Few actuaries get the opportunity for exposure to two unique insurance products: multi-peril crop and terrorism.
The ratemaking methods for multi-peril crop insurance addresses elements not common to other property/casualty coverages, yet all actuaries can learn from the approaches used to overcome these distinctive challenges and can apply what they learn to dilemmas they face in other lines. This portion of the panel will focus on an introductory discussion of the product, distribution systems, reinsurance considerations, and pricing issues. In addition, profitability potential will be discussed in conjunction with the recently adopted contract between the private sector and the Federal Government.
Among the many effects of the 9/11 attacks was a severe contraction of the reinsurance market for protection against acts of terror. As reinsurance became scarcer for this peril, insurers were confronted with the choice of excluding acts of terror from their policies or bearing the financial risk completely by themselves. The latter option was complicated further by the lack of reliable metrics upon which to base rates. The natural result was significant uncertainty as to the availability and affordability of insurance protection against loss caused by acts of terrorism. This uncertainty, if left unaddressed, would likely have a material negative impact on the United States’ economy. Faced with this potentially devastating scenario, The United States Congress passed the Terrorism Risk Insurance Act (TRIA) which was signed into law in November of 2002. TRIA, which was extended in 2005 and reauthorized in 2007 until the end of 2014, established TRIP as a temporary response to the problem. In addition to extending the life of the program, the reauthorization expanded the coverage to acts of domestic terrorism. The second portion of this panel will provide an overview of the functions of TRIP, TRIP operations, requirements of private insurers, pricing and recoupment provisions.
Terrorism is a longstanding disaster with various roots and forms. It has likewise generated a wide variety of governmental and insurance market responses. Given the magnitude of risk exposures any comprehensive solution it requires cooperation with the ultimate risk sharing community, the State. Worldwide schemes and pools (Gareat in France, Consorcio in Spain, Extremus in Germany, OVDT in Austria, Pool Re in UK, NHT in Netherlands, ARPC in Australia...) will be presented. Risk pricing approach by each national insurance program will be discussed.