1. CURRENT PRACTICES & VIEWS ON INSURANCE INDUSTRY REFORM By: Lolesh K. Sharma Insurance Council of Fiji

2. Introduction 1.Fiji has a reasonably small premium base of only $160million, (includes Term Life & Medical of $20million) Therefore not providing enough of a pool required to soften the blow when extreme events are faced. EventCost to the Insurance Industry % of Total Premium Income KatrinaUSD 40 billion FJD 50 million Nadi Floods 2009 9% 41% 9/11 Terrorists Attacks USD 36 billion 7% TC Winston FJD 115m/250m 85% /130%

3. Introduction 2. Fiji has its specific challenges namely; a)Closeness to the Pacific Ring of Fire. b)Under the constant threat of Tropical Cyclones for at least 6 months of the year. c)Political instability over the past 30 years. d)Inconsistency in the implementation & policing of the National Building Code. e)Largely ‘uncharted’ or modelled country thus has many unknowns.

4. Introduction 3.The insurance industry in Fiji is not immune to international best practices via its Reinsurance Contracts with the international markets. 4.Insurance is provided for Uncertain Events. 5.If events occur far too regularly and there is not enough of a premium pool to support it, it is excluded, examples; a)The peril of earthquake in the State of California. b)The peril of flood in Thames Valley, NZ c)The peril of flood in Nadi and Ba

5. Introduction 6.Risk Mitigation is required to ensure; a.Premiums are affordable. b.Long term sustainability of the industry with the assistance of actuarial analysis in line with regulatory prudential requirements. c.Long term support from the reinsurance market. 7.The Insurance Cyclone Certification is a risk mitigation mechanism for cyclone insurance.

6. History of Cyclone Insurance Coverage in Fiji In January 1985 cyclones Eric & Nigel devastated Fiji cutting through the most populous parts of the country as the two cyclones within 2 days of each other cut through Viti Levu causing large scale damage to Nadi, Lautoka and Suva. Total Cost of around $40m to the country. Based on the economy size and gross premium income of $20million, event was indeed major.

7. Eric & Nigel History of Cyclone Cover in Fiji

8.  In summary this saw the reinsurance market (at that time largely based in London) react and threatened to withdraw cyclone cover for Fiji.  A cyclone surcharge rate of around 2% ( in comparison to a base fire + e/q rate being around 0.3%) being introduced by the industry.

9. History of Cyclone Insurance Cover in Fiji  The then Governor of the Reserve Bank of Fiji, Savenaca Siwatibau rejected such high rates.  Out of this impasse, cyclone cover was issued by the insurance industry subject to a cyclone certification being issued by an ICF approved engineer as per the YELLOW BOOK guidelines.

10. Holistic Approach to Insurance Reform 1.Measures have to be sustainable and ensure actuarial projections are able to withstand RBF prudential requirements. 2.Must be able to muster international Reinsurance support. 3.Adherence to the Insurance Law Reform Act 1996 4. Must be a partnership of all parties. 5. National Building Code of 2004.

11. Holistic Approach to Insurance Reform 6.Flood Mitigation at Town Planning stage including hydrological run off studies to ascertain impact on river flows at peak intensity. 7.Regulation of Builders & All other supporting building related consultants. 8.Standard of Building Materials entering into Fiji

12. Holistic Approach to Insurance Reform 9.Insurance penetration is an issue ;  Only 18,000 out of the 184,000 households in Fiji are insured.  Less than 10% of households are insured.

13. Holistic Approach to Insurance Reform Inclusive Insurance Bundled Product (Inclusive Insurance Working Group as part of the NFIT)  Entry level Product to get the uninsured used to the benefits of insurance.  A collaborative product of 7 insurance companies in Fiji, Employers, FRCA & UNCDF via PFIP.  First of its kind in the world.  Inclusive insurance product,$50 for $10,000 worth of cover; i.$3,000 Fire & Earthquake ii.$3,000 Personal Accident iii.$1,000 Health Insurance. iv.$3,000 Life & Funeral

14. Summary of Facts