Weather Risks Increase Need For Accurate Data

A huge rise in natural catastrophe events means that insurers and reinsurers must sharpen data on risks they insure with a major focus on high-population, high-dollar urban areas, a reinsurer advised yesterday at a renewal meeting.

Munich Re reported from the annual reinsurance renewal meeting in Baden-Baden, Germany, that taking inflation into account, economic losses in the past 10 years have more than doubled compared to the 1980s, with insured losses rising by a factor of 2.5.

The reinsurer said there has been a steady rise in weather-related natural catastrophes during recent decades, and this also applies to Europe, the company said, adding that weather-related natural hazard events are expected to increase in number and severity, due to the impacts of climate change.

Because of this, Munich Re said, it is vitally important for insurers and reinsurers to have precise information on insured risks, particularly in densely populated Europe, with its high-value concentrations in major cities.

In anticipation, Munich Re said it has developed tools that provide the means for clients to assess risks and prepare natural catastrophe analyses for individual portfolios. This assumes, however, that the portfolio data are submitted in a form that can be processed by geographical information systems, the company said.

Ludger Arnoldussen, a member of Munich Re's board of directors, said in a statement, “For years we have been pushing for greater transparency of insured risks. This is the only way to ensure that the risks are correctly assessed, that accumulation controls are performed, and that efficient risk management is achieved.”

The quality of portfolio data, in addition to pricing, terms and conditions, will again be on the agenda in the current renewal round for property-casualty treaties, the reinsurer noted.

The more precise the information on the risks covered, the more accurately those risks can be assessed, Munich Re said. This applies not only to natural hazard covers but to all insured risks in all classes of business.

In the case of major industrial groups especially, where one policy often covers a number of different sites, detailed information is required on each individual location. If there are doubts, risk loadings are added to protect ourselves against possible surprises, the company said.

Mr. Arnoldussen commented that a high degree of transparency in connection with risks “makes it easier for insurers and reinsurers to set risk-adequate premiums. In the present Jan. 1 renewals, as in the past, we are asking for what we consider an appropriate price for the risks we write.”

He said that if the company is unable to achieve the price in a particular area, it would use its capital “in other areas that provide a satisfactory return. At the same time, we will firmly support the trend toward differentiation in the price paid for reinsurance on the basis of the credit standing of the reinsurer and the service it provides.”