The Cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

1. The Cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 12th September - Istanbul Georg Feierabend, Property Claims Manager, Europe/Latin America

2. Theinsurer First steps before the Occurrence 1.Review Corporate Catastrophe Plan • Establish employee internal teams and duties • Identify and prepare alternate place to conduct business • Data base back ups • Review employee personal contingency plans 2. Secure Portfolio Information • List of probable loss by CRESTA Zone • Aggregates by risk 3. Local and International Adjuster Teams Selection • Establish Rates • Secure Agreements and Service Providers Contracts • Prepare uniformed forms and instructions as to the construction costs and unitary prices • Secure list of Approved Experts • Inspect high exposure risks 2 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

3. Theinsurer Critical Issues • Shortage of experienced licensed Adjusters • Shortage of resources to handle BI claims • Insufficiency of Insured’s information • Inadequate Insured's business recovery plans • Lack of employees recovery plans 3 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

4. Thereinsurer Preparation before an occurrence (1/2) • The reinsurer shall: • Work out together with the cedentNatCat contingency plans that can be adapted for the individual local application • Check the capabilities of loss adjuster companies, recommend loss adjusters and restoration companies with proven expertise and good reputation (regional as well as international background and network). • Carry out inspections together with the cedent to learn about quality standards of the local risks and work out improvement strategies, if necessary The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

5. Thereinsurer Preparation before an occurrence (2/2) • Cooperation with the loss adjuster and the insurer to optimize the reporting. • Munich Re is interested in detailed reports about large single losses. • For smaller losses, it is necessary to provide bordereaux showing all affected risks and every single loss amount. • For complex losses and losses on facultative risks, the involvement of the reinsurer is generally necessary and shall be initiated by the client. The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

6. Thereinsurer After the occurrence • The reinsurer establishes reserves and submits advance payments according to loss estimates of the insurers, confirmed by statistical models of natural perils experts of the reinsurer. • Models of insurers and reinsurers/brokers should be aligned in close cooperation before loss occurrences to avoid large discrepancies in case of an event. • MunichRe offers local support with claims manager(s) and/or accounting personnel to improve and accelerate the cooperation between insurer, reinsurer, loss adjuster and insured. The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

7. Preparation phase– coordination of activities between parties involved The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence X = involved party; ● = Optional

8. Actions following the NatCat occurrence coordination of activities between parties involved The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence X = involved party; ● = Optional

9. Loss Adjusting– coordination of activities between parties involved The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence X = involved party; ● = Optional

10. NatCat Claims Management Residential risks Commercial / industrial risks Mass Claims: Very large number of small / medium size claims Individual major claims Two different groups of claims that have to be tackled using different strategies The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

11. ExperiencedExample 27F Chile27 Feb. 2010 Earthquake of magnitude 8.8 Richter + tsunami Casualties: ~ 500 Insured loss: US$ 8bn Munich Re reserve: US$ 1.1bn The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 11

12. Munich Re … • installed a task force in Santiago 5 days after the event • contacted the cedents immediately and offered quick support in form of advanced payments • agreed with cedents efficient processes, for e.g. adjusting massive numbers of small claims • showed continuous local presence for the whole year 2010 with claims managers actively participating in loss surveys • consulted the cedents in selecting loss adjusters or forensic accountants for large, complex claims • conducted claims reviews at the claims dept. of ceding companies • collaborated with the local association of insurers for drafting lessons learnt The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

13. The Chilean Insurance Marketin the immediate aftermath of the event • Weakness of the infrastructure in the affected area aggravated the situation • Utilities (electricity, water, telephones/communication network incl. cell phones) interrupted for several days • Damaged roads, fallen bridges, i.e. difficult access • Hotel capacities largely reduced • Curfew limited the mobility during the initial weeks • Employees of industrial companies did not go to work for several days in order to stay with their families. • Lack of manpower and of construction material retarded the beginning of loss minimisation measures and of repair works. The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

14. Problems related to the loss adjusting process • Chilean law allows adjustment only to locally authorised loss adjusting companies • Chilean law requires full settlement of claims affecting private lines within a timeframe of 3 months from the date of the loss notification. Enforcement by the Superintendencia de Valores y Seguros, Chile (SVS) • Mass losses at private buildings/apartments (mortgage insurance) • Multiple loss notifications from the insured, the broker or the bank • One building/several owners/different insurance policies • Difficulties to decide on demolition vs. repair • Large industrial risks: Lack of clarity of certain insurance policies, i.e. on sums insured for business interruption • Uncertainties regarding preliminary loss estimates, in particular with business interruption claims • “Public Adjusters” who work for the insured and raise expectation of higher indemnifications The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

15. Role of the Loss Adjusters • Number of loss notifications superseded by far the initially available capacity of local loss adjusters • For the adjustment of large, complex losses some of the local loss adjusters had to require the help of their own or affiliated international organisations as well as forensic accountants expert in business interruption losses • After 4 – 6 weeks the loss adjusters managed to drastically increase their capacity in terms of manpower, office space, office equipment and could start to work efficiently • Due to the very large number of claims the loss adjusters could not comply entirely with the SVS requirements. They had to demand for and obtained a general postponement of the compulsory time limit of 3 months for claims settlement. • By the end of 2010 the vast majority of the householders claims could be settled The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

16. Statistics The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

17. Mass Claims - Impact of Deductibles Regulations in Chile Deductibles are regulated for residential and commercial risks as follows: • Residential risks: 1% of sum insured, min. UF 25 (approx. USD 1.000) • Commercial risks: 2% of sum insured, min. UF 50 (approx. USD 2.000) Consequences Homeowners started complaining against the height of the deductibles and this turned out to be a political issue. The Superintendency (SVS) asked the insurance industry to withdraw the deductibles. The insurance industry did not accept and explained why deductibles are absolutely needed in case of NatCat. The co-operation of insurers, loss adjusters and reinsurers before a large loss occurrence 17

18. Mass Claims – Residential Risks Portfolio (example)Number of Claims Number of Claims vs. Deductible [UF] UF 1 = approx. USD 40 Number of claims Deductible [UF] The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

19. Mass Claims – Residential Risks Portfolio (example)Amount of Indemnity Indemnity 100% [USD] vs Deductible [UF] UF 1 = approx. USD 40 Claims below deductible (ca. USD 28 m) The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

20. Thank you for your attentionLet’s Work Together! Georg Feierabend