THE CONSORTIUM AND EXCEPTIONAL RISKS INSURANCE COVER

I - WHAT IS THE CONSORTIUM?

THE CONSORTIUM IS AN INSURANCE ENTITY

- It charges premiums and fees- It indemnifies in accordance with the conditions of an

insurance contract- Acts according to the legislation which regulates the

insurance activity - - Applies the basic insurance principles

THE CONSORTIUM IS A PUBLIC INSURANCE ENTITY

- However, IT IS NOT administered by the State nor does it receive contributions from state finance: it has its own conditions as well as its own fees which are different from those belonging to the State.

- It is a public business institution attached to the Ministry of Economy and Finance

- It possesses its own juridical individuality- Controlled by Legal Statute (Legislative Royal Decree 7/2004)

THE CONSORTIUM IS A PUBLIC INSURANCE ENTITY WHICH COMPLEMENTS THE SPANISH INSURANCE SYSTEM WITH THE PURPOSE OF COVERING THE RISKS NOT ASSUMED BY PRIVATE INSURANCE

- Cover of exceptional risks- Diligences in certain insurance of mandatory subscription- Coverage refusal from private insurance- Victim protection when the private insurance mechanism

does not apply- Support the system of mixed agrarian insurance

(reinsurance and loss adjusting control)- Issues of common interest come together (Air Travel,

Terrorism, or Loss of Profits)

II.-CONSORTIUM’S COVER FOR EXCEPTIONAL RISKS

0. – PREVIOUS COMMENT: Difficulty in recovering damages caused by natural disasters

1. - General outline of the Consortium’s action towards exceptional risks cover.

2. - Requirements to get a Consortium indemnification3. - Damages indemnified by Consortium4. - Official aids, distinctive from the Consortium’s

compensation5. - Relevant data concerning this activity6. - Recent developments in the Consortium’s coverage7. - The Coverage’s system strength

0. – PREVIOUS COMMENT

a) Lacks of public aid. They respond to the real needs of the affected, yet:» the aid is granted with a margin for political opportunity criteria

» the aid is subordinated to budgetary priorities and availabilities

» inhibits the sense of responsibility of the potentially affected.

b) Difficulties in order to obtain private insurance coverage:» Statistical irregular behaviour of the catastrophic risks

» Incidents happen on a large scale: they affect several insured objects simultaneously.

» Private insurance market: insufficient coverage or with high premiums

» Usual need for these risks to be covered through intervention of public powers

1. - Consortium’s general procedures exceptional risks

cover. (I)

a) The Law requires some insurance policies to include some amounts for the coverage of exceptional risks.

b) These amounts are legally settled once in a thousand by the insurance policy

c) The amounts are included in the premiums received paid by the insured's.

d) They are, therefore, collected by the private insurance entities.

e) These amounts are periodically placed in the Consortium by the private insurance entities.

1. – CONSORTIUM’S GENERAL ACTIONS FOR EXCEPTIONAL RISKS COVER

(II)

f) The Consortium “replaces” the private insurance entities when the loss occurred due to “exceptional risks”.

g) The Consortium covers these risks based on the insurance policy (following its clauses; the insured people or goods; the sum insured, etc…).

h) The Consortium through his own organization handles the claim: Consortium receives insured’s complaint and valuates the incidents through loss adjusters; quantifies the indemnification; and pays electronically.

i) The Consortium does not grant money assistance nor subventions. However pays indemnifications resulting from an insurance contract as a compensation against an amount paid by insured.

j) The Consortium acts in an automatic and objective way, regardless of the number of affected people besides the existence or not of an announcement of an official disaster zone.

1- CONSORTIUM’S GENERAL ACTION’S FOR EXCEPTIONAL

RISKS COVER (III)

2. - REQUIREMENTS TO ACHIEVE A CONSORTIUM INDEMNIFICATION

(I)

a) To be insured by any of the following policies :

• Personal Insurance: accident insurance (alone or complementary with other insurances)

• Motor Insurance: vehicle damages (the Consortium does not intervene if the insurance is only for civil liability)

• Damages to other goods: fire; theft; machinery breakdown; contractors all risks, industry, commercial, etc.

2. - 2. - REQUIREMENTS TO ACHIEVE A CONSORTIUM INDEMNIFICATION

(II)

b) The occurrence (“exceptional risk”) is one of the specifically foreseen in the Law:

• Natural occurrences: flood ( overflows from rain or thaw; overflowing from rivers or surface natural water overflowing the normal river bed, lakes with natural issue); surge of sea on land; earthquakes; seaquakes; volcanic eruptions; atypical cyclonic storm; fall of sidereal material and meteorites.

• Violent occurrences caused as a consequence of: terrorism; civil commotion; rebellion; riot; acts or actions of Armed or Security Forces during peacetime.

REQUIREMENTS TO ACHIEVE A CONSORTIUM INDEMNIFICATION

c) 7 days after policy commencement (deductible period) or if later, since the date of its beginning. (However no

deductible for personal injuries).

d) Claim should be presented to Consortium (there are 18 regional delegations), with the documentation

(insurance policy; receipt related with updated premiums payments on occurrence date; bank details,

fiscal number).

3.- NATURE OF DAMAGES INDEMNIFIED BY CONSORTIUM a) Material damages (destruction or deterioration) and

directly provoked by the action of the causing element).b) Loss of Profits as a consequence of those above

mentioned (innovation installed in 2004, which can be qualified as a historical landmark in the Consortium’s evolution).

c) Besides this, it also covers:- Rescue expenses (if available).- Additional expenses, rubble disposal

and mud extraction (within certain limits).d) With an exemption deduction in case of material damages:

- Usually, 7% of the damage amount- It has been recently suppressed the

exemption in case of damages to vehicles insured through motor car insurance policy, to buildings and communities of dwelling owners.

In personal damages no deduction will be made

3.- NATURE OF DAMAGES INDEMNIFIED BY CONSORTIUM a) Material damages (destruction or deterioration) and

directly provoked by the action of the causing element).b) Loss of Profits as a consequence of those above

mentioned (innovation installed in 2004, which can be qualified as a historical landmark in the Consortium’s evolution).

c) Besides this, it also covers:- Rescue expenses (if available).- Additional expenses, rubble disposal

and mud extraction (within certain limits).d) Deductible to be applied for material damages:

- Usually, 7% of the damage amount- Recently it was suppressed deductible

for damages in vehicles insured through motor car insurance policy, also for buildings and communities of dwelling owners.

In personal injuries no deductible is applied.

4. -OFFICIAL AID, DISTINCTIVE FROM THE CONSORTIUM’S

INDEMNIFICATIONS (I) • The legislation promoted by Civil Protection (Spanish Home Affairs)

consists in promulgation of Royal Law Decrees to adopt aid procedures as a matter of urgency in order to repair damages caused by disasters as taxes adjournments, low interest rates, economic aids up to damages quantum, etc.

• Usually Home Affairs requests the Consortium to evaluate damages through its loss adjusters to be provided economic aid

4.- – OFFICIAL AID, DISTINCTIVE FROM THE

CONSORTIUM’S INDEMNIFICATIONS (II)

• Consequently:Uninsured goods: The Consortium does not apply; Home Affairs handle

and provide aid if established by a Royal Law Decree. In this case Consortium’s support is limited to a loss report.

Insured goods: The Consortium handle and indemnifies ; furthermore, Home Affairs also provide aid, if established by a Royal Law-Decree. This aid is based on the Loss Report produced by Consortium and applies to the amount not indemnified by the Consortium (ex: deductibles, lack of insured capital, etc. …

4.– OFFICIAL AID, DISTINCTIVE FROM THE CONSORTIUM’S

INDEMNIFICATIONS (and III) •Final comments:

- indemnification through Consortium insurance converge with administrative aid in case of absence of insurance or by an amount

not included in the indemnification through the Consortium

-The request for an insurance indemnification should be presented before the Consortium, which handles, adjusts and indemnifies.

- The request for State aids or of the CCAA ones SHOULD NOT be presented before the Consortium, but in the Administration which

signals the legal regulation which regulates the aid. Consortium does not provide this aid; it only operates under request of

Administration/Government.

Following this model, the Exchequer/ Finance Ministry has appointed Consortium to make loss assessment of “Prestige” vessel major

accident.

5.– RELEVANT DATA CONCERNING THIS ACTIVITY

a) General principles

• Consortium does not limit itself to economical disaster costs.• The Consortium handles and reimburses occurences/claims

through its own organization.• Occurrences handling made by Consortium:

Does not depends on an official disaster announcementIt Begins in an immediate and automatic wayThe process advances regardless of the number of affected people, extension of affected area or intensity of the total loss amount.

Small claims and Major claims are both present.

b) The concept of GRAN SINIESTRALIDAD

• A single event

• High number of complaints of incidents simultaneously produced

• Need to conduct in a short period of time (3 or 4 months, regardless of the number of incidents).

• Requires special measures of:

• Organization

• Information

REGISTERED PROCEDURES

1.364

Personal damages

1.302

- Death: 193

- Injuries: 1.109

Material damages

62

- Train: 1

- Personal effects: 8

- Houses and offices: 36

- Vehicles: 17

REGISTERED PROCEDURES WITH INDEMNIFICATION

1.096

DENIED COMPLETED PROCEDURES

206

PENDING PROCEDURES

62

TERRORIST ATTACK 11th MARCH 2004

(situation at 04.04.06)

PENDING PROCEDURES

62

Pending WITH PAGOS REALIZADOS:

35

- Death: 2

- Injuries: 54

- Material damages: 1

Pending WITHOUT PAGOS REALIZADOS:

27

- Death: 0

- Injuries SIN OFERTA: 9

- Injuries without some OFERTA: 16

- Material damages: 2

TERRORIST ATTACK 11th MARCH 2004(situation at 04.04.06)

INDEMNIFICATION AMOUNTS

Indemnified amount

36.051.683,46

Provision for the pending procedures

2.111.523,63

TOTAL AMOUNT

38.163.207,10

TERRORIST ATTACK 11th MARCH 2004(situation at 04.04.06)

6.- RECENT CONSORTIUM’S COVER EXTENSION (I)

6.1. – If up until now, the coverage was limited only to direct material damages, the Consortium assumes 2004 consequential damages, associated with the direct damages, in the same terms predicted by the insurance policy which covers the ordinary risks (with the deductibles application foreseen as per insurance policy for indirect damage losses).6.2. – If the risk cover was limited to damages produced in Spain, Consortium extended personal injuries cover for all exceptional risks, to those suffered abroad whenever insured has permanent residence in Spain.

6.- RECENT CONSORTIUM’S COVER EXTENSION (II)

6.3. – The Consortium has significantly amplified the typical cyclonic storm coverage, in order to incorporate the damages produced by the extraordinary wind effect: therefore, the tornados as well as the wind are included in the coverage, provided that the former presents a speed higher than 135 km per hour and without the need of the association of rain and wind.6.4- - The coverage concerning the surge of sea on land has been clarified and amplified, which now covers the effect produced by the surging of the sea , regardless if the water generates, or not, a subsequent flood.

6. - RECENT CONSORTIUM’S COVER EXTENSION (III )

6.5. – Although certain natural phenomena such as water overflowing level, land collapse, subsidence do not fulfil legal concept of “exceptional risks”, and for this reason not covered by Consortium, they will be from now on covered when if associated with action of the rain that, in turn, had provoked an extraordinary flood situation in the area and happened simultaneously with such flood.6.6. – Deductible has been suppressed for personal injuries and it has also been reduced from thirty to seven days in case of damage to goods.

6.- RECENT CONSORTIUM’S COVER EXTENSION (IV )

6.7. – Deductible has been suppressed in cases of automobile, occupiers and owners, buildings communities, and the 10% of the damages produced for all other types of goods (commercial, industries, contractors, etc.) has been reduced to 7%.

7.- COVERAGE SYSTEM’S EFICIENCY (I)

- The Consortium was born on a provisional basis due to the Civil War

- It was consolidated, with a definitive character, as per the Law of 16th December 1954.

- Therefore, it has more than fifty years of experience.

- It complies with solvency insurance industry standards.

7.- COVERAGE SYSTEM’S EFICIENCY (II)

- Furthermore, it contains a surplus for a “Catastrophe Fund”.

- Finally, the Law provides additional financial guarantees from the Government in case of lack of funds to assist a catastrophe of huge dimensions.

- However in over more than fifty years of existence, Consortium has responded to all catastrophes from its own resources, without the need to appeal for state financial support.