‘ Everything you always wanted to know about claims …….’

1. Crawford & Company ‘Everything you always wanted to know about claims …….’ CATASTROPHES Mike Patton, Japanese Market Liaison Executive General Adjuster Vice President - Global Markets

2. Mike Patton, MILA (Southern Africa) • Japanese Market Liaison • Executive General Adjuster, Vice President - Global Markets • 47 years’ loss adjusting experience specialising in major property and business interruption losses across many territories, including 35 years outside the UK, with regional and main board roles. • Country Manager in inter alia, France, Thailand, Singapore, Malaysia, Saudi Arabia, Australia and South Africa Selected Experience • 2011/12 Relationship manager with responsibility for the Japanese market • during the Thailand floods - US$ 3 billion • 2011 Team Leader for the Great Eastern Earthquake and Tsunami catastrophe in Japan - US$ 1 billion • 2005 Computer company fire in Milan, Italy - US$ 80 million • 2001 Motor spare parts factory fire in Saudi Arabia - US $70 million • Lead adjuster for the Kobe Earthquake, Japan – US $300 million

3. Unprecedented global catastrophes

4. Great Eastern ‘Tokohu’ Japan Earthquake • The EQ occurred at 2.46pm local time on the 11th March 2011. • The epicentre was approximately 130 kms off the north east coast of Honshu, the main island in Japan. • It was the fourth most powerful EQ since 1900 and the largest ever recorded in Japan at magnitude 9. • The tsunami struck the coastline of Honshu less than 30 minutes after the EQ.

5. The facts • The wave was reportedly over 10 metres high when it landed near the city of Sendai. • A 6 metre wave hit the Fukushima Dai-Ichi nuclear power station further south on the coast, topping the sea defences and flooding the emergency diesel power generators. • This crippled the reactor cooling systems and consequently triggering nuclear fuel meltdowns. • This led to fires and explosions with the threat of radiation leakage and contamination. • A 20km exclusion zone was imposed around the Fukushima Daiichi power plant and the government moved 90,000 people from their homes.

6. The EQ and tsunami destroyed tens of thousands of buildings. Walls of water that washed ashore took entire villages with them when they receded. Agricultural land and forests were inundated and destroyed, some 500 miles of coastline was wiped out. 3 passenger trains which were engulfed by the tsunami disappeared completely. There were over 20,000 fatalities and 450,000 people were made homeless. 1.6 million residents were without running water and 850,000 were without electricity in sub freezing temperatures for many weeks. Thedevastation

7. The cost • This was said to be the most expensive natural catastrophe of all time. • Magnitude 9 on the Richter scale is the highest recorded in Japan. • The Kanto EQ in Tokyo in 1923 was recorded at 7.9 and 140,000 people died. • The Great Hanshin EQ in Kobe in 1995 killed over 6,000 with total losses of € 250 billion of which only a fraction was insured. • The overall losses arising from this event ran into hundreds of billions of dollars. The insured losses were in excess of € 8 billion. • Benefits paid by the life insurers in Japan exceeded € 1.1 billion with accident related benefits paid of US$ 500 million.

8. Post Earthquake - issues and measures • The US advised their citizens to observe a 90 km exclusion zone around the Fukushima power station and others from Britain, Germany and Australia were advised to leave the region. • Motor companies including Nissan Honda and Toyota closed down operations. Motor parts suppliers were badly affected together with chip and semi conductor manufacturers. • Railways and roads closed and other infrastructure was badly affected. There were severe shortages of fuel water and food. • The authorities started rolling power blackouts almost immediately as the loss of power from Fukushima affected the capacity of the grid. • Mothballed coal and gas fired stations were brought back on line to make up the nuclear shortfall. • It has been suggested it may take 5/10 years for a full recovery in the region, but most believe that it will never fully recover. Compensation for victims is a major issue. Billions of euros are involved. Many more billions were required for a cold shutdown of the Fukushima plant. • A comprehensive plan to dispose of the irradiated waste with new technology and creative methods was required. For example they needed to compress the contamination waste. According to the ministry there could be at least 45 million c.m. of it. There were over 1 million protective suits used in the clean up. Clean up costs may finally exceed €12 billion.

9. Earthquake and Tsunami Sprinkler leakage Fire and Flood Debris impact damage Pollution Fear of radiation, damage or/or contamination Denial of access Exclusion zones Power failure and transport disruption Rolling power outages and restrictions Lack of manpower Closure of premises Wide area damage and loss of attraction ‘‘Jishuku’ or self restraint Property condemnation orders Causes of loss There are concurrent losses from Interdependent and Independent causes which had to be considered to determine coverage under the policies of insurance. The concept of proximate or direct cause is not recognised in Japan. It’s about reasonableness. Here are some of the potential reasonable causes of financial loss arising from the Earthquake and Tsunami.

10. Household Insurance coverage and claim settlement • The industry agreed to deal with Personal lines claims first and a commitment given by the government that 90% of all such claims were to be settled by the 1 May 2011, a period of 7 weeks after the event. • When access was granted to the affected areas, Insurers dispatched staff adjusters together with other office personnel including general management, to carry out surveys. • The GIAJ decided that in many areas claims assessment and settlement could be enhanced using satellite imagery and aerial photography. • City blocks or areas which were identified as catastrophically damaged and houses that had disappeared, were categorised as total losses, in this manner. • Wooden houses tilting by more than 3% and non wooden buildings by more than 1.2% were defined as total losses, as were houses that had sunk by more than a metre due to EQ liquefaction. • \By the beginning of October 2011 some 705,000 household claims had been settled at a cost of over € 15 billion

11. Contingency Business Interruption supply chain issues • Globally, 20% of semiconductor chips, 40% of electrical components and 25% of memory chips are produced in Japan and a large proportion is manufactured in the north east. The closure of plants has had a global impact.Telecom and motor companies predicted that the shortage of parts would cause prolonged disruption around the world. • For example an Italian company that depends on component parts or goods manufactured in Japan may suffer a loss of sales from a Japanese suppliers inability to provide the necessary parts or goods, as a result of earthquake damage. In a claim for CBI the insured must prove that the business loss he has suffered was proximately caused by a peril that would be covered by their own policy, in this event earthquake. What would be the case if the factory was closed as it was in the exclusion zone? Whilst the Italian company may have cover for EQ few will have cover for losses arising from nuclear radiation, denial of access in exclusion zones or factory closure due to safety concerns. • There might be a number of contributing and/or concurrent and/or interdependent proximate/reasonable causes affecting the loss as well.

12. Thailand Floods over an area the size of Denmark

13. The Facts • Over 12.8 million people affected • Damage estimates of at least €8 billion estimated by Federation of Thai Industry • - €4 billion damage, Thai industry • - €1 billion damage, Thai Agriculture • - €3 billion damage, housing • - 930 factories affected • Lengthy delays due to floodwaters not dispersing, increased BI Indemnity periods • Supply chain and transport infrastructure severely affected which significantly impacted other countries

14. The Events of 2011 • This was not an exceptionally wet year. • There was however a series of events which led to the catastrophic flooding experienced in Ayutthaya and elsewhere throughout the central plains. • By 8th September people living in six provinces of the central plains along the Chaophraya River basin had been warned to prepare for possible flooding as a result of run-off from the North. • On 14th September there was a failure of the Bang Chomsi sluice gate on the east bank of Chaophraya River in Singburi Province caused by the excessive volume of surface water run-off. • This event, combined with the subsequent release of water from Pasak Jolasit Dam in Lopburi Province, which had already reached 136% of its 1,065 million m³ capacity by 1st October 2011, resulted in a further southwards spread of flooding towards Ayutthaya province. • Industrial estates flooded on different dates over a 3 week period.

15. Overall Effect • Insured losses were estimated at €18 billion • Aon Benfield’s Monthly Cap Recap Impact Forecasting report at the time said economic losses were estimated at €40 billion • Thai Re estimated that local non-life Insurers exposure was at € 4 to 6 billion although 90% was reinsured overseas

16. Challenges for loss adjusters Local regulation, compliance and licensing Service level agreements are important Multinationals not joined up Controlling costs Lack of claims culture Adjuster Continuity Does Insured have a BCP? Site access – Finding it first! 16

17. Access Problems – Finding the Loss site

18. Access problems - Finding the loss address 18

19. Personal Challenges for loss adjusters • Language • Cultural issues • Decision making & Negotiation of claims • Climate • Pests and dangers • Injury, disease and burnout • Radiation and fear of radiation • Dosimeters • Preparation is everything!

20. Access Problems - Physical

21. Access problems - Physical 21

22. Access Problems - Infrastructure

23. Access Problems - Regulatory • Police and Military restrict access to flood, earthquake or contaminated areas often to prevent looting or theft, disease, or injury.

24. Logistics • Lodging / Accommodation • Hotels / Motels • Motor homes • Apartments • Cruise ships • Services, Suppliers & Equipment • Limited availability – bring in but manage costs • Launching Operations • Operations centre set-up • Registration of adjusters • Temporary Licensing • Team Allocation • Local Briefings • Health & Safety • Deployment

25. Resources • The race to get the right people on site Quantity Qualifications and experience Linguistics • Solutions Managing the CAT team – blending the right mix International support in Group Bespoke CAT training programmes Speciality skills – pre-determined consultants

26. Crawford Asia Response • 2 local adjusters and 15 foreign adjusters in Tokyo. • Over 50 local adjusters in Bangkok. • More than 40 senior foreign adjusters went to Bangkok • Contracted long term senior adjusters • Purchased appropriate equipment, e.g. computers, cameras, waders, dosimeters, mobile phones, safety clothing etc. • Contracted Japanese and Thai translators and local administrators • Cars and drivers

27. Crawford Asia Response • We did not wait for flood waters to recede or for clearance on the radiation threat. • Off site meetings were called to anticipate what would be required in each case. • First hand accounts and photos recorded where possible immediately • Restoration experts, accountants. surveyors, machinery experts, lawyers and other professionals put on stand by or appointed. • Set up claims procedures/document request lists etc. • Interim payment procedures. • Immediate advice reports. • Reserving – immediate and on regular basis.

28. Lessons learnt • It is vital that CAT events should be fully project managed. • Teamwork with a need for leadership and ownership is absolutely necessary. • Proper admin, financial, HR, Legal, logistics, IT and support staff are essential elements at the outset. • Proper training for adjusters in international ‘Cat’ work • Aggregation, coverage and other policy issues must be identified early on for the market as a whole. • Mitigation of the potential loss is essential. A proactive approach is necessary. • Better pre-event planning with all stakeholders. • Better sharing of information before and debriefing after the process.

29. Lessons learnt Insured parties must provide greater transparency in supply chains and general business models for BI and CBI covers. Fully support supply chain management and teams. • Move away from single source suppliers. • Move production to other areas around the world. It’s a global economy. • Risk engineering is important. • Flexibility is required by the insurance market . There is a willingness to come up with better offerings and there are opportunities for the risk transfer industry generally.

30. What more can we say and do about ‘Cat’ claims Focus on Claim Quantification Methodology (CQM) Global programmes are becoming more complex and have many moving parts CBI losses have the potential to result in significant losses Greater use of data and MI to manage claims Prevention is better than the cure – work with the Insured and brokers Develop realistic scenarios with a pre planned claim evaluation processes Use the insurers and brokers expertise Analyse and plan, Communicate and measure Situational information is key for major losses You can learn from every and any event

31. So you think the job is easy?!!!!

32. So you want to go home?