Successfully reported this slideshow.

Resilient NJ Shore 12 7-12 linkin

1,060 views

Published on

Severe weather events will increasingly be the norm, and New Jersey must plan for them. An insurance product for municipalities called parametric insurance offers a way to get cash to local officials quickly after such an event.

  • Be the first to comment

  • Be the first to like this

Resilient NJ Shore 12 7-12 linkin

  1. 1. Revive, Rebuild, Recover:Creating a Sustainable NJCoastline Megan Linkin, Ph.D. Natural Hazards Expert, Swiss Re
  2. 2. Table of Contents / Agenda New Jersey by the Numbers Coastal Hazards Facing New Jersey Bringing in the Re/Insurance Industry Concluding ThoughtsM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 2
  3. 3. New Jersey by theNumbersM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 3
  4. 4. New Jersey Facts and Figures Total population: 8.8 million people (2010 Census) Population in coastal counties: 3 million people (34% of state population) The leisure, hospitality and recreation sector of the economy generated $43.4 billion of the 2010 gross state product, equating to 8.9% (NJ Bureau of Labor Market Information 2012). – Most tourism is generated by the Jersey Shore The Barnegat Bay generates $4 billion in annual economic activity, $2.3 billion in ecosystem services and $2 billion in annual wages (APP 2012). Economic sensitivity due to weather variability is 8 – 10% of GSP (Lazo et al. 2011). Source: Lazo et al. (2011)M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 4
  5. 5. The Aftermath of Superstorm Sandy  Severe damage to infrastructure, mass transit and the highway system  On average, 30 – 40 feet of beach lost along the coast. (Associated Press 2012)  72,000 buildings in New Jersey impacted by the storm (FEMA 2012) – 500 structures destroyed – 5,000 structures suffered major damage – 24,000 structures suffered minor damage  Estimated $29.4 billion in physical economic damage according to Governor Chris Christies office Ortley Beach, NJ – November 17, 2012 Source: Ocean County Police Blotter – Projected to rise in the coming months as full impact on economy is revealed (tourism, real estate prices)  Insured losses in New Jersey estimated around $4 billion (PCS)  Total NFIP losses are estimated at approximately $12 billion (Business Insurance 2012)M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 5
  6. 6. Sandys Place in HistoryEconomic Losses from Coastal Storms in New Jersey Estimated economic losses from Sandy are 5 - 6 times the second largest event, the Ash Wednesday 1962 noreaster Source: NJ.com M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 6
  7. 7. Coastal Hazards FacingNew JerseyM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 7
  8. 8. Coastal HazardsStorm Surge  Sandys storm tide ranged from 8 – 14.3 feet in the NY/NJ metro area – Sea level at the Battery has increased 10 – 15 inches in the last 100 years – This sea level rise, thought to be half natural and half anthropogenic, exacerbated Sandys storm surge  A category 3 hurricane striking the NJ coast TODAY at high tide would bring a storm tide between 10 and 25 feet  With another 1 – 2 feet of anthropogenic sea level rise projected to occur by 2050, another storm less intense than Sandy will be able to generate higher storm tides by mid-century Source: NOAA/NHCM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 8
  9. 9. Coastal Hazards Wind Source: NOAA/CPC Source: NOAA/GFDL Sandy followed the Gulf Stream north along the southeast and Mid-Atlantic United States Research into the behavior of tropical cyclones in a warmed climate: – Overall decrease in tropical cyclone frequency – Increase in the frequency of the most severe (category 4 and 5) events M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 9
  10. 10. Bringing in theRe/Insurance IndustryM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 10
  11. 11. The Role of Re/InsuranceClosing the Financial Gap – Post-event statistics On a typical day, Toms River, NJ, 911 dispatch received 250 calls. – In the 24 hours after Hurricane Sandy, more than 1,300 calls were logged NJ Transit estimates that between a quarter to a third of rolling stock was damaged by Sandy. 7 million people affected by power losses, or 80% of the states population. Approximately 333,922 cubic yards of Sandy-related debris was removed from only six towns in Monmouth and Source: Personal Ocean Counties (Asbury Park, Beach Haven, Eatontown, Howell, Long Branch and Middletown).M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 11
  12. 12. The Role of Re/InsuranceEnhancing Flood Insurance The National Flood Insurance Program (NFIP) has paid out $33.8 billion (real USD) in losses since 1978. Five multi-billion dollar losses have occurred since 2001, leaving the NFIP in $18 billion of debt. – The NFIP is without the borrowing capacity to meet potential Sandy-related losses Congressional renewal of the NFIP in mid-2012 came with a mandate to investigate mechanisms to bring in the private insurance market. Governor Andrew Cuomo created a task force post-event to investigate the potential insurance solutions to address questions which have arisen after Sandy. – Traditional re/insurance solutions are possible and viable, albeit with a complicated claims process – Public-private partnerships: Risk transfer solutions which provide rapid financing to a government client in the wake of a natural disasterM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 12
  13. 13. How do Parametric solutions work:MultiCat Mexico hurricane example Trigger: Hurricane of 920 mb or lower through box = paymentM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 13
  14. 14. Traditional vs. Parametric –Benefits to buyer Topic Traditional Insurance Parametric Solutions Use of Proceeds Intended to cover loss Used at buyers sustained discretion Speed of Payment Subject to loss Rapid: 2 – 6 weeks adjustment (can be slow) Loss Adjustment / Yes - buyer may need No – little claims Administrative Process own claims adjusters administration needed Transparency Loss settlement is Parametric triggers complex to explain easier to explain Pricing Flexibility Limited modifications Structure can be adjusted to price Changes in Exposure Annual adjustments No adjustment neededM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 14
  15. 15. How others have used parametric solutionsCountry Client Coverage Size Use of Funds Form Government of USD 290 million Cover emergency Cat Bond (ILS) Mexico (Hurricane and expenses following Earthquake) disasters Caribbean USD 111 million Provide financial liquidity Parametric Catastrophe Risk (Hurricane and for the government reinsurance Insurance Facility Earthquake) following disasters and derivative State of Alabama Transaction size Pay for increased Insurance not disclosed insurance costs following (Hurricane) hurricanes University of USD 50 million Covering losses from Insurance Texas Medical (Hurricane) hurricanes to soften impact Branch to University system M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 15
  16. 16. Concluding ThoughtsM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 16
  17. 17. Conclusions Good news…  Sandy presents the State with an opportunity to fortify the coast and its communities by implementing cohesive dune systems and stricter building codes Bad news…  Coastal areas are highly exposed to storm surge and damaging winds and anthropogenic climate change will exacerbate storm surge via sea level rise Good news…  Risk management strategies and product offerings from the private re/insurance industry can help the state of New Jersey and its municipalities both maintain the insurability of the coastal region and financially prepare for significant weather events. Rebuilding a resilient coast will be a joint effort between the government, the private sector and academia!M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 17
  18. 18. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 18
  19. 19. "The Jersey Shore, for those of usborn and raised here, is more than asummertime destination. It is in ourbones and blood. It defines our stateand it defines us."-- Home News Tribune, 11/11/2012 “[The Jersey Shore] is our most valuable resource, natural and otherwise, on levels that go so much deeper than money. The ocean is soothing when not raging. The shore breezes cool us, when not uprooting us. It is our playground, when not leveled. It is our claim to fame, in good times, and, now, in very bad. Heres another claim: We took Mother Natures best shot, and were still"Cause down the shore, standing."everythings alright." -- The Star Ledger, 11/2/2012-- Bruce Springsteen, "Jersey Girl" M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 19
  20. 20. Thank you
  21. 21. Case study Mexico:MultiCat - Funding for immediate relief efforts after disasters Solution features  Insured perils: Earthquake and hurricane  Payments to be used for immediate emergency relief after a disaster  Parametric catastrophe bond: USD 290 million  Trigger type: Index – Earthquake: physical trigger (quake magnitude) – Hurricane: physical trigger (barometric pressure)  Time horizon: October 2009 – October 2012  1st cat bond launched through the World Bank’s new MultiCat facility and second cat bond for Mexico Involved parties  Insured: Fund for Natural Disasters (FONDEN) of Mexico  Arranger: World Bank Treasury  Swiss Re: Co-lead manager and joint bookrunnerSwiss Re Global Partnerships | February 2012M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 21
  22. 22. Case study Caribbean:Caribbean Catastrophe RiskInsurance Facility (CCRIF) Solution features  The CCRIF offers parametric hurricane and earthquake insurance policies to 16 CARICOM governments  The policies provide immediate liquidity to participating governments when affected by events with a probability of 1 in 15 years or over  Member governments choose how much coverage they need up to an aggregate limit of USD 100 million  The mechanism will be triggered by the intensity of the event (modelled loss triggers)  The facility responded to events and made payments: – Dominica & St. Lucia after earthquake (2007) – Turks & Caicos after Hurricane Ike (2008) – Haiti , Barbados, St. Lucia, Anguilla and St. Vincent (2010) Involved parties  Reinsurers: Swiss Re and other overseas reinsurers  Reinsurance program placed by Aon Benfield Ltd.  Derivative placed by World Bank TreasuryM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 22
  23. 23. Case study United States:Alabama – First parametric transaction for agovernment in an industrialized countrySolution features Insured peril: Hurricane Payments to offset economic costs of hurricanes Parametric insurance: Transaction size not disclosed Trigger type: Disaster occurring within a defined box along coast (“Swiss Re Parametric CAT™”) – Trigger based on the maximum sustained wind speed of hurricane as the center passes through the box Time horizon: July 2010 – July 2013 1st parametric catastrophe risk transfer for a government in an industrialized countryInvolved parties Insured: State Insurance Fund of Alabama Swiss Re: Lead structurer and sole underwriterM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 23
  24. 24. Case study United States:University of Texas – Custom multi-year structured coverfor public university Solution features  Insured peril: Hurricane  Multi-year Aggregate Cover: USD 50m  Covering indemnified losses from hurricane to soften impact to broader University system – 3 year coverage with mandatory reinstatement – No claims bonus  Time horizon: April 2012– March 2015  Customized multi-year structured risk transfer for major public university Involved parties  Insured: University of Texas Medical Branch  Swiss Re: Lead structurer and underwriter  Broker: Beecher CarlsonM. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 24
  25. 25. Legal notice©2012 Swiss Re. All rights reserved. You are not permitted to create anymodifications or derivatives of this presentation or to use it for commercialor other public purposes without the prior written permission of Swiss Re.Although all the information used was taken from reliable sources, Swiss Redoes not accept any responsibility for the accuracy or comprehensiveness ofthe details given. All liability for the accuracy and completeness thereof orfor any damage resulting from the use of the information contained in thispresentation is expressly excluded. Under no circumstances shall Swiss Reor its Group companies be liable for any financial and/or consequential lossrelating to this presentation.M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 25

×