Topics Risk Solutions Issue 1/2015 - Munich Re

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TOPICS risk solutions

Insurance solutions for industry Issue 1/2015

Microelectronics Small but ingenious: the tiny components in equiment that our industry and our lives hinge on. PAGE 5.

Canada Temple Insurance expands business

Energy Turning trash into power

Economic outlook Next boom not around the corner

Foreword Dear Reader, Can you imagine that 100 million transistors could fit on the head of a pin? This is one image I find hard to picture, but I am nonetheless fascinated by this technology. Perhaps nanotechnology will soon enable us to store an entire computer memory on a single tiny chip. Hartford Steam Boiler has taken a bold step and is for the first time offering a new insurance product in the USA – one that also covers equipment breakdown involving physical damage that cannot be seen. This new policy is just one of our many innovations. As an insurer, we support technical developments by providing financial protection and helping to avert losses with our risk expertise. Our report on power plants that produce electricity from waste is just one more example of the role we play. 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 Nothing doing without electronics Data flows are what drive a successful business in the age of internet shopping and social media. The concepts developed for property insurance over a century ago no longer fit the bill today. HSB is now launching a new equipment breakdown product.

Page 4 News 2 Temple expands its offerings in Canada 3 equipment breakdown Insuring the uninsurable HSB introduces a new insurance solution for microelectronic components renewable energy Turning waste into energy A growing industry cries out for comprehensive risk management ITALY Synkronos – A model project Client focus and flexible product design are only two of the reasons behind this success story



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column Economic outlook What does 2015 have in store?

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Imprint and preview

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news

Natural Hazards

Special enterprise risks

solar energy

2014 review

Coverage of business interruption risks

Protection against too little sun

The absence of very severe catastrophes, and a quiet hurricane season in the North Atlantic, meant that losses from natural catastrophes in 2014 were much lower. At US$ 7bn, the most expensive event in terms of overall loss was Cyclone Hudhud in India. Around 7,700 people lost their lives in natural catastrophes.

A key non-damage risk for life science companies is the action of regulators who oversee the manufacturing quality of pharmaceutical and medical device products. Our nondamage business interruption (NDBI) cover indemnifies the insured for financial losses that arise from a supply chain business interruption due to the intervention of an external regulator. This includes the forced or voluntary suspension of production, due to the discovery of a major manufacturing defect or deficiency at a site owned by, or on which the insured is reliant for materials or manufacturing. The policy can be extended to include the costs of a product recall event, whether arising from a manufacturing defect, malicious product tampering, product extortion or counterfeiting event. We will enhance our product in order to fully support life science companies across the range of NDBI risks, e.g. the inclusion of cyber-related supply chain risks.

The success of solar projects depends on enough sunshine and the right building technology. HSB uses these two factors as cover triggers for its newly developed product, Solar Shortfall, and offers suitable options for insurance protection. Solar Shortfall coverage is generally not offered as a stand-alone product, but rather supplements traditional insurance components as part of an all-risks insurance programme of machinery breakdown and property insurance. It may also include other lines of coverage such as general liability and marine. Buyers of this coverage gain an additional level of confidence that the revenue stream for the project they are putting in place is sound. Solar Shortfall coverage thus enhances the creditworthiness of the project and may result in more favourable financing terms.

>> More at www.munichre.com/en/ pharma-ndbi-cover

>> M  ore at www. hsb.com/HSBGroup/ solar-shortfall.aspx

More than 92% of the loss-related natural catastrophes were due to weather events. The greatest losses in North America over the past year stemmed from the unusually cold winter. Heavy frost lasting for weeks in many parts of the USA and Canada, along with heavy snowfalls and blizzards, particularly on the East Coast, caused losses of US$ 3.7bn in 2014 alone, of which US$ 2.3bn were insured.

>> M  ore at www.munichre.com/en/ natcatservice

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Munich Re Topics Risk Solutions 1/2015

News from Temple Insurance Temple Insurance Company of Canada is poised to serve the property and casualty needs of mid-sized industrial and commercial companies. Its underwriters are prepared to offer lead subscription and 100% policy participations for large property programmes maintaining key exposures with amount subjectivity between values of Can$ 25m and Can$ 100m. They are equally well prepared to offer primary casualty participations for companies ranging in revenue from Can$ 25m to Can$ 250m. Temple will service public and private organisations that can benefit from its technical underwriting knowledge, resources and experience. The offering includes property and casualty covers for target sectors such as manufacturing and processing, natural resources, power generation and utilities, industrial and commercial real estate, logistics and warehousing risks, consumer retail and service chains, the hospitality industry, and businesses with export elements. Valuable know-how for growing industries The new approach complements Temple’s traditional business model, which is to provide quality capacity to risk-managed organisations, and makes its know-how and resources readily available to an addi-



tional area within the Canadian market. In this context, the company partners with primary insurance brokers and clients. Temple is equipped not only with a team of underwriters who have a deep understanding of the specific complex risks in the sectors it serves, it also gives clients access to Munich Re’s extensive resources. These include computer-based tools such as the NATHAN Risk Suite, used for analysing geo risks, as well as valuable industry publications. Temple’s initiative promises to serve business opportunities for brokers and commercial players in some of Canada’s most dynamic and high-potential industries – and give companies and communities the quality insurance backing they need to realise ambitious plans.

our expert Paul Gullo Technical and Special Risks [email protected] www.templeinsurance.ca

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microelectronics

100 million transistors on the head of a pin With circuitry thousands of times smaller than a human hair, when microelectronics stop working, the damage is often too tiny to see. In response, HSB is expanding its coverage with our new product HSB TechAdvantage™ Equipment Breakdown and ­Technology Coverage to stay ahead of today’s equipment ­failures.

By Marc Saulsbury

Microelectronics has changed the way we live, work and do business. Now, with circuitry so small that 100 million transistors can fit on the head of a pin, insuring them is changing, too, making it easier to cover equipment losses when the damage is difficult to see. Hartford Steam Boiler has taken a bold, but necessary, step in the evolution of equipment insurance, expanding its equipment breakdown coverage beyond the requirements of physical damage, to failures caused by accidents that cannot easily be traced. Given that most equipment today uses microprocessors, this is a significant change. For decades, the trigger for equipment breakdown and other property insurance has been a loss due to physical damage that can be observed and identified. As more equipment breakdowns involve micro-circuitry, however, it is time to take a different approach.

The brains behind a business Think of all the equipment that contains micro-circuitry today: −−Computers, laptops and mobile phones −−Elevators −−Retail sales and inventory systems −−Telecommunications −−Heating and cooling systems −−Household appliances −−Diagnostic testing equipment −−Production machinery −−Medical equipment −−Consumer electronics If equipment uses electricity, it probably contains transistors and microprocessors. Microelectronics has become the brains behind a business. Our insurance claims data shows that equipment using microcircuitry is likely to break down and is difficult to repair.

Only with the aid of a scanning electron microscope does the chip-to-chip interface become visible.

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microelectronics Electrons, silicon and “logic gates” In simple terms, a transistor is a tiny electronic component used as a switch or gate to alter the flow of electrical current. Comparisons are sometimes made between transistors and neurons, the human brain cells that act as switches to help you think. A transistor is a “silicon sandwich”, three layers of the element silicon, which is present in sand and glass. Silicon is a semiconductor that can act as both a conductor and an insulator. This means that a transistor can permit the flow of electrons, in the way copper wire conducts electricity, or inhibit it, like the plastic insulation wrapped around the wire. When a transistor works as a switch, turning current quickly on and off, it stores the numbers zero and one.

Transistors are the building blocks of integrated circuits, which have extremely large numbers of transistors interconnected with circuitry and baked into a single microchip. Using a single or very few integrated circuits, a microprocessor incorporates the functions of a computer’s central processing unit (CPU). A CPU is a programmable device, with one or more microprocessors, used in everything from the smallest embedded systems to supercomputers. Before microprocessors existed, small computers often had racks of circuit boards with many smalland medium-scale integrated circuits. Microprocessors combine large-scale integrated circuits to boost processing power and enable the programming of any devices and systems, such as building controls, automated machinery and other equipment.

When individual transistors are connected, they can create a “logic gate,” allowing computers to add up and compare the binary numbers zero and one. This is the basic foundation of computer programmes – those series of instructions that make computers and programmable equipment operate.

Integrated circuits on a micro­ processor – only visible with the aid of a scanning electron microscope.

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microelectronics How small is “small”? The original transistor built by Bell Labs in 1947 was big enough to be assembled by hand. Today, Intel ­Corporation reports that more than 100 million of its 22 nanometre tri-gate transistors could fit onto the head of a pin; more than 6 million transistors would fit in the full stop at the end of this sentence. The gates on the transistors are so small that you could fit 4,000 of them across the width of a human hair. Each transistor can switch on and off more than 100 billion times in one second. It would take you about 2,000 years to flick a light switch on and off that many times. A nanometre is one-billionth of a metre. As the US government’s National Nanotechnology Initiative points out, it is difficult to grasp just how small that is, so it lists a number of examples on its website www.nano.gov. A sheet of paper is about 100,000 nanometres thick. A strand of human DNA is 2.5 nanometres in diameter. There are 25,400,000 nanometres in one inch, and a human hair is approximately 80,000 to 100,000 nanometres wide. Looked at another way: if the diameter of a marble was one nanometre, the diameter of the Earth would be about one metre. If a typical house shrank as much as transistors have, you would not be able to see it without a microscope. Motors and gears the size of an atom With each invention and innovation, technology becomes faster and smaller. The first transistors were used in the 1950s for hearing aids, radios and experimental computers. During the 1960s and 1970s, transistors were incorporated into integrated circuits, in which many components, including diodes, resistors and capacitors, are formed on a single chip of semiconductor material. As transistors replaced vacuum tubes in computers, memory chips and microprocessors led to space flight systems, personal computers, MRI machines, video consoles, digital cameras and controls, CNC lathes, flat screen displays, MP3s and industrial robots. The Global Positioning System (GPS), a satellite navigation system created by the US military, was adapted for business and is now used in a host of consumer devices. Nanotechnology is helping to build new transistor structures and interconnections for even faster and more advanced computer chips, perhaps with materials that are superior to silicon. Some researchers also hope that someday nanotechnology will allow the programmable assembly of mechanical components, such as motors and gears, at the atomic level.



Through the use of nanotechnology, it may soon be possible to store your computer’s entire memory on a single tiny chip, according to the National Nanotechnology Initiative. Magnetic random access memory (MRAM), enabled by nanometre-scale magnetic tunnel junctions, will quickly save encrypted data during a shutdown or crash. Five billion new transistors every second Moore’s Law, a computing term originated in 1965, stated that the number of transistors on an affordable computer processing unit would double every two years. The most popular formulation of the law is the doubling of the number of transistors in a dense integrated circuit every two years, and that has generally remained true. The easiest way for most people to understand how far digital technology has advanced is to compare the speed and power of today’s personal computers with earlier models. The Commodore 64 desktop, which sold millions in the 1980s, had a 1.023 megahertz (one MHz is a million cycles per second) processor and 64 kilobytes (KB, here, 64,000 characters) of random access memory (RAM), which holds all the data and instructions while a computer is running. The Commodore used slow-loading floppy disk or cassette tape drives. The latest business PCs have at least a 3.5 gigahertz (GHz) 6-core processor, 16 gigabytes (GB) of memory and a 1 terabyte (TB) internal hard drive. By comparison, 3.5 GHz is 3.5 billion cycles per second, or 3,500 MHz; 16 GB of RAM is 16 billion characters, or 16 million KB; and 1 TB of memory is one trillion bytes (1 billion KB, or 1,000 GB). Mobile phones, meanwhile, have become minicomputers, with multi-core processors having up to 2.5 GHz and 128 GB of storage capacity. Smart phones feature autofocussing megapixel cameras, video recorders, accelerometers, voice recognition, highdefinition displays and other features that would have been inconceivable not so long ago. The world’s no. 1 chip maker Intel says that its factories produce more than 5 billion transistors every second. Forbes magazine, combining industry data, some assumptions, and a bit of “whimsy”, estimates that 2.9 sextillion transistors (2,913,276,327,576,980,000,000) were made worldwide between 1947, when the technology was invented, and early 2014. To put that in perspective, there are “only” 200 billion stars in the Milky Way and 100 trillion cells in the human body.

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Microelectronics What are the limits of microelectronics? As impressive as the numbers seem, they soon will be outdated, probably by the time you read these words. Technology is advancing so rapidly that it is hard for most people to keep up with the changes. Futurists say that the pace of change will become instantaneous, with continuous technical development. In essence, some scientists predict, equipment will almost become obsolete as soon as it is developed and deployed.

We know this because we have tracked and analysed equipment breakdown claims data from among the more than five million commercial locations that HSB insures, and we have seen an increase in losses involving electronics. Yet, while traditional equipment breakdown insurance policies require evidence of physical damage for coverage to apply, increasingly, microelectronic damage is not detectable and sometimes not even physical.

Many scientists and researchers believe that Moore’s Law is nearing its limits. Once transistors are created as small as atomic particles, they say, it will no longer be possible to double the speed of computer processors. Yet, manufacturers continue to find new ways to etch smaller and smaller transistors onto silicon chips. Intel has announced a new process to manufacture chips with features as small as 14 nanometres.

Damage at the molecular level

Quantum computers are one invention that may lead to another breakthrough. Quantum computers would not be limited to zeros and ones; they could encode information as quantum bits, or qubits, which could exist as zero or one, zero and one simultaneously, or somewhere in between. They would use transistors small enough to operate with only one electron; exceptionally small, yet theoretically possible.

Virtually all electronic equipment requires firmware, embedded software instructions essential to its operation. Firmware updates can be used to add features and functions, fix bugs and add compatibility with other devices. Yet when firmware becomes corrupted, the equipment stops operating. This is damage, but it is not physical damage.

Computing at such an infinitesimal level would be carried out according to the unpredictable laws of quantum mechanics. When applied to electronic equipment, it could be difficult or impossible to determine the cause of an equipment failure. As technology gets smaller, the risks get bigger And that is the challenge for business and industry. In the marketplace, new technology is not about theory and experimentation – it is about improving the bottom line. Equipment is an investment, and equipment breakdown loss can be costly and disruptive. The evolution of equipment using computer chips and circuit board technology is causing that equipment to fail differently than did earlier technology. Micro­ electronics makes equipment more vulnerable to a breakdown, especially when the device is portable and fragile. Because equipment with micro-circuitry is more complex, it can fail in new and different ways.

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Munich Re Topics Risk Solutions 1/2015

Equipment may stop functioning for no obvious reason, with no apparent physical damage. Integrated circuitry is constructed at a molecular level. If a wire one micron wide breaks, the break is virtually undetectable. Only time-consuming, costly forensic failure analysis can find the microelectronic impairment.

In addition to the risk of equipment failure, cyber thieves can program malware to overwrite firmware and take control of electronic devices, from computers to industrial equipment. For instance, a fundamental flaw was uncovered in the design of USB drives, which are used in PCs, keyboards, thumb drives, and many other applications. Breakdown on the road or in the cloud Microtechnology has spawned another trend: fragile electronic equipment is more portable and frequently used off premises, where it is exposed to greater risk of damage. A medical services company may set up mobile diagnostic centres, moving sensitive equipment from town to town. Building contractors use portable X-ray machines to identify areas where repairs are needed. With so much mobile equipment at risk, it can be difficult, costly and take more time to recover, when equipment fails to operate at a remote location.

microelectronics

2 mm

A coloured computer chip – not visible to the human eye.



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microelectronics With the internet and cloud computing, losses may also be virtual Studies show that the majority of US businesses use the cloud, with some estimating that up to 75% or more use some type of cloud services. The number of smaller businesses using the cloud is expected to more than double to 80% in six years. Although the internet and the cloud are creating a new era of opportunity for businesses, loss of broadband service or cloud connectivity can cripple many operations. In a survey of small and mid-size business conducted by HSB and the Ponemon Institute, 48% said they had experienced an interruption of cloud services. Of those businesses, 56% reported that at least one such interruption prevented their company from functioning. Other studies show that cloud data centres experience many unplanned outages, which expose users to business interruptions and data loss. Keep in mind that the cloud resides and operates within physical buildings and equipment. That equipment can fail. Picture the cloud as remote data centres or warehouses, where businesses store and access their electronic files and applications. These data centres number in the thousands and do not have to be anywhere near a client business. Some of the biggest are Google and Amazon, although there are many smaller cloud providers. Physical limits and the “Internet of Things” Many observers say the cloud and the “Internet of Things” mean that the physical limitations of transistors and integrated circuits no longer matter. Networks and cloud computing, they argue, make computers and equipment run faster and better by connecting the devices to bigger, faster, more complex systems on remote servers. With new markets developing for tablets and remote sensors, and older machines increasing computing power, these analysts suggest that chip designers should focus less on big advances in processing power. Incremental improvements to chips for simpler devices such as smart thermostats and monitors may become more important. Gartner Incorporated, the information technology research and advisory company, estimates there will be 26 billion connected devices performing such basic tasks by 2020. Already, wi-fi connections and radio-frequency identification enable the remote management of everything from retail business inventories to home washers and dryers.

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What does this really mean for a business? Think about the exposures, with so many functions digitised and interconnected. Imagine that a retail store loses power and, once power is restored, the store’s point-of-sale registers and telephones no longer work. Attempts to reboot the system fail, and technicians cannot find any ­physical problem. Even though there is no obvious damage, the hard drives are replaced and the system is restored. In another example, machinery breaks down when the coding embedded in microcircuits is corrupted. There is no visual source of physical damage, but technicians eventually replace the affected components and reboot the machines. Contracted work is far behind schedule, however, and the company must pay overtime and outsource production. Often a business will keep replacing electronic components until the equipment starts working again, or it becomes obvious that it would be less expensive to replace everything. With no definite idea of what is causing the damage, it is hard to make efficient repairs. This is not a practical claims approach for a business or its insurance carrier. HSB’s new equipment breakdown insurance will pay to replace failed electronic equipment, even when physical damage is not evident. It pays to restore data, replace lost income and other related expenses. Enhanced coverage for cloud service interruptions and portable equipment is also included. Stronger than steel, harder than diamonds It is difficult to predict when the next leap will come in new microelectronic technology. Will the improvements be incremental, or revolutionary? Can the tech sector maintain the exponential growth of computing power and speed of the previous decades? Indications are that we may be poised for another technical transformation. Advanced nanotechnology is used in computing, communications and other electronic applications, providing faster, smaller and more portable systems. Scientists are working to discover a replacement for today’s transistors that moves beyond the limitations of current silicon semiconductor technology.

microelectronics In what seems like science fiction, some researchers are even aiming to break through the limits of conventional electronics by integrating biological and nanoelectrical systems. The scientists hope that by mim­ icking biological networks with sub-threshold electronics, they can discover new high-performance electrical circuit designs.

As a result, some of the old concepts of property insurance, developed over a century ago, may no longer serve businesses as well. Today’s technology is too complex. Nanoelectronics. Moore’s Law. Quantum mechanics. It almost seems like one needs to be a scientist or engineer to understand the technology of tomorrow.

Also of interest are nanocrystals, at least 1,000 times smaller than the diameter of a human hair, for use in engineering new materials for applications including electronic components. Other studies backed by hundreds of millions of dollars of funding are focusing on nanoelectronics platforms using exotic materials.

We do not think that it has to be that complicated. When equipment stops working, it should be covered by insurance. It is as simple as that. >> More at www.hsb.com/HSBGroup/hsb-techadvantage.aspx

An exciting new “miracle material” called graphene is currently the subject of extensive research. The thinnest materrial on earth, graphene is made of a single layer of carbon atoms. It is highly flexible, stronger than steel, harder than diamonds, and conducts electricity faster than silicon, over long distances, without electrons scattering. Several hurdles exist – graphene is not a true semiconductor – but scientists are convinced they can add switching properties to make graphene transistors and computer chips thousands of times more efficient than existing ones. Other uses with equipment applications will include batteries, solar energy panels and LCD screens. Connecting is what really counts

our Expert

It is a challenge to keep up with so much change. What new technologies will emerge in the future? How will breakthroughs in microelectronics shape the equipment and systems that are used every day by business, industry and the public?

Marc Saulsbury, Vice President, Strategic Products HSB [email protected]

New technologies may shake up business and consumer markets. Electronic equipment also consumes a tremendous amount of expensive energy. But as technology continues to shrink, it will improve the efficiency and capabilities of equipment. That will help drive down energy and operating costs, increase productivity, and support innovation. In a digital world, we live and work online. Technology connects us and provides us with the tools to communicate, create products and deliver services. Data is what drives a successful business in the age of internet shopping and social media marketing. And connecting is what counts when it comes to equipment and getting closer to customers.



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renewable energy

Waste as energy – A concept too good to waste What could be better than turning a problem into a benefit? The ­growing waste to energy (WtE) industry not only reduces volumes of unre-cyclable municipal solid waste by as much as 90%, it also ­produces renewable power. But along with these benefits come an array of special risks – as recent fires at facilities in the UK have made strikingly clear. HSB Engineering Insurance is using its loss prevention and engineering expertise to support this important industry.

Waste packages waiting to produce energy.

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renewable energy

Jim Whitmore and Stephen Morris

Waste management is a major global challenge. The World Bank estimates that today’s cities together generate an annual total of 1.3 billion tonnes of municipal solid waste (MSW). The Bank expects that figure to increase to 2.2 billion tonnes by the year 2025. While significant advances have been made in recycling, a large proportion of MSW will remain unrecyclable for the foreseeable future. Environmental organisations generally regard landfill and dumping as the least favourable methods of dealing with the residual waste, and governments are increasing landfill taxes to discourage the practice accordingly. Even if ambitious targets like those set by the European Union can be met – Brussels has called on EU member states to recycle 50% of MSW by 2020 and is considering increasing that to 70% by 2030 – the demand for efficient and environmentally compatible waste management will continue to grow. These developments underscore the potential of WtE, the process of using waste to fuel power plants. The concept is not new – the first incinerator was built in 1885, with power generation added in the early 20th century – but has grown in significance, especially since the early 2000s. Between 2001 and 2007, worldwide WtE capacity increased by about four million tonnes annually. Thanks to sophisticated filtering and desulphurisation scrubbing technologies, today’s WtE plants can operate at extremely low emission levels. This, coupled with the fact that urban waste is – arguably – a renewable resource, points to a bright future for the WtE industry. Incineration is still the most widespread WtE technology, but a number of new and emerging concepts are being used to produce energy from waste (see box overleaf). In a typical incineration plant, energy is captured by burning waste in conventional boilers to produce steam, which turns steam turbines and drives electricity generators. Additionally, the heat produced can be piped directly to homes and buildings in the form of district heating systems. As attractive as the solution of turning waste into energy is, operators of WtE power plants face daunting challenges. These include risks such as equipment breakdown, flooding, explosions and, above all, fire. The main driver behind fire risk is the inevitable abundance of combustible material. Stockpiles are vulnerable not only to accidental ignition and arson, but also to spontaneous internal combustion due to heat from the composting process. Environmental risk is a further significant factor, due to the toxicity of some of the materials handled. It is also a compounding component in fire risk, as firefighting is discouraged due to concerns that subduing the flames with water can sometimes result in run-off and contamination of local water supplies.



 ith expertise in all segments of W the power industry as one of our traditional core competencies, HSB Engineering Insurance can help manage plant operation risks in the waste industry.

The dynamic growth of the recycling and WtE industries has attracted newcomers and encouraged hasty expansion, in some cases at the cost of adherence to best-practice risk management standards. Following a number of recent fires at recycling and WtE facilities, insurers have become wary and plant operators are finding it increasingly difficult to obtain the covers they need to continue running their businesses. In response, the UK’s Waste Industry Safety and Health Forum has drafted a guidance note entitled “Reducing Fire Risk at Waste Management Sites”. This document, backed up by site-specific advice from insurer risk engineers, could help to improve the insurability of waste risks. Insurability based on expertise HSB Engineering Insurance has accompanied the growth in the WtE industry with in-depth loss control engineering advice and insurance solutions, including construction, property, operational and business interruption covers. In response to recent events in the UK, HSB has also developed a loss prevention guide for WtE plant operators. The easy-to-read guide contains detailed descriptions of the risks, and steps to mitigate them. It points to relevant international fire safety standards for recognised best-practices in plant design, construction and operation. The document also gives precise instructions on the handling, processing and storage of the solid waste material, where risk of fire and explosion is highest. HSB can draw on extensive first-hand experience, and cooperation with the US-based National Fire Protection Association (NFPA). The NFPA standards, which apply throughout North America, are recognised by the power and insurance industries in many countries. They have also served as the basis for a number of binding standards in European countries, including the UK.

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renewable energy With expertise in all segments of the power industry as one of its traditional core competencies, HSB can help serve the risk management requirements of plant operators in the waste industry. A recent incident provided a compelling demonstration of the role HSB can play in reducing losses at WtE facilities. The company’s loss control experts had surveyed a WtE plant and identified a potential fire risk. A dividing wall between the steam turbine house and the emergency fire pump room, which was installed to protect the turbine house in the event of a fire, was not sufficiently fire resistant. Constructed of a metal sheet on a steel frame, the wall had a substandard fire rating. HSB’s loss control engineers recommended replacing the wall with a 2-hour rated barrier. The insured acted on the suggested risk improvement and completed the installation of the fire barrier within four weeks. Five months later, a fire broke out in the steam turbine house. The 2-hour fire barrier protected the emergency fire pumps and kept the fire under control until the fire service arrived to extinguish the flames. Damage to the turbine and buildings was ­significantly mitigated. By implementing recommended loss control measures, plant operators can lower their exposure to risks and ensure that their facilities remain insurable. With this security, the WtE industry can grow and help to address the global challenges of waste management and energy production.

WtE technologies Alongside incineration, various technologies that function without direct combustion are in use. Many have the potential to produce more electric power from the same amount of fuel than a traditional incinerator. Some are able to efficiently convert the energy into liquid or gaseous fuels.

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Thermal technologies include gasification (producing combustible gas), thermal depolymerisation (producing synthetic crude oil), pyrolysis (producing oil, gas or carbon black) and plasma arc gasification (producing rich syngas including hydrogen and carbon monoxide). Among the nonthermal technologies are anaerobic digestion (producing methane-rich biogas) and fermentation production (producing bio-fuel such as ethanol).

Munich Re Topics Risk Solutions 1/2015

our Experts Jim Whitmore, Loss Control Engineering Manager, HSB Engineering Insurance, United Kingdom [email protected]

Stephen Morris, Underwriting Manager, Power & Energy, HSB Engineering Insurance, United Kingdom [email protected]

You want to minimise risks and safe­guard your innovation capacity ?

Risks are becoming more complex, and new risks are constantly emerging. Companies increasingly need a strong partner to help minimise their risks and safeguard their financial and innovation capacity. Our operating field Risk Solutions will develop an individual and customised insurance solution for you. Our clients benefit from our experience, commitment, and innovative drive. You can find the right contact partner quickly and simply with our Risk Solutions Quickfinder at www.munichre.com/rs. not if, but how



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italy

A model project Synkronos Italia underwrites business in Italy as a Managing General Agency (MGA) in highly specialised, but also extremely promising niche sectors. Client focus and flexible product design are only two of the reasons behind this success story in a difficult market.

The joint venture established in Milan is the first MGA in the Italian insurance market.

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italy With Synkronos, Munich Re is responding to the current market situation and client needs in Italy. What the market primarily needs today is innovative products for complex, new or special risks. Synkronos writes business as an MGA in niche sectors and highly specialised areas like engineering, marine, fine art and benefit. The 28-member team consists of underwriters with extensive experience and knowledge of the Italian insurance market. Their specialists recognise market trends right at the outset and are able to extend the limits of insurability with innovative products, thereby unlocking new business potential. Highly flexible and service-oriented Synkronos Italia is a joint venture of Munich Re, Reale Mutua Assicurazioni and Synkronos Holding. It combines expertise, knowledge of the market and a service culture, with the reliability of Munich Re and the tradition of Reale Mutua. The result is an agency that is exceedingly flexible and service-oriented. As the first MGA in the Italian insurance market, it has the necessary instruments for meeting constant new challenges and serving market segments that have been neglected in recent years.

Intensive collaboration with brokers By building up as balanced a portfolio as possible, we are now also able to take on covers with higher risk profiles in terms of type and liability. The focus of the business lies on the broker market, a demanding segment which not only requires suitable insurance solutions but also a profound knowledge of risk management. Here, specialists from Synkronos pay particular attention to the individual risk culture of their clients. They work together to continually optimise risk management by identifying risks, assessing them correctly and transferring them into the insurance market. Synkronos thus takes a long-term approach, aimed at offering solutions with a perfect fit to meet the client’s needs, and further developing the market’s risk culture.

These include new solutions such as photovoltaic covers, which lack critical development mass and do not easily lend themselves to standardisation processes. With an agency that is specially geared to underwriting niche risks, we provide answers to questions that have not been adequately addressed to date.

our Expert Tom van den Brulle Munich Re, Milan [email protected]

Synkronos Italia Synkronos Italia is an MGA (Managing General Agency) set up as a joint venture between Munich Re, Reale Mutua Assicurazioni and the operative shareholders Marco Brettagna (CEO), Marco P. Hensemberger (COO), Alessandro Pino (CUO) and Andrea Pino (CIO), who also form the company’s management team. Founded in 2009, Synkronos Italia underwrites business in such highly specialised niche lines as engineering, marine, fine art and benefit, through mediation of the ­Italiana Assicurazioni and Great Lakes UK brands. Synkronos Italia employs a staff of 28, and expects premium income to exceed €40m in 2014. After breaking even in 2011, the agency reported a pre-tax profit of over €1.1m in 2013.

Reale Mutua has new business opportunities with Synkronos With Synkronos, the Reale Mutua Group places an important instrument for integrating and developing insurance solutions for its clients at the disposal of its sales network through the Italiana Assicurazioni brand. Strengthened by the partnership between Reale Mutua and Munich Re, Synkronos is an important centre of competence for specific niche sectors. Thanks to Synkronos, more than 700 insurance agents from Reale Mutua can expand their product palette and strengthen relationships to their clients, thus making it possible to also develop business strategies for new and highly customised solutions.

Synkronos Italia S.R.L – MGA Via Tortona 14 20144 Milan (MI) Italy Synkronos Management Marco P. Hensemberger Chief Operating Officer [email protected] Marco Brettagna Chief Executive Officer [email protected] Alessandro Pino Chief Underwriting Officer [email protected] Andrea Pino Chief Information Technology Officer [email protected]

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Economics from a risk perspective

The next boom is not just around the corner Michael Menhart, Chief Economist [email protected]

The broad consensus among economists is that the global economy will grow more strongly in 2015 than it has in the past year and will gradually resume its usual growth path. Looking at the eurozone though, I have a sense of déjà vu. 2014 also began with hopes of an economic revival. As the year progressed, however, welcome developments like those in Spain, for example, were overshadowed by bad news, above all from France and Italy. Increasingly, doubts about recovery are no longer focused on the short-term outlook alone. A number of renowned economists are warning that, in the medium to long term too, we will have to say goodbye to the high growth rates of the pre-crisis period. Six years after the financial and economic crisis erupted and with the ensuing crisis in the eurozone, the growth of the world economy and the economic trend in many industrialised countries remain relatively weak. The assessment of the medium-term trend for the industri-alised countries has also continually worsened over the last three years. An economy’s long-term growth potential is determined by productivity and capital resource factors, as well as by the size and skill level of the workforce. Political reforms aimed at a better economic structure are also relevant. All these factors are

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worrying proponents of the theory of “secular stagnation“, that is to say a sustained period of weak growth: private investors are holding back and the public coffers are empty. In their view, low levels of investment adversely affect the modernisation of production processes and opportunities for innovation. However, both play a key role in increasing productivity in an economy, and thus in providing opportunities for long-term growth. Moreover, in many countries, sustained high unemployment leads to a steady decline in the skills of the unemployed.

Private investors are holding back and the public coffers are empty. Low levels of investment adversely affect the modernisation of production processes and opportunities for innovation. Are we heading for “secular stagnation”? Does such a scenario call for a warning? Yes! Are we heading straight for “secular stagnation“? No, I don’t think so. In my view, there is limited likelihood of significantly lower longterm growth rates in industrialised countries as a whole. Developments in the USA and the UK rather point to a very slow recovery – a typical pattern following financial crises. How-ever, proof of the validity of this assessment, in the form of rising interest

Munich Re Topics Risk Solutions 1/2015

rates, has yet to be seen. Nor do I expect Germany to slide into “secular stagnation“, despite all the long-term challenges – especially the demography. But there are countries in the eurozone that are at greater risk: Italy is certainly one, and France as well. All in all, however, my guess is that the effects of the crisis will gradually subside and that those countries too will return to moderate growth. Even without “secular stagnation“ though, future growth is likely to remain behind that seen over the last two decades – in the industrialised countries because of demographic effects, and in emerging countries due to saturation effects. The risks for this outlook are unevenly distributed: the likelihood of the momentum remaining below these expectations is clearly greater than that of stronger-than-expected growth. I would therefore not be surprised if the next boom were to be some time in coming.

Preview 2/2015 Your guide to D&O insurance Executives face potentially unlimited liability for losses caused by faulty decisions. To take the guesswork out of managing this risk, Munich Re has launched an app that runs on tablet computers and provides quick and easy information on directors’ & officers’ (D&O) liability risks and insurance. Users can even carry out personal risk assessments and request an offer for a tailored D&O cover from specialised Munich Re partners. D&O Scout is available free of charge from the Munich Re website or the Apple App Store and Google Play Store. >> M  ore information at www.munichre.com/DandO-Scout

© 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 8 January 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.

Responsible for content Group Communications

www.munichre.com corporate-insurance-partner@ munichre.com

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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