Topics Risk Solutions 2/2015 - Munich Re

TOPICS RISK SOLUTIONS

Insurance solutions for industry Issue 2/2015

Reputations under attack Improved safeguards: The financial losses from a cyber attack and the resulting loss of reputation can now be insured. PAGE 4

Life Science Greater protections for mergers and acquisitions

D&O Improved risk assessment

Natural hazards Weather gone wild

EDITORIAL Dear Reader, Almost no day passes without the media reporting on cyber attacks, and the consequential loss and misuse of corporate data. For many sectors, including the food and textile industries, tourism, luxury articles and cosmetics, hacking poses a threat to reputations and success in business. We offer a comprehensive solution that can provide indemnification for loss of earnings following a scandal and that can be adapted to the special needs of a company. Reputational protection is one of the most important components of a company’s risk management. Entrepreneurs and top managers also need their own, personal risk management. With our D&O Scout app for tablets, you can discreetly and confidentially determine your exposure and – if you so desire – find a suitable primary insurance partner directly. I wish you a stimulating read.

Torsten Jeworrek Member of the Munich Re Board of Management and Chairman of the Reinsurance Committee NOT IF, BUT HOW

Contents Criminal clicks Stealthily and adeptly, data hackers can loot credit and bank card data and information on millions of customers with just a few clicks. It takes immense time and resources for a company to overcome the financial loss and regain customer trust.

Page 4 News2 LIFE SCIENCE NDBI insurance solution reduces the risks of planning mergers in the pharmaceutical industry PROTECTING REPUTATIONS Cyber attacks destroy more than just data Customised solution offers the perfect balance of insurance and IT security DIGITAL RISKS More than just an insurance policy Patrick Pouillot, Underwriter at Munich Re, Paris on the advantages of the new Digit@ll solution EXECUTIVE LIABILITY When the Board is faced with human failings Using the D&O Scout app to assess your own risk discreetly and with utmost confidentiality

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COLUMN Weather gone wild What are the causes of changed weather patterns?

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Imprint and preview

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Munich Re Topics Risk Solutions 2/2015

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NEWS

NATHAN MOBILE

USA

CYBER RISKS

Anywhere, at any time

Growing awareness of climate change

Munich Re and Hewlett-Packard bundle competencies

With the new module in the NATHAN Risk Suite, risk managers can now carry out natural hazard analyses anywhere in the world at any time, and compare assessments with one other. Since NATHAN Mobile is directly connected to the NATHAN database, risk assessors always have access to the latest data.

Eight out of ten Americans are now convinced that the climate is changing. This is one of the results from the first Climate Change Barometer, a survey conducted by Munich Re America, Inc. Nowhere in the world are the insurance industry and its clients more seriously affected by the increasing number of natural catastrophes than in North America. Among Americans, 71% believe we need to focus more on renewable energies in order to slow down climate change. Of those interviewed, 63% stated that they had invested, or want to invest, in protection against the consequences of catastrophes. Almost half of the respondents are insured against the consequences of natural events. Over 1,000 US citizens were interviewed for the survey.

To acquire the capability of assessing digital risks of large corporations comprehensively and in detail, Munich Re has entered into a partnership with US technology firm Hewlett-Packard. Major industrial clients have multiple benefits from the partnership: “By having an outstanding partner for information security, we can offer our clients much, much more than just insurance” explained Nils Diekmann, underwriter at Munich Re. “Munich Re’s modular approach is a perfect fit with our overarching strategy of affording a maximum of protection for the technical systems of major industrial clients against cyber attacks”, Jürgen Seiter, Regional Sales Director of Hewlett-Packard, added.

The Overall Risk Score provides a quick overview. This shows an absolute figure for the severity level of the natural hazard risk for property insurance, incorporating the risks for earthquake, tropical storm, winter storm, tornado, hail, flash flood, storm surge and flood. >> A re you interested in NATHAN Mobile? Simply talk to your client manager.

Follow us on social media You can also contact Munich Re on different social media platforms: we are on Twitter, Facebook, Google+, YouTube, LinkedIn and Xing. Why not follow us and keep up with the topics that are being talked about in the insurance industry? Check out our extensive range of interesting articles and fascinating videos. Or

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stay fully up-to-date with live tweets from company and industry events. >> twitter.com/munichre >> facebook.com/munichre >> youtube.com/user/munichrevideo >> linkedin.com/company/munich-re >> xing.com/companies/munichre >> plus.google.com/ 115897201513788995727


>> Our expert: [email protected]

LIFE SCIENCE

NDBI: Greater security, even in M&As Business interruption, whether caused by physical events like natural catastrophes or non-physical developments like regulatory and supply-chain issues, is a key component of any up-to-date corporate risk management programme. In industries where mergers and acquisitions (M&A) are part of the strategic toolbox, as in pharmaceuticals, the need to indemnify business interruption (BI) risks takes on a whole new dimension, with non-damage BI risks playing a major role. M&A due diligence processes in the pharmaceutical industry usually closely examine financial, legal and other business-related assets. However, as operational risks such as regulatory compliance in manufacturing processes, including key supply-chain dependencies, can harbour a number of inherent risks, those areas should receive the same level of assessment. These risk factors have the potential to critically threaten the value of a company post acquisition, or to derail an M&A transaction altogether. Any failed M&A is not only costly in and of itself, but can also result in break-up fees or punitive damage claims. Munich Re’s recently developed non-damage business interruption (NDBI) cover for life science companies, looked at in previous issues of Topics Risk Solutions,

is designed to master these challenges. It can protect and indemnify the insured against financial losses incurred from newly acquired or about-to-be acquired operations. These could result from the intervention of an external regulator or suspension of production following the discovery of a major manufacturing defect or deficiency at an owned site or elsewhere within the supply chain. The policy can even be expanded to cover product contamination and resultant recall costs due to malicious product tampering, extortion or counterfeiting. An effective NDBI cover provides peace of mind and freedom to act at multiple levels. Not only does it mean that a pharmaceutical company can develop, launch and market products with greater confidence, it also enables the company to bring a superior degree of certainty to the table in an M&A transaction. >> www.munichre.com/en/ndbi-product

OUR EXPERT Jenny Yu Technical and Special Risks [email protected]


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CYBER RISKS AND REPUTATIONAL RISKS

Reputations under attack Cyber attacks against companies directly lead to costly first-party and third-party losses. Yet they also have other repercussions, sometimes damaging a company’s reputation and causing a loss of customer confidence – developments which can, in turn, lead to dwindling sales and profits. Such losses are not covered by conventional insurance.

Ulrike Raible

On 18 December 2013, a news bulletin went viral online. Brian Krebs, an IT security expert known for his secure sources and spot-on revelations, alleged that the US retailer Target had been attacked by hackers; what’s more, not only one branch was affected, but probably all cash systems in 1,797 US and 124 Canadian shops. Journalists pounced on Krebs’ article and immediately distributed it through the various social media channels, spreading it so swiftly and frequently that it became one of the most widely shared news bulletins of the day on Twitter. Target only responded 24 hours later when it issued a press release and personal video message from CEO Greg Steinhafel on Target’s YouTube channel. Up to that point, however, the network community had been discussing the matter on its own; communicating, not with Target, but only about the company and the attack – causing untold damage to Target’s reputation and its business.

A question of confidence During the first two days after the attack became known, Crimson Hexagon, a US social media monitoring firm, counted more than 587,000 tweets about the cyber attack against Target on the social networking service Twitter, the equivalent of around 12,000 tweets per hour. Target was mentioned by Twitter users more than 48,000 times (@Target) during this period. Crisis communication measures were initiated in an attempt to recover customer and investor confidence just as quickly as it had been lost, but on balance, subsequent findings showed that many concerned customers still preferred to shop elsewhere in the immediate run-up to Christmas.

One cyber attack cost the US retail chain Target almost 50% of its quarterly profits.


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CYBER RISKS AND REPUTATIONAL RISKS Krebs proved to have been right: about three weeks later, Target published an interim report on the forensic findings. According to the report, data on up to 40 million credit and bank cards had been stolen, along with the names and addresses of another 70 million customers. While this development once again became big news, a report by another US retailer slipped by all but unnoticed: luxury retail chain Neiman Marcus had also fallen victim to a criminal attack shortly before Christmas 2013. As in the case of Target, so-called “malware” had been planted in the cash register system. Credit card and customer data belonging to over a million customers had been stolen. The media immediately linked this cyber attack with that against Target. There was speculation that the same group of hackers may have stolen data from Neiman Marcus and Target, giving the media a good opportunity to rehash the Target attack, approaching the subject from a different angle.

since early 2014. These alone have generated costs of several million dollars for legal advice. Neiman Marcus, on the other hand, got off lightly: for the financial year 2014, the company reported expenses totalling US$ 7.7m for legal advice, forensic investigations, customer communications and credit monitoring. One explanation for this relatively modest figure may be that the Neiman Marcus case was conveniently eclipsed by the media storm surrounding Target. The smaller scale of the data loss at Neiman Marcus will certainly also have affected the overall loss and the degree of public attention. Affecting a much greater number of customers, the Target attack was much more in the public eye. Impact on the balance sheet and management The loss of customer confidence and the associated damage to Target’s reputation were also reflected in the company’s business performance. For the fourth quarter 2013, the company reported a 46% decline in net profits compared to the same period of the previous year, as unsettled customers elected to do their Christmas shopping elsewhere. Shareholders, too, lost faith in the company and its management: the value of Target shares tumbled by more than 13% in the period from 18 December 2013 to 4 February 2014.

Similar attacks, different consequences By early 2015, the loss sustained by Target through the cyber attack amounted to US$ 252m. Only US$ 90m were insured under Target’s conventional cyber cover. The remainder had to be borne by the company itself. Banks incurred costs in the amount of around US$ 220m for replacing some 22 million bank cards and credit cards. Meanwhile, Target has also found itself faced with a number of class actions

Negative statements in social media 100 90 80 70 60 50 40 30 20 10 0

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Dec 2013 Positive: General Praise (23%) Positive: Shopping at Target/Lifecasting (41%) Positive: Target Fuels Shopping Addiction (11%) Negative: General Criticisms (5%) Negative: Criticisms Related to Security Breach (21%)

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The effect of the cyber attack on Target is reflected in the negative statements posted by customers in social media. The US monitoring company Crimson Hexagon analysed the statements by social media users in December 2013. The major rise in negative comments immediately following the attack was particularly striking.

CYBER RISKS

How to insure with Hartford Steam Boiler (HSB) – a selection Identity Recovery Coverage Identity theft victims need help in regaining control of their identity and credit file. People whose identities have been stolen can spend months, even years, and thousands of dollars dealing with the fallout of ID theft and fraud. Yet many victims don’t even know where to start or understand what it takes to restore their credit to pre-theft status and safeguard their name. >> http://www.munichre.com/HSB/identity-recovery

HSB Data Compromise Virtually every business has data on clients, employees and others which can be stolen, electronically “hacked” or lost through accidental or inadvertent release. Concerns about data breaches are so great that most US states now have laws requiring business owners to notify affected persons. And federal legislation with similar mandates is pending. Beyond these requirements, a business that has sustained a data breach needs to protect its own reputation. >>http://www.munichre.com/HSB/data-breach-insurance

HSB CyberOne™ When its systems experience a virus or other computer attack, a business is at real risk of losing critical information that is essential to daily operations, and it is potentially exposing itself to third-party liability. Computer viruses are a growing problem, and a cyber attack can significantly impact a business’s bottom line. System and data recovery can result in lost income, and can tally thousands in recovery costs. What’s more, liability from insufficient systems security can lead to expensive litigation. >>http://www.munichre.com/HSB/cyber-insurance

HSB TechAdvantage™ Today’s systems, equipment and technologies contain microelectronics – miniaturised circuitry with microscopic parts and connections – prone to damage that only costly, time-consuming forensic analysis can detect. When firmware or software failures stop systems and keep equipment from functioning, the damage isn’t even physical. New HSB TechAdvantage™ is equipment breakdown and technology coverage that protects against losses caused by these increasingly common technology-related failures. >> http://www.munichre.com/HSB/microelectronics-coverage


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CYBER RISKS AND REPUTATIONAL RISKS Optimum combination of IT security and insurance cover needed

Both the slump in profits and the plummeting share price ultimately impacted the C-level management: in March 2014, CEO Gregg Steinhafel announced that the CIO (Chief Information Officer) and CISO (Chief Information Security Officer) were to be replaced. Steinhafel himself handed in his notice two months later. He had underestimated the economic consequences of cyber attacks and their huge implications for the company’s reputation. Neiman Marcus’ management, on the other hand, was not replaced. Had the case attracted more attention in the media, the charges directed against the management of Neiman Marcus would no doubt also have been greater.

These examples show the importance of good risk management and correspondingly coordinated insurance cover. The management must be extensively prepared for such attacks in order to avert damage to the company – and to protect itself. Good IT security is naturally essential when it comes to protecting a company’s systems against hackers. But even companies who have extensively upgraded their security systems must remain alert to the possibility of a successful attack, as total security can never be achieved, not even with the best technical precautions.

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CYBER RISKS AND REPUTATIONAL RISKS Companies’ core risks change as communication channels become more numerous, enabling both news and rumours to snowball at ever greater speeds. Focuses and loss potentials shift, and risk managers must ensure that covers are adjusted accordingly. Where hacking is concerned, this means that the cover of both the cyber risks and the reputational risks must be carefully considered. Instead of incorporating these risks into regular property and liability policies, they should be covered through individual policies tailored to each company’s specific situation. For cyber risks, Munich Re supplies made-to-measure solutions in which insurance cover and IT security are optimally balanced. This solution is individually developed on a modular basis, collaborating with the customer and trustworthy IT security companies. It provides targeted cover for digital risks to meet the growing requirements of large companies. Covering reputational losses through digital risks fills the gap in cover For reputational risks too, Munich Re offers a comprehensive and individually adjustable solution to replace a company’s loss of earnings following a scandal. Up until now, it has been impossible to insure financial losses associated with damage to a company’s reputation. Corporate Insurance Partner’s innovative new risk transfer product fills a major insurance gap by replacing the income lost when customers lose confidence in a brand and shop elsewhere in response to unfavourable media reports following an incident. The requirements for indemnity are simple: a potentially damaging event occurs and is pounced on by the media, leading to a significant loss of earnings. In Target’s case, all the requirements for indemnity

would have been met: the company was attacked by hackers, the attack featured prominently in the media and, in the middle of the Christmas season, the company suffered a massive decline in sales and business performance. Reputational risks can arise in many industries The example outlined above shows how a cyber attack can affect the reputation of a retail company. Reputation crises can, however, be triggered by many other factors, such as product defects, service problems, misconduct by employees or by personalities endorsing the companies or brands concerned, problems in the supply chain, or infringements of ethical, social or environmental principles. They can also be sparked by as little as media allegations in any of these domains. With the comprehensive cover offered by Munich Re, companies can protect themselves against all these triggers. Companies now operate in a highly competitive, global market environment, constantly in the eye of the media and the general public; their brands are vital to their economic success. This is particularly true of the food and garment industries, the tourist industry, the luxury goods and cosmetics sectors and the catering trade. As different as these sectors may be, Munich Re can always offer companies a solution tailored to their specific needs and temporarily ease the strain on their balance sheets in the event of a potentially damaging incident, helping them to safely navigate their way through economically turbulent times.

Changes in U.S. sales OUR EXPERTS

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Ulrike Raible Underwriter [email protected]

3.5

0 Andreas Gebler Senior Underwriter [email protected]

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The diagram shows the percentage decline in Target sales in the fourth quarter of 2013. Not until the second quarter of 2014 did sales begin to climb again, albeit more sluggishly than in previous years.


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DIGITAL INSURANCE

“We offer much more than just insurance” In our interview Patrick Pouillot, Senior Underwriter and Development Manager at Munich Re’s Corporate Insurance Partner (CIP) in Paris, explains the new approach of our Digit@ll offering and how large corporations will benefit from such an innovative, customised digital insurance solution.

Topics Risk Solutions: There is currently a lot of buzz on the market about “cyber”. But you believe that there is much more than cyber to think about. Patrick Pouillot: Quite frankly, I don’t like the word. There is no clear definition of cyber. When we think in terms of insurance, cyber is usually mostly about liability and privacy breaches. That’s much too narrow. Many cyber policies were developed for the more advanced US and UK markets and have been adapted as pre-packaged solutions to other markets. I believe the word “digital” is much more appropriate because it includes all events that impact data – and in the end it is always about data, not just cyber. … and that’s the reason Munich Re’s solution is called Digit@ll – how does it differ from pre-packaged solutions already available on the market? Before I joined Munich Re, I was an IT underwriting manager, consultant and broker in the French market, always in digital and e-com risks. What I saw everywhere was basically the same insurance offering. Many insurance companies have targeted cyber risks insurance by developing packages, 1st and 3rd party; even

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today, they are still delivering nearly the same covers. My feeling then, as now, was that it didn’t work because many companies need a cover linked to their specific risk – instead of buying a rather generic insurance policy that tries to cover everything. In 2013, Munich Re started developing an innovative solution that would truly answer these specific needs; it was launched in October 2014.

then be done. In France we have selected two highly trusted IT partners capable of assessing secured IT environments, whatever the standards applied (ISO, PCI DSS …). In other countries we have other strategic risk assessment partners. Such an approach helps us to develop insurance solutions that cannot be addressed by the traditional insurance market.

How did you approach this challenge?

Can you give us an example?

Initially, we had eight covers in mind that we wanted to combine. When the project team first presented a modular solution to the top management of Munich Re, one director suggested that we should be braver. At that point we thought we were already quite brave! So we took on another challenge. We continued to work on the wording and included seven more warranties. Now, we are in the position to present to any company 15 different pieces of the puzzle and propose building the perfect combination. Could you elaborate on the procedure you follow with clients? We start with a client workshop to learn about cyber/digital risks already identified, and design a draft coverage; the risk assessment can


We worked together with an IT company that was managing all IT systems of a large bank. Although various covers were in place, the risk manager was looking for another transfer solution for the event of a non-physical damage affecting the IT systems of the entire group, for itself and every connected entity, including banking branches, worldwide. Taking the PCI Data Security Standard as a reference, we studied the security governance and validated the worst possible scenarios. Based on the assessment of a Quality Security Assessor, we were able to offer a highly customised cover that perfectly matched their needs.

DIGITAL INSURANCE

How is your approach different to other players in the insurance market? We want to insure companies for the catastrophes they might have to face. But there is more to it. We also want to develop a close partnership with our clients, around the scenarios that we identify and validate together. We are in for the long run. What might such a long-time collaboration look like? Our first client was a corporate bank that had been trying to find an insurance company capable of globally insuring IT migration-financing projects. Each project was expected to last six to seven years. No insurance company wanted to be involved, the risks linked to programming and duration were uncharted territory. We looked at this in a different way and built a dedicated solution, in a pure alignment of interest. By taking on such challenges, we create more and more innovative covers that the insurance market could never address with pre-packaged solutions.

Let’s talk about capacity. How much capacity can you offer? Our Digit@ll solution has a capacity of €50m, the maximum for some of our competitors. Depending on the scenarios and careful risk assessment, we could go well beyond – and that makes a big difference. We offer much more than just insurance; we support companies all the way from risk assessment, understanding cat events, improving their business continuity and crisis plans. In the end, we are able to put a figure on all these scenarios and can help the client to pick and choose the right pieces of a unique puzzle. Market standard is a capacity of up to €50m. How much capacity will be needed in future? Companies are becoming more aware of the consequences of digital risks. A demand for more capacity can already be seen, especially the aspect of business interruption is being considered. In many industries, a security breach of systems could lead to tremendous business interruptions. With our approach, I believe we are in a great position to support clients in ever demanding times.


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RISK MANAGEMENT

Understanding executive liability Executive decisions that prove faulty or negligent can have dire personal liability implications. To take the guesswork out of managing the risk, Munich Re has launched an information app that runs on tablet computers.

Through the strictly confidential overview, interested managers can discreetly obtain information and get a better picture of their personal liability risks.

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RISK MANAGEMENT

Like the German economy, D&O claims are globally connected Much knowledge of executive liability issues is concentrated in the legal profession. Oliver Sieg, partner and head of the litigation group with the German-based law firm Noerr, shares insights into the trends and challenges involved.

Topics Risk Solutions: As a lawyer with an international law firm, what trends do you see in D&O liability cases? Oliver Sieg: An important development we have observed is a growing number of D&O cases involving cross-border issues. More and more, we find that insurance contracts and claims for damages are governed by two different legal systems. For example, damages in Germany may be covered by a foreign D&O policy from the London market. In such a case, we advise the foreign insurer on assessing and monitoring the loss within Germany. Conversely, there are German D&O policies that cover claims for damages made in other countries. Lawsuits against directors of German companies might be litigated abroad. Or, the directors at foreign subsidiaries of a German parent company may be sued for damages under foreign law under a German D&O cover. Like the German economy, D&O claims are globally connected. Which risks do your clients underestimate most often? The factual and legal complexity of these cases is the aspect clients are most likely to underestimate. The same can be said of the time and costs involved to pursue or defend a claim. As a rule, insurers are better prepared.

Another area that is still widely misunderstood by claimants and policyholders concerns the legal principles underlying D&O insurance and its connection with liability. It is often assumed that a financial loss by a company will lead to immediate and comprehensive indemnification by the D&O insurer. Insurance-law aspects are frequently overlooked, such as the fact that, generally, the insurance provides indemnification for the defence costs to begin with, while the facts of the case are ascertained. The situation is also rarely clear-cut in terms of the law of damages. Practical experience has shown that early settlements frequently require claimants to make major concessions, and that full compensation of a financial loss incurred is in many cases only possible following an extensive investigation of the facts and legal situation including litigation of the dispute. Can you describe a typical case from your own practical experience? D&O cases come in many different guises. In cases of internal liability, that is, claims by the company against its directors, proper preparation and documentation of business decisions has again and again proved to be crucial. I also encounter many cases in which directors who have been sued for damages are charged with breaches of their organisational

and supervisory duties. At the level of operational subsidiaries, I see many violations of cartel or corruption statutes, as well as breaches of trust (embezzlement) in conjunction with claims against the directors of the parent companies. What advice would you give executives about choosing a D&O cover? I would recommend focussing on the key issues in the wording and not being distracted by “goodies”. Insureds should focus on core aspects like what triggers coverage, the content of the insurance cover, particularly the coverage of defence costs, and any exclusions. I also feel that transparency of the terms of insurance is important. Terms and conditions are becoming detailed, at times to an extreme, at the expense of clarity. It is also important to gain an understanding of how a D&O insurer actually interprets its terms and conditions when the cover is triggered, how it delivers on the promise made in the insurance contract. In this respect, the choice of insurer is a crucial decision.


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RISK MANAGEMENT D&O Scout – A look at Munich Re’s informative app More and more often, top managers are being held personally liable by shareholders, staff members, clients, competitors and regulatory authorities.

In recent years, D&O policies have paid out a number of individual claims in excess of €400m.

With the confidential self-assessment, a top manager can contact one of Munich Re’s specialist insurance partners named in the app.

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RISK MANAGEMENT

Personal risk assessment is everything Shareholders, employees, customers, competitors and regulators increasingly hold executives personally liable for wrong business decisions, breaches of duty or undisclosed conflicts of interest. When courts rule that a corporate decision-maker is at fault, the executive faces potentially unlimited liability for losses caused. Even small and medium-sized companies that are not publicly listed are seeing claims from internal and external stakeholders, for example based on allegations of discrimination. In recent years, directors’ & officers’ (D&O) insurance policies have paid out a number of individual claims exceeding €400m. D&O insurance has evolved from a “negligible” line of business to become an important international market segment. Today, this type of liability insurance is a standard component of corporate risk management: top decision-makers would be hobbled by the constant threat of personal liability litigation in the absence of appropriate D&O cover. At the same time, not all executives are sufficiently well informed. Despite the fact that D&O liability insurance is now widespread in the corporate world, considerable uncertainty remains concerning the exact nature of the risks involved and the various insurance options available. In light of the media spotlight on corporate governance as well as highly critical, informed and globally interconnected stakeholders, companies and their decision-makers need sound and up-to-date information on D&O liabilities and insurance. “Munich Re’s D&O Scout gives a good high-level picture of where the risks really are” says Christian Fuhrmann, Chief Executive Manager of Munich Re’s Global Clients/North America division, who played an instrumental role in developing the app. He sees the self-assessment function, which gives interested parties an initial and strictly confidential overview of their personal liability risks, as the single biggest advantage of the app. He also sees the information platform as relevant to members of management and supervisory boards of major companies: “Even people high up are only human”.

One reason why the self-assessment feature is of special interest is the wide variation between decisionmakers’ risk profiles. Factors shaping risks include the regions a company produces or trades in, how big it is, a listing on a stock exchange, what sector it operates in and what kind of corporate governance the company has in place. The user can put together a personal profile via the app, until finally the overall picture of the risk situation emerges. The next step is to enter into a more concrete discussion with the company’s (in-house) broker or risk manager or alternatively approach one of Munich Re’s specialised primary insurance partners named as contacts in the app. The App D&O Scout is free for download from the Munich Re website as well as from the Apple App Store and the Google Play Store. Download: >> A pple App Store https://itunes.apple. com/us/app/d-o-scout/ id933825725

>> Google play Store https://play.google.com/store/ apps/details?id=com.munichre. doscout

OUR EXPERT Christian Fuhrmann Chief Executive Manager, Global Clients/North America [email protected]


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COLUMN

Natural catastrophes

The weather has gone crazy – What are the potential causes? Prof. Dr. Dr. Peter Höppe, Head of Munich Re’s Geo Risks Research/Corporate Climate Centre [email protected]

People in virtually every part of the world believe that the weather has changed over the last few decades. Weather patterns that used to be reliable, like dry and rainy seasons, but also hot and cold spells, have become more unpredictable. The winter of 2013/14 was a good example of this: on the one hand, it was almost non-existent in central Europe, whereas Japan and the eastern regions of North America experienced record low temperatures and snowfalls. In Japan, last winter produced one of the most costly natural catastrophes of the year worldwide. In some regions, changed weather patterns like these overlap and overcompensate for the global trend towards steadily higher temperatures. So it is quite understandable that cartoonists were asking what had happened to global warming during the January cold snap in the USA. But a very different picture presented itself across the Atlantic in Europe. The winter there was much milder than would have been expected even in the context of global climate change. What is striking about the last few years is that extreme weather conditions have persisted for longer periods, in many cases for weeks at a time. Pronounced waves in the jet stream are to blame for this. The jet stream is a band of strong winds that flow from west to east at higher altitude. It separates cold Arctic air masses from warm subtropical ones. Atmospheric disturbances can produce oscillations in the stream. What happens then is that Arctic air masses push far to the south in what

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are known as troughs (bulges to the south). Conversely, what are known as ridges (bulges to the north) transport subtropical air masses in the opposite direction. As the result of dynamic processes, areas of low pressure form in the troughs and areas of high air pressure in the ridges. The greater the amplitude of the jet stream, the more extreme the weather conditions that develop within it. As a rule, the troughs and ridges move in the same direction as the jet stream‘s prevailing wind direction, in other words from west to east. As a result, lows and highs alternate over a region over the course of several days. However, several studies suggest that the jet stream has remained stationary more frequently in recent decades. The waves in the band of strong wind remain over a region for periods of up to several weeks. In areas influenced by the troughs, large quantities of rain accumulate, while in summer, heatwaves and droughts affect the areas influenced by the ridges. All this would be unremarkable if the meteorological parameters were averaged over the latitude.


There is currently intensive discussion among climate researchers about whether the changed weather patterns of the jet stream are a consequence of climate change, and in particular of the rapid melting of snow and sea ice in Arctic latitudes. But a lot of research will still be needed before any clear connection can be established. Nevertheless, the phenomena described indicate that a relatively small change in global mean temperature may be all that is needed to disturb weather patterns that have been typical up to now, and to trigger regional weather extremes. This underlines once again how important it is for insurers to be familiar with the results of the latest research and, where necessary, to incorporate them into their risk models. The changes in weather patterns that have already been demonstrated, and which cause strong fluctuations in rainfall and temperatures in many places, call for new approaches in risk management. These include improved flood control, more efficient use of water resources, and warning systems for risks that are sensitive to heat. Weather insurances and multi-peril covers for agriculture will increase in importance as a means of cushioning losses in income. Munich Re has the necessary expertise in this area and can offer the appropriate products.

Preview 3/2015 Katrina – Ten years on Over the past decade, the face of the hurricane-exposed US Gulf Coast region has changed. Newly constructed terminals for liquefying natural gas and the expansion of existing petrochemical installations will mean increased exposure when the next big hurricane strikes. What would happen if a hurricane like Katrina hit the US Gulf Coast today?

© 2015 Münchener RückversicherungsGesellschaft Königinstrasse 107 80802 München Germany Tel.: +49 89 38 91-0 Fax: +49 89 39 90 56 www.munichre.com Münchener RückversicherungsGesellschaft (Munich Reinsurance Company) is a reinsurance company organised under the laws of Germany. In some countries, including in the United States, Munich Reinsurance Company holds the status of an unauthorised reinsurer. Policies are underwritten by Munich Reinsurance Company or its affiliated insurance and reinsurance subsidiaries. Not all coverages are available in all jurisdictions. Any description in this document is for general information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product.

Picture credits Title, pp. 1, 4, 6, 9, 12: Corbis Inside front cover: Robert Brembeck pp. 2 (1), 15: picture alliance pp. 2 (2), 3 (1), 16: Getty Images p. 2 (3): plainpicture p. 3 (2): Temple Insurance pp. 11, 14: hsb.com p. 17: Munich Re p. 18 Illustration: Kevin Sprouls Inside back cover: iStockphoto Editorial deadline 2 April 2015 Printed by Kastner & Callwey Jahnstrasse 5 85661 Forstinning Germany Corporate Insurance Partner CIP offers holistic insurance protection for industrial and corporate clients throughout the world. The portfolio includes coverage concepts for property, energy, engineering, casualty and special enterprise risks.

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Editor Regine Kaiser Group Communications (address as above) Tel.: +49 89 38 91-27 70 Fax: +49 89 38 91-7 27 70 [email protected]

Hartford Steam Boiler Leading monoliner and inspection company for engineering risks. Apart from engineering covers, its range also includes specialty and engineering solutions, claims management and risk management services.

KA Köln.Assekuranz Agentur GmbH Internationally operating underwriting agency for industrial risks, specialising in marine and group accident insurance. www.koeln-assekuranz.com Tel.: +49 2 21 3 97 61-2 00 [email protected] Temple Insurance Company Temple Insurance Company underwrites large industrial and commercial risk management accounts. Our Technical and Special Risk Department provides property and casualty products directly through the Canadian broker network. www.templeinsurance.ca Toll free (North America): +1 877 364-28 51 Tel.: +1 416 364-28 51 Fax: +1 416 361-11 63 Watkins Syndicate 457 Lloyd’s biggest marine insurer with an extensive portfolio of solutions for accident and health, liability, cargo, marine and logistics, offshore energy, space flight, and yachts. The Watkins Syndicate operates its own department for terrorism risks. www.watkins-syndicate.co.uk Tel.: +44 20 78 86 39 00 [email protected]

www.hsb.com Tel.: +1 800 4 72-1866 [email protected]


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