earthquake of this magnitude, insurer failures would likely happen, and because insurance companies are required to back each other’s claims, this practice will collapse if the industry is overwhelmed by claims (Nelson, 2016).

The costs of a major earthquake off the coast of B.C. would not only impact the West Coast but “put the national economy in jeopardy” explains the report. The report considered the cost of destroyed property, deaths, lost jobs, and the struggles involved with rebuilding. Over a 10-year period, the total economic costs would be a mind-boggling $127.5-billion! Compare that to Canada’s costliest insured-loss catastrophe, the Fort McMurray wildfire, which cost nearly $3.6-billion (CatIQ).

The cost breakdown of a major B.C. magnitude 9 earthquake over the 10-year period is as follows:

·         $42-billion – the amount of losses that would be covered by property and causality   insurers

·         $96-billion – if the insurance industry failed as a result of the earthquake, this    
  would be the total loss in gross domestic product, adjusted for inflation

·         $133-billion – consumer spending would decrease by this much as people struggle
  to rebuild their lives

·         43,700 – the number of jobs lost

It is important to note that an earthquake generating losses above the insurance industry’s capacity would be extremely rare. In fact, according to the federal Office of the Superintendent for Financial Institutions, by 2022 there will be sufficient claims-paying capacity for a 1-in-500-year earthquake. However, as realized with Japan in 2011 and New Zealand just a few weeks ago, there is always the possibility that a larger than predicted earthquake could strike. This is why a report focusing on a worse-case scenario is important – it highlights gaps and areas in need of improvement within the Canadian insurance system. It also acts as a reminder that governments need to invest more in earthquake preparedness.

In Canada, there are roughly 4,000 recorded earthquakes each year. However, earthquake damage is not covered by a standard home insurance policy – it can be added on to an existing policy (IBC, 2016). Earthquake insurance covers contents caused by the shaking of the earth. If the shaking of the earth results in a fire (caused by a broken gas main, for example), only the loss or damage from the fire would be covered under a regular insurance policy.

According to IBC, approximately two-thirds of B.C. homeowners have earthquake insurance. However, B.C. is not Canada’s only major fault zone. There is one that lies on the Quebec City – Montreal – Ottawa corridor, and there is a 5-15% chance of a major earthquake impacting this area in the next 50 years. However, only 2% of residents in this zone have earthquake insurance (CBC News, 2016).

David Edington, who studies the rebuilding processes after the major earthquakes in Japan and New Zealand, explained to Metro News Vancouver (Li, 2016) that “[i]t’s a social problem for how you prepare for a low frequency but very high impact disaster.” Especially since B.C. does not experience earthquakes often, and even less occur in the Ontario/Quebec zone.

Pedro Antunes, deputy chief economist at The Conference Board of Canada hopes the results will serve as a wake-up call for policymakers. As the report explains, building codes need to be upgraded, and seismic regulations would save lives. People also need to be more aware of earthquake risks and should be encouraged to consider earthquake insurance coverage, especially in the Quebec City – Montreal – Ottawa corridor (CBC News, 2016).

References

CBC News. 2016. "Major quake could pose systemic risk to Canada’s financial sector, report says". CBC News Business. URL: http://www.cbc.ca/news/business/earthquake-insurance-report-1.3705332

Insurance Bureau of Canada. 2016. "Earthquake Insurance". URL: http://www.ibc.ca/on/home/types-of-coverage/optional-coverage/earthquake-insurance/

Li, Wanyee. 2016. "Major B.C. earthquake could cost Canadian economy $127.5 billion: report". Metro News Vancouver. URL: http://www.metronews.ca/news/vancouver/2016/11/23/bc-earthquake-to-cost-canada-economy-says-conference-board.html

McIntyre, Jane and Marc Desormeaux. 2016. "Canada’s Earthquake Risk: Macroeconomic Impacts and Systemic Financial Risk". The Conference Board of Canada.

Nelson, Jacqueline. 2016. "Major B.C. earthquake could put ‘national economy in jeopardy’". The Globe and Mail. URL: http://www.theglobeandmail.com/report-on-business/major-bc-earthquake-could-put-national-economy-in-jeopardy/article32969556/

Resilience is Everyone’s Responsibility

(Veronica Scotti, President & CEO, Swiss Re Canada)

The insurance industry is fully capable of meeting its obligations in the wake of the Fort McMurray fire, yet the assets lost are a sobering reminder of the ferocity of nature’s perils and our vulnerability. 

Replaying the scenes of the devastation in my mind, I’ve been thinking about how resilient we really are – both physically and financially. Are Canada and its citizens equal to the challenge of extreme events like Fort McMurray? What about other events such as earthquake and flood? I think there's work that can and should be done. 

My colleague, Christoph Oehy, former Head Treaty Underwriting, and I share a passion of wanting to raise the odds of Canada's preparedness for when the next flood strikes. Over the past year, we've discussed, at length, what we think is needed for that to happen, and how we can help. Those conversations are now compiled in a report Christoph co-authored with our flood peril specialist, Caspar Honneger. The road to flood resilience in Canada explores the consequences of a 200-year event and recommends steps to close the protection gap – the difference between economic and insured losses. 

Our research estimates that Canada’s property protection gap is CAD$2.9 billion – the 11th highest in the world. It’s a sad fact that few homeowners have flood insurance. One major event could result in damages that far outstrip the level of insurance available in the market. We only need to look back a couple of years for a vivid illustration of this problem. In 2013, insurance only covered about one-third of the economic losses from the southern Alberta floods and CAD$1 billion of the nearly CAD$1.5 billion in total losses from the Toronto flood.

So what’s causing this protection gap? There are many reasons, but let’s look at two very important factors. First, there’s a general misunderstanding (or assumption) that the government will step in and pay for extensive repairs and replacement, which leads to complacency about the need for insurance. Second, insurers have been hesitant to take on flood risk due in part to inadequate modelling skills and no clear actions to continuously mitigate exposures, which homeowners and municipalities are in charge of.

Ignorance and maintaining the status quo are no defense against the very real threat of a 200-year flood. Consider the following river flood projections based on a model developed by our catastrophe peril experts:

- A 200-year flood in Ontario is likely to be triggered by heavy precipitation and inadequate urban drainage, resulting in total losses approaching CAD$5.3 billion -- CAD$4 billion of that is uninsured at the moment.

- A 200-year flood in Alberta could destroy CAD$3.6 billion in property -- CAD$2.6 billion of that uninsured -- caused by excessive snowmelt on the Bow and Elbow Rivers which converge at Calgary.

- In British Columbia, development along the Fraser River would exacerbate already tenuous flood conditions in the event of a heavy snowmelt, triggering CAD$4.6 billion in losses of which CAD$2.8 billion isn't covered by insurance.

Those are just a few examples. As you can see, the culprit varies depending on geography, topography, climate, population, development and local infrastructure. 

Canada's the only G7 country today that leaves homeowners largely unprotected from the financial losses caused by floods, and still relies on post-event measures, which are sincere but ineffective and certainly unsustainable. So what will it take to change the multi-party conversation on the flood file and close the flood protection gap through planned actions? You’ll find our recommendations in the report, but here’s the general idea: It will take partnership between the public and private sectors to satisfactorily address the need for physical resilience, social resilience and economic resilience (all three are important). Insurance can lead the way to higher economic resilience through improved modelling, product innovation and application of behavioural economics toward better understanding consumer attitudes and motivations when it comes to the perceived value of insurance. A clear appreciation for the value of insurance is directly linked to 1) a well-informed choice when selecting coverage and 2) in assuming responsibility through very simple and inexpensive risk mitigation measures that can save thousands of dollars in losses as well as emotional distress. 

I encourage you to read this report – while it's scientifically sound it's also an easy read. And you can always reach out to us through this blog if you have questions or tips on how to make the dialogue richer and the actions more compelling. I'm convinced we can make a difference if we all take responsibility.

And if you’re having some of these same discussions with colleagues, please let us know. That's how it all started for Christoph and myself a year ago in our Toronto office.

This article was originally posted on Swiss Re's Open Minds Platform.

Swiss Re Canada is a proud sponsor of CatIQ's Canadian Catastrophe Conference (C4 2017) that is taking place February 1-3 at the Allstream Centre located in Toronto. Balz Grollimud, Head Treaty of Underwriting at Swiss Re will be speaking during the Geomagnetic Storms - The Next Black Swan session at the conference.

Model Flood Risk Without Historical Data – An Innovative Solution!

(Carl Lambert, Vice-President of Business Intelligence at The Co-operators)

In June 2013, Canada suffered one of its most severe floods in recorded history. 32 towns in southern Alberta were flooded for total damages exceeding C$5 billion. At the time, the insurance industry did not offer flood insurance.  Sewer backup losses were covered and the total cost for the industry was C$1.7 billion. Yet, in early 2015, Canada remained the only G7 country where residential flood insurance coverage was not available.

At Co-operators, we were already working on launching a flood product.  Those events reinforced the demand for residential flood coverage and put more pressure on the industry to develop a solution.

The Co-operators was the first in Canada to launch such a new coverage. Significant effort was required across the organization to ensure we implemented the proper solution that would answer an unmet need, while focusing on making Canadian communities more resilient to flooding. This blog will focus on only one piece of the work, the development of the risk assessment and the pricing. The BI-Research team and Actuarial pricing team collaborated on a non-traditional pricing solution. 

The Approach - Research

Learn & Partner with Canadian Universities

We started by reaching out to our network of partners in Canadian universities. This helped us better understand important concepts around flood hazards, flood plains, and damage functions. Our Statisticians and Actuaries have learned to work with Hydrologists, Geologists, Hydraulic Engineers and Civil Engineers.

Seek out Third Party Vendors

We then started a long process of seeking out and assessing existing flood models and data sources. We learned to speak with modeling firms, and gradually built enough expertise internally to be able to assess the credibility and value of third party vendors.

Leverage Open data & Big Data

We then sought out external available data.  There is a lot of information available and the challenge was to identify the ones that are usable for that purpose.  By usability of information, we mean reliability, predictability and frequency of updates.  

We have tested dozens of external sources and a significant number of them have been used.  For example, we used elevation data at every 5 meters Canada Wide.  (30 meters in rural areas).  We also used the Soil type across Canada to better model water dispersion and evaluate how long the flood will last.  We also used Historical River flows, with numerous lecture points of all rivers in Canada, available every minute, for at least 50 years.  We even used a database showing historical Tectonic Plates movements.

Assessment of the Risk

There were three sources of flood risk to model: Fluvial flood, pluvial flood and coastal flood. Each of them has their own specificities and therefore have different models.

It was important for us to provide adequate and flexible coverage for all Canadians, whether they are in a high risk zone or not, at a price that accurately reflects the true risk. For that reason, we needed a model that was accurate, precise, and consistent.

Our model is customized to use different sources of insight that complement each other. Vendor models will sometimes fail our quality standards and, most of them also ignore a significant amount of local flood defense structures such as dikes and reservoirs. On the other side, our internal models were not always based on enough data to be fully credible. 

With extensive R&D efforts, we were able to leverage the large amount of data available in Canada to bridge that gap and create a national flood risk model that meets our standards.

Assessing the risk means developing models for the following 3 phenomena:

Model Flood Water amounts

Hydrological models are used to determine the probability that a water body will flood. 

Model Water Dispersion

Hydraulic models are used to determine how those water volumes flood the landscape. 

Model the « submersion depth »

Submersion depth models use the results of water dispersions and combine them with other sources of information to determine models for submersion. Furthermore, the required use of rooftop geocoding of the exact location of the insured building complicated the availability of information since many possible sources did not have the geocode.

Convert the « submersion depth » into building & content damage

Many factors impact the amount of damages:  the submersion depth, the type of building, the expected duration of the flood, the temperature of the water and many more. In order to build both content and building predictive models, we have used text mining on notes coming from past sewer backups claims and integrated that with external probabilistic models. 

Pricing Policies

Flood models estimate the flood risk but they don’t calculate an insurance premium. For example, third party damage curves work well at estimating flood damage but cannot be directly applied to insurance claims, because the latter includes elements of client behavior as well as the effect of limits and deductibles. Furthermore, our comprehensive water insurance product offers our clients unprecedented flexibility regarding their water coverage, which also provided pricing challenges. In times when the “buzz word” in technology and science is Minimal Viable Product, in the case of flood insurance the bar for a viable product is very high.

In the end, a key to our success is to take a scientific approach to modeling the flood risk, for each and every house, farm, and building. It is what allows us to provide insurance at the right price, for everyone. It is that analytical mindset, combined with a lot of determination and innovation, that is and will continue to be the Co-operators’ advantage. 

This blog post has been written by Carl Lambert, who is vice-president of Business Intelligence at The Co-operators. Carl completed a Master's degree in Actuarial in 1994. He joined The Co-operators in 2009, where he launched a Research team that now consists of over 65 professionals in Mathematics, Statistics, IT and Actuarial. The team is responsible for the development of Analytics throughout the organization.

Carl Lambert is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the How to Create an Inventory of Canadian Hazard Data session during the conference.

The Diligent CAT Adjuster - Being Prepared for Deployment

Mike Koch (Kitchener, ON)

When catastrophic events occur there is an immediate need for response. Both natural and man-made catastrophic events often cause devastating and long-ranging effects to the individuals, communities and natural environments impacted. Claims adjusters play a critical role during such events as they serve as the eye and ears of policyholders that have vacated the affected area and the carriers that underwrite these policies. After an event has occurred, and the impacted area is deemed secure enough for emergency/first response personnel and associated professionals to enter, claims adjusters are placed onsite to conduct their investigation on the impact and severity of damages sustained on insured properties, and to manage and expedite the claims process. The services of these individuals come into play during the thick of it, entering environments that have been crippled by the very destructive force that swept through it. Preparation is key for claims adjusters ensuring that they have the resources, supplies and equipment to effectively navigate through the impacted environment and execute their functions accordingly. To that effect, adjusters need to be aware of the following things and prepare as needed.

Items that should accompany any claims professional being deployed to a CAT site consist of:

• The limited available power sources within the effect area will hinder one’s ability to use debit or credit cards to make purchases or to withdraw money from an ATM. It is recommended that adjusters bring with them a fair sum of money either in U.S. or local currency to purchase essentials such as meals, gas, water, etc.

• The potential lack of power will have an impact on the operability of local infrastructure and certain accommodations that we have grown accustomed to such as running water, heating, cooling and refrigeration.  It is wise for adjusters to bring a small cooler to house water and refreshments. Also, in the absence of lighting a handheld flashlight should be packed.  

• Small first-aid kits can be useful in treating minor scrapes that an adjuster may sustain.

• A small cache of business supplies consisting of a stapler, paper clips, pencil, paper, ruler, measuring tape, etc. should be packed to assist adjusters with the documentation of their activities.

• The attire that an adjuster packs should be versatile enough to accommodate the climate that they are about to enter and be suitable for walking through rummage while conducting an onsite investigation, and to meet with superiors, clients and other business professionals. Safety and practicability come first making safety shoes and a hard hat are a must. Other essential items that an adjuster should pack include a lap top along with a spare battery and car charger, a camera and an updated passport.

• Adjusters should always be mindful and respectful of local customs and traditions and act accordingly

• As language may be a barrier, adjusters should come prepared with language conversation books or translation resources that they can call on for assistance.

• As navigation may sometimes be a challenge, coming prepared with maps of the local area and a GPS device can prove to be most useful.

This blog post has been written by Mike Koch, National Property & Catastrophe Manager, Crawford & Company (Canada) Inc.

Pat Van Bakel, President & CEO, Crawford & Company (Canada) Inc. is on CatIQ's Canadian Catastrophe Conference's 2016 Advisory Committee and will be a panelist on the Claims Executives panel during the conference.

Pat Van Bakel - @pjvb71
Crawford Catastrophe - @CrawCAT
Crawford & Company - @Crawford_News