Topics Schadenspiegel 1/2014 - Munich Re

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TOPICS schadenspiegel

The magazine for claims managers Issue 1/2014

Costly wrecks It can cost far more to salvage a shipwreck than to build the ship itself. Are such incalculable costs still insurable? PAGE 6

Costa Concordia Refloated in a major operation

Engineering Successful mitigation of a power plant loss

Flood protection Benefits far outweigh the costs

Editorial Dear Reader, Everyone recognises that dealing with claims is a core function of every insurer’s business. Yet for a long time, this function has meant more than simply settling claims. Our activities focus in equal measure on servicing our clients and communicating closely with the divisional units, including on product development matters. Therefore, “Claims” plays a key role, especially in our business. So it is particularly gratifying to know that we have a publication that reflects this in all its facets – namely our Schadenspiegel. I would like to take this opportunity to draw attention to a change of personnel. Nicholas Roenneberg, the man responsible for Schadenspiegel, retired on 31 December last year after more than 30 years with Munich Re. In an interview on page 26, he revisits some of the most seminal claims he has experienced in the course of his career. I would like to express my sincere thanks to Nicholas Roenneberg for the many years he has dedicated to this publication. At the same time, I would like to officially pass the reins of Schadenspiegel on to his successor as Head of Corporate Claims. Tobias Büttner has been with Munich Re for over 14 years, first as manager in the Finance/Investment unit and later in reinsurance, in the Special and Financial Risks unit. I look forward to the continuity this affords and to further interesting issues of Schadenspiegel.

I would like to express my thanks to Torsten Jeworrek, and am happy to take on responsibility for Schadenspiegel – along with my colleagues from the claims departments and the editorial team. This latest issue again focuses on traditional risks – shipwrecks and floods or other natural catastrophes. Yet new aspects are also emerging: the sheer size of modern cruise liners means that any salvage operations involving them ­present technical challenges, driving costs to unprecedented heights. Loss prevention and close collaboration between all parties concerned following a loss are therefore factors that are becoming more important. Even in Europe, mass claims with thousands of similarly injured parties are making it necessary to introduce new claims mechanisms. All this ultimately means that there is an increasing need for customised coverage concepts tailored to the ­particular requirements of the client. Wishing you an interesting read,

Torsten Jeworrek

Member of the Munich Re Board of Management and Chairman of the Reinsurance Committee

Tobias Büttner

Head of Corporate Claims, Munich Re

NOT IF, BUT HOW

Munich Re Topics Schadenspiegel 1/2014

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Incalculable risks at sea The trend towards ever larger cargo and passenger ships on the high seas continues to grow, posing enormous challenges to the teams charged with salvaging shipwrecks. As the Costa Concordia case has shown, it can cost far more to salvage a wreck than to build the ship itself. The question is whether these almost incalculable and soaring costs can be insured at all.

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Contents

Following a loss event at a power station in Malaysia in 2011, all participants acted in an exemplary fashion despite adverse circumstances.

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SALVAGE OPERATIONS Course alteration with fatal consequences What errors led to the sinking of the Costa Concordia?

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Refloated in a major operation The most spectacular salvage operation in maritime history is nearing completion.

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Third-party costs are almost impossible to control Salvage expert Dennis Brand on the ins and outs of removing shipwrecks.

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Costly wrecks There are many reasons for the soaring costs.

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engineering Breakwater on rocky ground Small cause, big effect: Just a few dislodged concrete blocks meant that over a kilometre of a breakwater had to be replaced. INTERVIEW Some claims stay with you throughout your working life Nicholas Roenneberg talks about changes in claims management and current trends. BONDS Costly flaws in the small print Property projects in Spain prove costly for insurers in the wake of the financial crisis.

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Worth every euro: Investment in flood protection has been of huge benefit to the city of Hamburg.

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engineering Successful mitigation of a power plant loss Good cooperation between policyholder, insurer and experts proved to be the key to success. Casualty Reform of procedural law has side effects Procedural changes in the way personal injury claims are settled also impact insurers. FLOOD protection Benefits far outweigh the costs Every single euro invested in flood protection has already paid off several times over. Casualty Collective redress in Europe Member States have been told to develop their own models. The legal situation remains unclear.

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Editorial  1 News4 Column  48 Imprint

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NEWS

social media

SPACE FLIGHT

CLIENT SEMINARS

Follow us on social media

New satellite insurance

Knowledge in dialogue

For some time now, readers have been able to comment on Topics Online articles on our website. But you can also contact Munich Re on different social media platforms: we are on Twitter, Facebook, Google+, YouTube, LinkedIn and Xing.

Munich Re offers commercial satellite operators a new insurance solution covering a satellite‘s entire service life. During the term of insurance, no adjustment is made to the conditions of insurance, even if the satellite’s technical condition has changed. The insurance covers the intrinsic value of the satellite.

In 2014, Munich Re will again have an attractive programme of seminars and workshops tailored to the needs of our international clients. The programme offers a choice of around 50 seminars and workshops on primary insurance and reinsurance topics from the areas of life and non-life business, as well as on subjects like enterprise risk management for insurance companies.

Why not follow us – and at the same time keep up with the topics that are being talked about in the insurance industry, with interesting articles and fascinating videos. Or 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

Up to now, standard covers have comprised launch insurance, which commences with a satellite‘s launching and has a term of up to one year, followed by in-orbit insurance, which as a rule is renewed annually.

>> Further information is available at www.munichre.com/en/touchspace

The seminars will be held in Munich and at various locations in our International Organisation. Through the seminar programme, we want to offer our clients a forum for networking and the transfer of knowledge. >> If you wish to attend a particular seminar, please contact your Client Manager.

News in brief The Supervisory Board has appointed two new members to the Board of Management. Doris Höpke (47) was appointed a member of the Board of Management with effect from 1 May 2014. She takes over responsibility for the Health Division.

Philipp Wassenberg has been appointed President and CEO of Munich Re of Canada and Temple Insurance of Canada with effect from 1 April 2014. Munich Re is a ­leading provider of property and casualty reinsurance in Canada.

Pina Albo (51) was appointed a member of the Board of Management with effect from 1 October 2014. She will take on responsibility for the Europe and Latin America Division in conjunction with Georg Daschner from 1 ­October 2014, and will assume sole charge of the ­Division as from 1 January 2015.

The new German reference work on reinsurance law ­provides the only interpretation of this complex subject area, and includes articles on all legal aspects of reinsurance. The book has been published by C. H. Beck in Munich under the joint editorship of Dieter W. Lüer and Andreas Schwepcke (ISBN 978-3-406-62975-4). Tobias Büttner and Eberhard Witthoff from Munich Re helped with the preparation of the work.

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Munich Re Topics Schadenspiegel 1/2014

NEWS

Precision flood risk calculation Given the increasing frequency of extreme weather events, accurate assessment of risks and of the loss potential posed by natural hazards is more relevant than ever for insurers in all lines of business.

NATHAN supports underwriters’ and risk managers’ evaluation of natural hazard risks in insurance and reinsurance, and helps to answer the following ­questions:

Since 2011, we have been helping our clients achieve this with our NATHAN Risk Suite. NATHAN stands for Natural Hazards Assessment Network. It is a packet of geo tools that makes possible addressbased assessment of natural hazards for individual risk locations and also of entire risk portfolios worldwide. Working with geocoded portfolio and loss data, NATHAN can analyse and depict complex geographical correlations.

−−Where do we have significant exposures in our ­portfolio and how severe are they?

Since the beginning of this year, we have integrated into NATHAN the most recent flooding zones, achiev­ ing a previously unattained level of accuracy marketwide. The new maps of high-hazard flood zones, ­standardised worldwide, make consistent and better evaluation of risk locations possible. The principal advantages of flood zones are the global scope, consistent use of a digital terrain model with a resolution of 30 metres and also the high-quality, hydrological basic data.

−−Does my portfolio contain any flood risks that might require more detailed assessment?

−−Where can we write new business without increasing the risk of losses from flooding? −−Where can I write new business without significantly increasing the portfolio’s susceptibility to flood losses?

In 2014, the application received the Geospatial World Excellence Award.

>> F  or further information, please contact your Client Manager or visit connect.munichre.com

Munich Re Topics Schadenspiegel 1/2014

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Costa concordia

Course alteration with fatal consequences After sustaining massive damage in a collision with a reef, it was only a matter of time before the Costa Concordia sank. It was pure luck that there were not more fatalities.

Olaf Köberl

The so-called “inchino” – a manoeuvre in which ­passenger ships sail closer than usual to the coast and “salute” the people ashore with a blast of their foghorn – is not in itself critical. Certain conditions must, however, be met to ensure the safety of the ­passengers and the ship. On two previous occasions – in August 2008 and again in August 2011 – the Italian cruise liner Costa Concordia left its regular route to pass closer to the coast of the island of Giglio. On both occasions, the sail-by salute took place during the day and at reduced speed so that the passengers could savour their view of the island. This time, however, on 13 January 2012, the ship’s deviation from its original route near Giglio proved fatal. Sequence of events It was already clear when the Costa Concordia left the port of Civitavecchia at 7 p.m. local time with 3,206 passengers and a crew of 1,023 on board that the ship would not follow its usual course through the western Mediterranean, but would instead sail very much closer than normal along the east coast of Giglio. Captain Francesco Schettino’s intention was evidently to show his respect for one of the hotel chefs on the Costa Concordia who hailed from the island and was to be replaced during the scheduled stopover

An aerial view shows the Costa Concordia as it lies on its side next to the island of Giglio on 26 August 2013. Munich Re Topics Schadenspiegel 1/2014

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Costa Concordia in Savona on the following day. The ship left its original course, changing from 302° to 278° (see diagram), around 9 p.m., roughly two hours after departure. At 9.20 p.m., Captain Schettino was informed that the ship was approaching the island. The Costa Concordia was now around six nautical miles from Giglio. Captain Schettino arrived on the bridge shortly after.

bereft of its engine power, the Costa Concordia drifted until it came to a halt. The wind and current then turned the ship about its own axis, moving it back towards the coast of Giglio, where it came to rest on a rocky ledge outside the harbour, listing heavily.

At around 9.34 p.m., the First Officer began to turn the ship starboard onto a course of 334° in accordance with the modified route so that it would sail parallel to the coast of Giglio. The idea was to pass the island at a distance of 0.5 nautical miles. Shortly afterwards, however, Captain Schettino took command and, to the surprise of both the First and Third Officers, ordered the helmsman to maintain the current course of 300° and to turn slowly, with the result that the ship continued to sail towards the island from 9.38 to 9.40 p.m. At the same time, the Captain instructed the First Officer to increase the speed to 16 knots.

As so often, the catastrophe was triggered by a combination of causes. As earlier voyages have shown, the island of Giglio can be passed at a distance of 0.5 nautical miles without problems, provided that the ship follows a route properly planned beforehand taking all the various local conditions into account. Above all, the speed selected must be appropriate and safe. In this case, a critical view must be taken of the speed of 16 knots combined with a course directly heading towards the coastline. It would have been safer to set course for Giglio very much sooner after departing Civitavecchia in order to sail parallel to the coastline. This would have made it easier to correct the course if necessary, in order either to sail closer to the island or to turn away. When approaching almost at a right angle, however, a vessel travelling at a speed of 16 knots can come dangerously close to the coast within mere minutes or even seconds if the course is not altered at the right moment – as happened here. Because the captain did not order the Costa Concordia to veer off until it was far too late, its turning radius ultimately did not suffice to pass the rocks safely. Although the captain violated his duty of care, the other officers on the bridge were also obliged to ensure safe navigation. What is more, the team on the bridge should have ensured – before the ship departs – that sufficiently accurate charts of the changed route were available on board. This was not the case.

According to the data recorded by the automatic identification system AIS, the change of course to starboard was initiated very late and hesitantly. When the team on the bridge realised that the ship was heading towards a reef, they put the rudder harder to starboard (right). Despite the command “rudder hard to starboard” shortly before the collision, it was no longer possible to safely pass the rocks. At 9.45 p.m. the Costa Concordia collided with a rock that tore a 40-metre-long hole along its port hull below the water line. The substantial water ingress soon caused the engine and all auxiliary units to fail, leaving only the battery-powered emergency lighting. Disabled and

Team on the bridge responsible

Fig. 1: Reconstruction of the planned route

Original Track 334° 302°

Isola del Giglio

278°

Source: Marine Casualties Investigative Body Italy, Casualty Investigation Report

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Munich Re Topics Schadenspiegel 1/2014

Costa Concordia Evacuation made more difficult by the ship’s list The delay in ordering the ship’s evacuation must be considered highly problematical. Such procedures must be ordered as soon as possible so that the lifeboats can be lowered before the ship lists too heavily. This is particularly important on passenger ships with several thousand people on board. For some of the crew at least, such as the engineer, it was soon clear that the ship would sink in view of the massive water ingress into no fewer than four watertight compartments. Despite this, the decision to evacuate the passengers was only taken one hour after the collision. When the order to evacuate was given, the hull was listing roughly 10° to starboard. During the next 20 minutes, this list increased to 30°, with the result that some of the port lifeboats could no longer be lowered. Passengers and crew also found it increasingly difficult to move about on the listing ship; this resulted in numerous injuries. In spite of all these difficulties, almost all the passengers and crew had been rescued and brought ashore by 5.45 a.m. the next morning. However, help came too late for 32 people. Efforts to improve safety following collisions at sea Following the incident, the Costa Concordia’s owners changed the safety management rules and issued new instructions regarding navigation, the manning of the bridge and safety training for passengers. Watches on the bridge, for instance, were doublemanned with officers. At the same time, the nautical officers are encouraged to challenge the master’s decisions critically and draw his attention to possible errors. The shipping company also introduced a worldwide tracking system to monitor ships’ positions.

In the case of the Costa Concordia, for example, the requirement to keep all bulkheads closed while at sea did not apply under certain circumstances, thus allowing the water masses to spread rapidly to large parts of the ship’s hull. According to the investigating authorities, the ship could not have been saved even if the bulkheads had been closed, as four compartments were damaged altogether and the Costa Concordia was only designed to withstand flooding of two ­compartments. When designing cruise ships in future, care should be taken to ensure that vital emergency units are positioned where they can actually operate independently of one another. The question remains whether standard life-saving equipment, such as boats and liferafts, suffice to evacuate the increasingly large cruise ships within an adequate period of time. Evacuation slides, such as those used in aircraft, are also being installed in modern passenger ships, for example. SOLAS specifies that it should be possible to lower lifeboats from ships with a list of up to 20°. The Costa Concordia reached a list of more than 30° within a very short space of time. The design of life-saving equipment and the devices for lowering and launching this need to be revised in future. Even if all the regulations are complied with, we must question whether current standards are still adequate for today’s much larger cruise ships and whether cruise operators are really making full use of all the technical options available to them.

>> Read more about the Costa Concordia in Topics Schadenspiegel 1/2013 on page 6 ff.

Efforts are being made to improve the safety of ships following collisions and to standardise the regulations governing watertight bulkheads. The SOLAS Convention for the safety of life at sea contains detailed requirements governing the duties of ship operators, as well as all safety-related functions, standards and procedures on board ship. However, the fact that a ship’s flag state can sometimes issue national regulations permitting exceptions is a persistent shortcoming.

OUR EXPERT Olaf Köberl is a master mariner and lawyer, and has ten years’ professional experience as a deck officer on tankers and container vessels. He has headed the Marine Claims Centre of Expertise since January 2010. [email protected]

Munich Re Topics Schadenspiegel 1/2014

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Costa Concordia

Refloated in a major operation Olaf Köberl

The most spectacular salvage operation in maritime history is nearing completion. Whether the costs estimated at around US$ 900m actually cover all expenses will only become clear when the Costa Concordia has reached its last port of call. The deadline for salvaging the biggest passenger wreck in history, a ship twice the size of the Titanic, had to be postponed several times. Originally, the operation should have been concluded in summer 2013. The wreck was not righted until September, however, and now in spring 2014, more than two years after the disaster, the Costa Concordia is still lying outside Giglio harbour. A worrying development for insurers and reinsurers, as the costs of the salvage operation have tripled since May 2012, reaching around US$ 900m, and this is partly due to the numerous delays. What is more, further increases

The righted Costa Concordia off Giglio in September 2013, after the parbuckling process.

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cannot be excluded. These delays are ascribed not only to violent winter storms in late 2012 and other periods of adverse weather, but also to the technical problems facing the salvage teams. Munich Re visited the scene in May 2013 to take stock of the situation. Virgin territory for all concerned Considerable problems were created, in particular, by the Italian authorities’ demand that this immense vessel weighing around 50,000 tonnes be salvaged in one piece in order to minimise environmental damage. Never before in maritime history had a project of this magnitude been undertaken – a completely new situation for all concerned. The contract for this demanding task was awarded to the US salvage specialists Titan Salvage and the Italian firm Micoperi, which has extensive know-how regarding submarine constructions. What the two companies had in mind was a risky manoeuvre that called for a great deal of costly and highly precise preparation. The individual phases are outlined in detail at theparbuckling­project.com. Time and time again, the planning had to be changed to take account of new findings.

Costa Concordia Enormous burden on the ship’s structure

The parbuckling technique

Since May 2012, up to 500 people, most of them divers and welders, have worked daily to prepare the wreck for a process known as parbuckling. Ever since the collision, the Costa Concordia has rested on a rocky stretch of coast off the island of Giglio with a starboard list of roughly 70° and more than two-thirds of the hull underwater. The starboard side became increasingly deformed, weakening the entire structure, as the full weight of the ship pressed on the underwater rocks. At first, attention concentrated on preventing the wreck slipping off its steep shelf. To this end, steel wires and anchor cables were welded into place in the middle of the hull, passed under the ship and anchored in the seabed on the coastal side. Additional hauling cables and chains were then drawn under the wreck to control the subsequent process of uniformly restoring the ship to an upright position. This was achieved with the aid of hydraulic strand jacks of the type used in bridge construction to pull extreme weights. In view of the forces applied, the ship’s shell plating had to be substantially reinforced in some areas to prevent the chains and steel wires cutting through the ship when it was pulled into an upright position. Drilling in hard rock The next stage in the salvage process was to construct a steel underwater platform and secure flotation tanks to the ship. To create a level surface and stabilise the righted ship, the sloping rocky seabed had to be backfilled over an area the size of three football fields. Thousands of specially prepared bags were positioned under the ship for this purpose and filled with a total of 20,000 t of cement. In addition, a total of six steel platforms were anchored in the seabed, the two biggest weighing around 1,000 t. Anchoring the platforms in the seabed proved exceedingly difficult and delayed the entire project considerably. 21 holes measuring 2 m in diameter had to be driven 15 m deep through changing rock formations with sand inclusions. This work was also undertaken by specialist firms which normally drill for oil offshore. All the bags of cement and platforms installed underwater will need to be recovered after the operation.

1. Underwater support and portside sponsons 2. Parbuckling 3. Starboard sponsons 4. Refloating

Munich Re Topics Schadenspiegel 1/2014

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Costa Concordia To raise the wreck into a vertical position, eleven flotation tanks (so-called sponsons) were welded along the backboard side, protruding above the water line. The largest of these weigh around 500 t and tower as high as an 11-storey building. The tanks served a dual purpose: firstly, they made it easier to right the ship, as they were filled with water when the ship reached a certain angle. Before the Costa Concordia is towed away, they will be emptied to give the hull the required buoyancy. Special pressure tanks with complex technical equipment were needed for this purpose, firstly so that the tanks can be filled precisely as required, and secondly to ensure uniform buoyancy in the subsequent phase. A major milestone in the salvage operation was reached in September 2013, when the ship was successfully righted in a process that attracted worldwide attention. Hopefully, the operation can now be brought to a conclusion without major delays.

Tenders for the ship’s removal were invited separately and the job will be undertaken by the Dutch salvage company Boskalis using one of two possible options. Either the Costa Concordia will be towed to a suitable ship-breaking port by tugs, or the wreck will be loaded onto something like a floating dock and then shipped there. The world’s biggest semi-submersible vessel, the Dockwise Vanguard, would be needed for this operation. Even if everything proceeds as planned and the costs do not rise any further, the Costa Concordia will go down in history as the costliest salvage operation ever undertaken. Whether this was a once-in-a-hundredyears event or whether liability losses on this scale are to be expected more often in future remains to be seen. There is certainly a distinct trend towards soaring ­salvage costs.

Removal not yet clear As expected, the damage on the starboard side was immense. Nevertheless, the hull was sufficiently ­stable to withstand the considerable tensile and compressive forces occurring during the parbuckling process. Immediately after being righted, the wreck was prepared for the winter and it is planned to remove it to a ship-breaking yard before summer 2014. Additional flotation tanks were therefore secured to the deformed starboard side in spring 2014. Together with the tanks on the opposite side, they will raise the ship from a draught of roughly 30 m to around 19 m.

>> Further information at http://www.theparbucklingproject.com/

OUR EXPERT Olaf Köberl is a master mariner and lawyer. He has ten years’ professional experience as a deck officer on tankers and container vessels. He has headed the Marine Claims Centre of Expertise since January 2010. [email protected]

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*The formula on which all insurance is based. Premium equals probability of ­occurrence times insured sum at risk.

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not if, but how

Munich Re Topics Schadenspiegel 1/2014

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Interview

Third-party costs are almost impossible to control Salvage specialist Dennis Brand explains what matters when salvaging wrecks and why fixed prices are not necessarily to the insurers’ advantage. Dennis Brand is managing director of brand MARINE CONSULTANTS GmbH in Hamburg and Special Casualty Representative appointed by Lloyd’s.

Topics Schadenspiegel: Salvaging the Costa Concordia could well prove costlier than its original construction. What kind of costs are to be expected when salvaging ships? Dennis Brand: The costs of complex salvage operations have spiralled in recent years. For one thing, ships are getting bigger all the time while ­salvage operations are becoming incredibly intricate endeavours. Meanwhile, we are seeing greater official intervention from increasingly environmentally-conscious authorities. The latter are driven by political forces, with the result that, in almost every salvage operation, decisions are taken that do not bear scrutiny. Pumping heavy oil out of the tanks of a stranded ship, for example, entails environmental risks. Yet public authorities frequently demand that this be done even when there is no risk of fuel leaking out. The privatisation of public areas is also pushing up costs. In the past, a salvaged ship was simply towed to the nearest harbour. Now, they are mostly taken to private piers for which correspondingly high berth­ age is charged.

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In view of these circumstances, can the costs of such large projects still be estimated reliably?

Who ultimately decides on the salvage method and hence the effort and expense required?

I can put a price on almost every ­salvage operation fairly quickly. The greater the degree of uncertainty, the higher I will set the costs. Alternatively, I may exclude certain factors from the outset. Unfortunately, a large proportion of the costs is beyond our control. Modern salvage companies have little equipment of their own, be it tug-boats, cranes or platforms, and consequently have to depend on firms supplying such special equipment. These third-party costs can account for anything between 70% and 90% of the total and have risen to exorbitant levels in recent years due to a shrinking market and the dwindling number of firms supplying such special equipment. Salvage companies must take account of the risk inherent in these costs when charging fixed prices for their salvage operations. The costs of a calculated project can rapidly double as a result.

Normally, the salvage company works out a plan for salvaging the wreck and calculates the required costs. If the authorities do not agree to this plan, the company must set about persuading them or work out alternatives. However, their leeway has diminished steadily in recent years.

Insurers could frequently save money if the costs were charged at daily rates instead. But they tend to baulk at the risks involved here, having been stung by excessive charges from salvage firms in the past. The relationship between insurers, shipowners and salvage firms would first have to improve considerably before costs can be brought under control again.

Munich Re Topics Schadenspiegel 1/2014

Time is also an important factor. Such operations as salvaging the Costa Concordia are more or less offshore operations. A lead time of several years is normally allowed for ­projects in the oil and gas industry. Tenders for salvaging wrecks, however, have to be approved very much more quickly. The main source of time pressure is often the fact that the wreck can shift and its condition deteriorate. The implications under labour laws are another factor that must not be overlooked in such major long-term projects. The salvage team could be governed by the regulations of the social insurance system of the country concerned, thus preventing firms from settling their accounts in the usual manner. There is also the problem of taxes. The fact is, the world as a whole has become a distinctly more complicated place.

Interview Which technical aspects or risk factors must be taken into account in a salvage operation? The weather and of course official influence pose the greatest risks. Special care is needed for certain cargoes, such as cooled or compressed gases. In the case of container ships, it is not always known exactly what is on board. This lack of knowledge can also send costs spiralling, for instance if the cargo is found to include hazardous goods. Is there any such thing as an “easily salvaged” ship? Several efforts have been made to develop such ships, but the trend is heading more in the opposite direction. A ship built in the 1960s or 1970s is easier to pull off a beach than a large container vessel launched only a few years ago. For financial reasons, today’s ships are built much closer to their limits. Instead of allowing a good safety margin when calculating the thickness of the steel plate, as used to be done, shipbuilders now work at the design limits. As a result, these ships have to be handled with much greater care than their more robustly built counterparts. Large modern ships consequently require a great deal more effort to prevent them being damaged or even breaking apart. How well known was parbuckling before the Costa Concordia? Parbuckling quite simply means that a ship that is lying on its side or stern is restored to an upright position. The method has probably existed ever since ships first set sail, but the technical aids used have changed.

Whether chains, cables or floating pontoons are used, the outcome is the same. The difficulty with today’s vast ocean-going vessels is identifying their centre of gravity and optimally applying the necessary forces to the hull so that it can be righted successfully. Are certain types of ship more accident-prone than others? Although I’m not familiar with the exact statistics, I would say that ­traditional oil tankers are the least affected. This is because the big oil companies chartering these vessels scrutinise the ships and the shipping companies closely. Their attention focuses not only on protecting the environment, but above all on avoiding costly losses damaging their ­reputation. The pressure in container shipping is not so great, as yet.

What distinguishes a good salvage company? A good salvage team comes up with smart ideas to solve problems directly or calls in the appropriate specialists. Price is naturally always an important aspect, although it is clear that of the three criteria “fast”, “cheap” and “good” only two can normally be met at the same time. And of course it all depends on the individual case concerned. I would never call in a small local salvor to refloat a 180-metre-long container ship. The choice will usually be limited in any case, as only two or three salvage companies worldwide are in a position to tackle the most difficult cases.

Are incidents more common on certain routes? Accidents happen everywhere, with ships running aground or colliding. Heavily frequented Asian routes, such as in the region around Singapore, are naturally affected more often. However, we can also say that there are fewer incidents in regions with strict surveillance. In the US, for instance, the coastguard keeps a close eye on captains and shipowners and has introduced strict registration formalities as well as controls. Then there is the fact that the penal consequences that apply there are on a completely different scale. The worst thing that can happen to you in the United States is to pollute the environment with an oil spill.

Munich Re Topics Schadenspiegel 1/2014

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P&I INSURANCE

Costly wrecks Stefan Fröhlich and Markus Wähler

Although the number of shipping incidents has declined, salvage costs in international ocean shipping have risen dramatically. The example of the Costa Concordia shows how costly individual events can prove for the shipowners and ultimately also for the insurers. Spiralling costs in recent years have been fuelled by a number of causes. Human error is still the number one cause leading to collisions and ships stranding or running aground, although the reasons underlying accidents at sea are very varied. Shipping companies can purchase P&I (protection and indemnity) insurance to protect themselves against numerous claims and expenses resulting from the operation of an ocean-going vessel. The costs of salvage and wreck removal are a standard element in the scope of cover.

Salvaging the Rena, which ran aground on a reef off New Zealand in October 2011.

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Munich Re Topics Schadenspiegel 1/2014

The ship’s management must take action immediately if a major problem occurs that cannot be remedied by means available on board. Hiring a recovery and salvage company is the best way to secure a damaged and disabled ship and to prevent consequential losses. Suitable tug-boats are available throughout the world and often ready and waiting, for technical defects are not uncommon in ocean shipping. Main feature of the agreements: No cure, no pay As a rule, distressed ships are recovered on the basis of the Lloyd’s Open Form (LOF), a standardised salvage contract designed to ensure a quick and fair procedure for all concerned. It was first introduced more than 100 years ago and has been modified several times since, most recently in 2011. The “no cure, no pay” clause forms the main thrust of the agreement. In other words, a salvage company can only demand payment when it has successfully recovered the ship concerned. This does not apply when individual salvage and wreck removal contracts are concluded in cases other than acute emergencies (as with the Costa Concordia). Such individual agreements allow the salvage company to charge their costs directly to the owner of the damaged ship as agreed and rated.

P&I INSURANCE The charge is determined by the actual work and expense involved. The success or failure of the salvage operation has no effect on the salvage company’s remuneration. Outlays for salvage companies have increased appreciably in recent years. According to a survey by the International Salvage Union, the cost of salvaging and removing wrecks increased fivefold between 2005 and 2012, while the number of incidents declined (see Figs. 2 and 3 on pages 19 and 21). In other words, the individual salvage operations have become increasingly complex and hence more expensive. The operation to salvage the Costa Concordia, which will go down in maritime history as the costliest wreck removal to date, fits the picture exactly. Ship size is a key factor Ocean-going vessels have evolved immensely, becoming larger all the time. Indeed, some types have truly mushroomed in size. In addition to the oil tankers, which have always been enormous, bulk carriers, container ships and passenger liners have now also taken on whole new dimensions. While the first generation of container ships accommodated up to 800 standard containers (Twenty Foot Equivalent Unit – TEU), the most modern vessels operated by Maersk can carry 18,400 TEU, or more than 20 times as many containers. Container standardisation proved to be one of the biggest advances made in the development of freighters. It simplified the complex process of loading and unloading ships, a process that was speeded up still further by infrastructural adjustments in the ports. Demurrage and freight costs fell dramatically. There is no sign of an end to this development. The Hyundai Wharf in South Korea is currently building a container ship with a capacity of 19,000 TEU for China Shipping Container Lines. We are seeing a similar trend in car carriers. At present, these ships can accommodate up to 6,000 CEU (Container Equivalent Units) and a carrier for up to 7,500 CEU is being planned. The amount of freight on board an ocean carrier is naturally increasing with the vessels’ size, as are the salvage costs for the ship and its cargo in the worst case.

Containers and their cargo pollute a beach after the container ship MSC Napoli ran aground near Sidmouth, Devon, on 21 January 2007.

The economic advantages of large passenger ships or freighters may be unbeatable, but when distressed or following an accident, these vessels often prove a major headache for rescue and recovery teams. Heavy equipment, such as barges, floating cranes and special ships to pump out the oil, is needed to salvage or remove a wreck which is several hundred metres long and correspondingly cumbersome. Just the rental costs for the gigantic floating cranes needed to salvage the cargo from large container ships can quickly run into millions of dollars. Not uncommonly, floating cranes with the required hoisting capacity are not available near the scene of the accident. Such cranes could possibly be booked on a long-term basis from offshore companies or purchased out of existing contracts. However, transportation to the scene of the accident can take weeks or even months. This drives up the salvage costs, as the bill rises with each transfer day that passes.

Cruise lines are constantly pushing the boundaries to attract tourists to their ships. In the early 1990s, the largest ocean liners had an average gross tonnage (GT) of 70,000 and measured roughly 270 m in length. Here too, vessel sizes have tripled in terms of their capacity in gross register tonnes, with the Oasis of the Seas (at 225,282 GT and an overall length of 362 m) leading the field. The Oasis Class III, which is currently being built for Royal Caribbean Cruise Line in St. Nazaire, France, will be even larger.

Munich Re Topics Schadenspiegel 1/2014

17

P&I INSURANCE More sophisticated techniques make even the most complicated operations possible The salvage industry has also seen great advances. Once upon a time, wrecks were simply left to rot on the seabed for want of the technical means to deal with them. But today’s techniques are so sophisticated that even such large vessels as the Costa ­Concordia can be salvaged in one piece using the ­parbuckling method. Environmental aspects play a major part in determining which salvage method is ultimately employed. Fuel (heavy oil or ships’ diesel) leaking from the tanks, engine oils, toxic chemicals and other substances from inside the ship may pollute large areas, causing long-term damage to flora and fauna, not to mention the aesthetic aspects. What coastal state wants an unsightly wreck to be left to rust off its shores for ­decades on end?

taken to protect the environment. In the case of freight ships, such as tankers, container ships and bulk carriers, they additionally have to ensure that the cargo is recovered. Every wreck can be salvaged in theory, but not every salvage operation and not every salvage technique is economically viable. Costs and benefits must always be weighed up, and the shipowner and/or their P&I insurer must ensure adherence to the principle of proportionality. The manner in which the wreck is then salvaged essentially depends on the nature of the accident, the ship’s position and ultimately on the client, the coastal state. Options range from sealing and refloating the disabled ship to disassembling and cutting it up completely on the spot. Such was the case when the Tricolor, a car carrier, collided with a freighter and sank in the English Channel in 2002. During the salvage operation, the ship was broken up into several parts which were then removed individually.

There are several companies worldwide which have the know-how and experience needed to perform complex salvage operations. In practice, the contracts are awarded on the basis of a tendering procedure. In addition to the engineering work as such, the tendering companies must also set out the measures to be

Fig. 1: The longest ships in comparison Oil tanker Knock Nevis 458 m (1,503 ft)

Container ship Mærsk Mc-Kinney Møller 399 m (1,309 ft)

Bulk carrier Vale Brasil 362 m (1,188 ft)

Passenger ship Allure of the Seas 360 m (1,181 ft) 0 m

100 m

200 m

As ships increase in size, so do the potential salvage costs in the event 100 m of a total 100loss. m

300 m

500 m

Source: Delphine Ménard, Bateaux Comparaison

100 m 100 m

18

400 m

Munich Re Topics Schadenspiegel 1/2014

P&I INSURANCE Fig. 2: Major rise in salvage and wreck removal costs US dollars (millions) The significantly higher costs do not fully include the cost of removing the wreck of the Costa Concordia, nor of the second-largest salvage operation (Rena).

800 700 600

Source: International Salvage Union

500 400 300 200 100 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Costs also depend on the salvage location Each location has its own special features for which the salvage teams must develop different solutions. A collision in the English Channel, one of the busiest shipping lanes in the world, poses a completely different challenge from one in a vulnerable nature conservation area. According to a statistical survey by the International Group of P&I Clubs, the 20 costliest wreck removals of the last ten years cannot be allocated to any particular region, but are instead scattered more or less around the globe. The regions in which disabled ships have to be salvaged change along with global shipping routes. Since ocean traffic in Asia has increased considerably, the theoretical probability of an accident occurring there is considerably higher today than it was 20 years ago. Climate change and global warming have opened up completely new routes. In the Arctic, for instance, these include the already used Northeast Passage and the planned Northwest Passage, both of which have only been charted to a very rudimentary extent (see diagram on page 21). The navigational risk is consequently far higher than in traditional regions which have been sailed for centuries. Besides this, salvage companies would have to adapt their methods due to the very special climate conditions prevailing in the Arctic.

The type of ship and cargo, weather conditions, wave action and the tides, access to the wreck (open waters or near the coast) and its position, the substrate (rock, stones, reef, sand) and the region’s ecosensitivity are all major factors to be taken into account in a salvage operation. All these variables influence the complexity, duration and costs of the operation. Leaking fuel and chemicals pose a hazard everywhere and can prove disastrous in ecologically sensitive regions such as the Great Barrier Reef, the Galapagos Islands or the North German tidal flats (Wattenmeer). The example of the Exxon Valdez, which ran aground off Alaska in 1989, shows that the long-term effects of such disasters are still not fully known, even today. Influence of coastal state and legal situation By far the majority of incidents occur inside the territorial waters of coastal states. International maritime law must therefore be harmonised with the national laws of the coastal state concerned. The maritime legislation passed by the United Nations International Maritime Organization (IMO) includes the 1972 London Convention on the Prevention of Marine Pollution by Dumping of Wastes and other Matter (including the Protocol of 1996). It essentially governs the dumping of toxic substances, such as oil from the ship’s hull.

Munich Re Topics Schadenspiegel 1/2014

19

P&I INSURANCE

Any accident involving a large container ship like the Maersk Mc-Kinney Møller, pictured here, would present an immense technical challenge for the recovery teams.

On a national level, most coastal states have passed laws requiring the shipowners to remove wrecks from territorial waters. In keeping with society’s greater general awareness of environmental issues, authorities will today understandably insist that wrecks be removed with as little impact on the surrounding area as possible, a process that is usually more difficult and therefore takes considerably longer. However, we are increasingly seeing cases in which the local authorities – under the spotlight of public scrutiny – order measures to be taken that hamper efficient wreck removal. Although there are certainly also cases in which the authorities strive for a pragmatic solution and push for rapid removal of the wreck, globally speaking these are the exception rather than the rule. In some countries, regional law also plays a part, in addition to national law. This can then give rise to a complex web of different legal systems, responsibilities and authorities, to the disadvantage of all involved. Another risk faced by shipowners is that a coastal state may seize other ships owned by the company, or order their seizure, in order to enforce demands for removal of the wreck. Confronted with high cost burdens and negative reporting following an incident, companies tend to avoid such a scenario wherever possible. For this reason, shipowners and their insurers, the P&I clubs, tend to be cooperative as regards the conditions and requirements stipulated by coastal

20

Munich Re Topics Schadenspiegel 1/2014

states for removing wrecks. But in the process, shipowners and insurers must always make every effort to ensure the proportionality of such requirements. The possibilities for limiting the liability of the shipowner and its P&I club have a bearing on the underwriting. According to the Limitation Convention of 1976, it is theoretically possible to limit liability for wreck removal. However, this possibility was subsequently excluded by almost all the coastal states which ratified the Convention. As a result, the national law of the coastal state is automatically reinstated, with unlimited liability of the shipowner and hence of the P&I club in almost all cases. In the reinsurance market, the liability covers provided must therefore be exceedingly generous, in view of the P&I insurers’ theoretically unlimited liability. For roughly 90% of the ocean-going vessels which purchase cover through one of the International Group’s P&I clubs, this cover can even exceed US$ 3bn. Another trend that has emerged in recent years is that the coastal states increasingly intervene in major operational decisions concerning the salvaging of ships stranded in their territorial waters, thus driving costs upwards. An analysis by the International Group of P&I Clubs revealed that, in 16 of the 20 cases investigated, the authorities intervened in the ongoing

P&I INSURANCE Fig. 3: Fewer total losses of ocean-going vessels per year 200

200

150

150

100

100

50

50

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

An analysis of all incidents worldwide involving ocean-going vessels with over 100 gross register tonnes (GT) shows a clear trend towards fewer total losses. Source: Lloyd’s List Intelligence

Fig. 4: The Northeast Passage as an alternative to the Suez Canal

RUSSIA Rotterdam

CHINA

INDIA

The opening-up of the Northeast Passage from Europe to Asia offers economic advantages for shipping, but also creates new risks for sensitive marine areas in the Arctic.

Northeast Passage Suez Canal route Source: Munich Re

Munich Re Topics Schadenspiegel 1/2014

21

P&I INSURANCE operations, leading to considerably higher costs in ten cases. According to this analysis, official intervention is the strongest force fuelling the costs of the salvage and wreck removal operations investigated. We are likely to see a heightening awareness among authorities, along with a growing tendency to intervene in operational decisions. It is hence important to strive towards a constructive collaboration between shipowner and the coastal state concerned. With the Nairobi Convention of 2007, the International Maritime Organization (IMO) additionally introduced rules of conduct and standards governing, among other things, the proportionality and reasonableness of wreck removals. Nine countries currently support this maritime convention. As soon as they are joined by a tenth country, the convention will be ratified by these countries within twelve months. A question of insurability The trend towards ever higher salvage costs naturally also has an impact on underwriting. The fundamental question is whether these almost incalculable and soaring costs can be insured at all. As a leading reinsurer in the speciality segment of P&I, Munich Re is keeping an ever-watchful eye on developments. The escalating costs of wreck removal have been on our radar for some time as a distinct risk of change. In the past year, we have passed on specific proposals concerning future insurability to the marine markets, both as regards the structure of reinsurance and with regard to the P&I insurers’ procedure towards coastal states. Our aim is to strike a balance between the interests of primary insurers and reinsurers, to maintain a high level of transparency between the parties, and to ensure that the costs of removing wrecks remain with the calculated figure – provided, of course, that the salvage operation is ecologically ­compatible.

>> F  urther information on this topic can also be found in Topics Schadenspiegel 1/2012, in the cover story on the wreck removal of the Rena, starting on page 6.

OUR EXPERTS Stefan Fröhlich has worked for Munich Re in the field of marine reinsurance for over 20 years. As Head of Section, he is responsible, among other things, for the Centre of Competence P&I. [email protected]

Markus Wähler has worked as a Marine Consultant for Munich Re since 2013. He holds a master’s licence and spent many years working as risk and safety manager for a wharf. [email protected]

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Munich Re Topics Schadenspiegel 1/2014

Engineering

Breakwater on rocky ground Although only a few of the concrete blocks forming part of a newly built breakwater in the Persian Gulf had become dislodged, a 1.2 km section of the structure had to be removed. Since the cause of the loss – whether defective construction or faulty design – could not be established definitively, the insurer and construction contractor agreed on a compromise for sharing the costs.

Jürgen Russ

Special precautions are needed to protect shorelines from erosion or destruction due to wave action. A whole variety of structural measures can be implemented, depending on the natural conditions, the specified objectives and the requirements to be met as regards coastal protection. One is to erect massive structures, such as moles and breakwaters. They ensure controlled dissipation of the wave energy and break the force of the incoming water. Such barriers are also used to build artificial islands, such as are found in many parts of the world when reclaiming land from the sea. They prevent the man-made sand-based structures from gradually being eroded by the sea. Breakwaters normally comprise a highly compacted core, a base course of rock and a surface course of specially shaped concrete blocks, such as accropodes or tetrapods.

In early 2010, problems arose with the surface course of a breakwater project in the Persian Gulf. An inspection of the structure revealed that the accropodes had become dislodged at 17 points along the 14 km barrier to the northeast of a man-made island under construction. These shaped concrete blocks serve to break the waves and convert as much of their energy as possible into turbulence. So that they can also withstand heavy seas, it is vital that these concrete blocks are sufficiently large (heavy), positively interlocked when laid and placed on a robust foundation. Load factors such as the dead load of the base and surface courses, water and wave pressure and currents must be taken into account when dimensioning the foundations. The sequence of work during construction must be coordinated accordingly to prevent the heavy surface course subsiding or becoming dislodged.

Concrete tetrapods protect the west coast of the island of Sylt, off Hörnum in Germany.

Munich Re Topics Schadenspiegel 1/2014

23

engineering Breakwaters are frequently used to protect artificial islands

Palm Jumeirah and World Islands in the United Arab Emirates are probably the best known man-made island formations. Such artificially created habitats are enclosed by breakwaters of various shapes and sizes.

Faulty construction or design of the breakwater may have caused individual accropodes to become dislodged. With MR Endorsement 115 (Cover for Designer’s Risk), the insured party purchased additional ­protection against design errors. While it was initially assumed that the accropodes had been incorrectly installed, further investigation of the cause of loss yielded surprising findings: due to time pressure, the project planners and the contractor had agreed to depart from the conventional method of construction. The base course on which the accropodes were laid was at first only partially completed in the section of the barrier in which the damage subsequently occurred. The original intention was to let this foundation taper off horizontally on the seabed like a tongue roughly six metres long. This would have ensured that the base course would be able to withstand the forces to which it was exposed. In addition, it would have provided a sufficiently large area on which to position the first row of accropodes so that they remained stable. According to the revised planning, however, this tongue was initially only to be built along the seabed over a length of roughly 2.3 metres, with the remainder to be backfilled at a later date. Cause of loss unclear

Selection of the largest man-made islands Island name

Size (km2)* Location

Yas Island

25.00

Abu Dhabi, United Arab Emirates

Kansai Int. Airport

10.50

Japan

World Islands

9.50

Dubai, United Arab Emirates

Hong Kong International

9.38

Hong Kong, China

Palm Islands

8.00

Dubai, United Arab Emirates

Chúbu Centrair Int. Airport

6.80

Japan

Palm Jumeirah

6.50

Dubai, United Arab Emirates

Rokko Island

5.80

Japan

Port Island

5.20

Japan

* Sorted by reclaimed land area. Source: Munich Re

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Munich Re Topics Schadenspiegel 1/2014

It was found that this makeshift structure remained in place for almost a year, during which it was exposed to the tides and high forces. Waves, currents and pressure may therefore have altered the structure in such a way that the accropodes at the very bottom became dislodged. However, it is also possible that mistakes were made even during construction of the modified design and that the tongue never achieved the agreed length of over 2.3 metres or that the accropodes were positioned incorrectly. Yet the question as to the exact cause of loss is decisive for determining entitlement to indemnification. Since a sound foundation is essential to the stability and functionality of the entire structure, losses resulting from the enormous strain placed on the bottom of the structure due to irregular execution of the work would not be unexpected. In such a case, the claim could be rejected by the insurer.

engineering Cross-section of a breakwater Levelling stones

Primary armour rock, 2 layers (surface course)

2 layers

Typical cross-section of a breakwater used to reclaim land. In the case in question, the toe protection (tongue) was built to only 40% of the required length.

Primary armour rock, single-layer accropodes (surface course)

Secondary armour rock, 2 layers (base course)

Reclaimed fill

Core wall

Toe protection

Seabed

Source: Munich Re

With regard to the magnitude of the loss, it might be assumed at first that the repair work would be inconsiderable since only a small number of accropodes were dislodged. The problem is that the top blocks cannot be positioned at random in breakwaters of this type. They must be fitted precisely so that they can interlock and form a highly resistant surface. For this reason, all accropodes had to be removed over a length of 1.2 km and repositioned in order to repair the 17 defective points. More than 96% of the repair costs were incurred for removing and repositioning blocks which were actually in the correct position. Material change in risk Risks and hence liability were substantially affected by a design modification undertaken due to time pressures and not on account of objective circumstances. It enabled the contractor to reduce the risk of delay. On the other hand, however, it increased the insurer’s exposure, as the new design was more susceptible to damage and losses. Had an underwriter been aware of the situation and in a position to amend the terms of insurance accordingly, he would have done so on account of the material change in risk. Another question that arises in conjunction with liability is whether all reasonable precautions had been taken in view of the changed procedure.

It ultimately proved impossible to establish the exact cause of loss with absolute certainty, although many signs indicate that it was attributable to construction methods. Due to the complexity of the matter, the ­primary insurer, with the support of experts from Munich Re, held lengthy discussions with the ­contractor and the broker. The claim could have been rejected for any number of reasons. In the end, the parties agreed on a compromise. The case shows how decisions made under pressure of time can easily lead to errors being made in major construction projects, errors which then lead to unexpectedly large losses. It also shows that the insurance aspect must not be overlooked when planning and realising major projects. As a rule, significant deviations from the planned sequence of work and execution also lead to changes in the risk which may have an effect on liability. Such a situation can be avoided through regular consultation between the insured and the insurer, ideally in the form of risk inspections.

OUR EXPERT Jürgen Russ is a claims manager in the claims department “Asia Pacific and Africa”, as well as risk and claims management expert on major projects and completed risks. [email protected]

Munich Re Topics Schadenspiegel 1/2014

25

Interview

Some claims stay with you throughout your working life After two decades in claims management at Munich Re, Nicholas Roenneberg discusses formative experiences, the biggest changes in claims management, and current trends.

Topics Schadenspiegel: Mr. Roenne­ berg, you have 30 years of experience with liability risks and have spent the past 20 of these working in claims management at Munich Re. Which risk complex had the greatest impact on the insurance industry during this time? Nicholas Roenneberg: I have been dealing with asbestos-related claims ever since I first started. Like almost everyone working in liability, I had to deal with such claims even before I moved to claims management, when I was still a casualty underwriter. And this is unlikely to change, at least in the next ten or twenty years. What could have been handled better? One of the main problems with asbestos was that the associated risks were underestimated until well into the 1960s and 1970s. In those days, too much faith was placed in safety precautions, which in retro­ spect was naive. We also failed to recognise the seriousness of the accumulation problem. In both our underwriting and our claims handling, it was quite simply inconceivable to us that the loss could reach such dimensions. After all, asbestos was used everywhere – in homes, cars, heating systems and many other products. Countless industries were consequently affected, along with

26

innumerable insurance classes. It did not stop with workers’ compensation claims: employers’ liability, product liability, general liability and other ­liability areas were also involved. By the time the true magnitude of the loss became apparent in the 1980s, it was already too late. Due to the long latency periods associated with asbestos, exclusions, claims-made clauses and other steps which have since been introduced to limit the risk only become effective decades later. Is asbestos a representative scenario for Munich Re? No, not really. I think it unlikely there will be a “second asbestos”. Asbestos was special, in many respects: the nature of the material, the variety of uses, the long period between expo­ sure and manifestation of illness. Asbestos is a worst-case scenario, an extreme example. The claims-made clauses which are generally custom­ ary today make it almost impossible to apply the experience gained with asbestos to other long-term risks in the liability sector, such as pharma­ ceutical risks. We must also remember that today’s asbestos claims involve risks that date back to the 1950s. We have learned a lot since then. Many of the things that were totally new to underwriters then are self-evident today.

Munich Re Topics Schadenspiegel 1/2014

The terrorist attack on the World Trade Center in 2001 was one of the biggest losses ever. How did it feel to handle those claims? The first days and weeks following 9/11 were absolutely uncharted terri­ tory for us. After all, it was one of the first major losses ever to be wit­ nessed more or less live on TV and the Internet. I still remember the first e-mail drawing our attention to the events in New York. Let me mention just two of the aspects peculiar to the claims handling in this case: First, there was the large number of lines affected, such as property, marine, aviation, other liability insurances, life, workers’ compensation and busi­ ness interruption. These were essen­ tially supplemented by the ad hoc compensation mechanisms which had been set up, particularly the ­Victim Compensation Fund. The scale involved was – and remains – unparalleled. And what is the other aspect? The second aspect only emerged as the claims handling progressed, and concerned the length of time required to settle a loss which pri­ marily involved property policies. Even now, almost 13 years later, the loss has not been completely settled. And I am not only referring to the last ongoing subrogation proceedings,

Interview but also to compensation for per­ sonal injuries. Which brings us back to asbestos. The buildings damaged in the attack contained asbestos, exposing the firemen and other work­ ers involved in clearing the debris to its effects after the buildings col­ lapsed. 1 One of the greatest changes of the last 20 years is the role played by the Internet in the lives of many people worldwide. How has it affected claims handling? By providing rapid access to informa­ tion and data, the Internet has signifi­ cantly changed our view of losses. The tsunami was still raging in Japan when the first photographs began to appear on the Internet. The loss event was still in progress. To a certain extent, this can speed up the process­ ing of claims. For natural catastro­ phes in particular, the Internet is often a good source of information for property claims. It gives a quicker overview and makes matters more transparent. However, the information provided by the Internet is not always useful when assessing losses. Above all, it pro­ vides detailed information which can be particularly relevant for property claims. The flood in Thailand is a good example of this. We can see the floods, but not their impact on supply chains and the disruption of business. Where liability aspects are concerned, the Internet is even less effective as a quick source of relevant data. Much of the information is highly confiden­ tial, especially in the early stages. Liability circumstances often prove to be much less clear than property loss scenarios. This means that verifiable information may only be available after a considerable delay. What exactly does that mean for claims management? One important aspect is that we get much more advance notice of immi­ nent losses. Hurricanes – a classic loss scenario – are discussed through­ out the world long before they actu­ ally hit. Thanks to the Internet, losses

For 20 years, Nicholas Roenneberg was responsible for claims management at Munich Re, most recently as Head of Claims Management & Consulting.

have a much more immediate and intensive impact on the media and hence on the public in general today. Insurers often face highly charged questions. Even if losses turn out to be smaller than expected at first, such questions are asked: Were the advance measures excessive and hence too costly? The early flow of information certainly does not always make it easier to weigh up the risks. Yet we are expected to deliver answers much earlier than in the past. Insurers and reinsurers must adjust to these new expectations.

In your opinion, which types of loss will become more important in the coming years? New technologies, such as renewa­ ble energy sources or the cyber world, naturally also give rise to new risks. Then there is the growing dan­ ger of risks that are difficult to con­ trol and pose a genuine challenge for the insurance industry on account of their complexity and size. Deep Water Horizon and Costa Concordia2 are a perfect example. Purely economic losses are also becoming more impor­ tant all the time: shareholder lawsuits involving thousands of claimants, D&O liability, professional liability. Each new financial crisis will inevitably trigger a new wave of such lawsuits.

Munich Re Topics Schadenspiegel 1/2014

27

Interview Despite all this talk of new risks, we must always remember that claims complexes can only be foreseen to a very limited extent. The really big losses often come from totally unex­ pected quarters. Nevertheless, the emerging risks debate can be useful, especially since it is nowadays con­ ducted much more analytically and discreetly than in the past. Today, more attention is paid to the details. Are today’s loss prognoses better than those of 20 years ago? Regarding natural catastrophes – definitely. Our modelling of the losses has improved by leaps and bounds! Today’s models are much more sophisticated than they were 20 years ago, and the insurance industry’s expertise has also improved considerably. However, in my opinion, the same cannot be said in regard to many liability loss scenarios. So far, it is much more difficult to model liabil­ ity risks. Current concepts do not really convince me.

In the casualty sector, recent years have shown that mass tort claims are no longer a purely US phenomenon. Collective redress and class actions are now also found in other markets, even in Europe. This development also affects the funding of litigation, which in turn is bound to influence the claims mentality. However, there is nothing so far to indicate that the situation in Europe is even approach­ ing that in the United States. 4 Finally, the importance of claims based on reputational damage will also increase, along with the growing influence of media and instant global access to information. This is likely to increase the pressure to settle dis­ putes quickly. 5

Are there any trends you expect to have a lasting impact on claims management? Liability claims could play a more important part in natural catastro­ phes in future. This is already becom­ ing evident in the case of bush fires in California and Australia. In the past, the losses involved were almost exclusively property losses. But now we are seeing cases in which the lia­ bility insurers ultimately covered most of the loss. I expect this trend to continue. Almost every natural catas­ trophe also involves man-made aspects: errors in construction, main­ tenance faults or other safety defects. This is increasingly being recognised, and is resulting in more subrogation claims against liability insurers after natural catastrophes. 3

28

1 With

regard to the WTC loss, refer to the articles in Topics Schadenspiegel 2/2011.

2

See Topics Schadenspiegel 1/2013.

3 For

further details, see my column in Topics Schadenspiegel 2/2012, page 46.

4

For further information, see page 45 in this issue.

5 For

further details, see my column in Topics Schadenspiegel 2/2013, page 48.

Munich Re Topics Schadenspiegel 1/2014

bonds

Costly flaws in the small print For many years, protecting the members of cooperative property projects was a straightforward matter in Spain. However, the financial crisis revealed flaws in the wording of the policies that have proved exceedingly costly for insurers.

Rafael García Sánchez

In Spain, a new-build property can essentially be acquired in one of two ways: through a commercial property developer or through a cooperative. Between 1968 and 1999, Spain passed a number of laws to ­protect consumers in property transactions that resulted in mandatory delcredere insurance (Seguro Obligatorio de Afianzamiento). The aim of these laws was to protect buyers’ down-payments and advance payments on the apartments they were purchasing – regardless of whether the transaction was initiated by a property developer or a cooperative. Protection was extended not only to projects in the open market, where property developers can dictate prices in accordance with market conditions, but also to the state-controlled market. It covered failure to hand over the apartment “within the agreed time limit, regardless of the underlying reasons”. Both commercial property developers and representatives of the cooperatives were required to sign a corresponding guarantee. Special features of cooperative purchase However, there are many differences between commercial property development business and the cooperative model. Cooperatives are often set up before the land, the development plan or the official permits are available, and in many cases the building contractor is also still not chosen. Members join the project when they join the cooperative and they acquire the right to purchase an apartment at a future time. A firm date for handover of the apartment has not been fixed at this point, as the entire scheduling is based on estimates. The delcredere insurance stipulated by law, however, only applies when the project has been approved and the deadlines for starting construction and handing over the apartment have been clearly defined.

To avoid leaving the members of a cooperative completely unprotected during the planning phase, the insurance industry developed a voluntary form of protection (Seguro Voluntario Cooperativas). It covers fraud and the embezzlement of monies by the cooperative’s managers. Failing to hand over the apartment, on the other hand, is not covered by the policy. To protect the members’ payments, the monies received are transferred to an account administered by the insurance company. The insurer must approve each payment in advance and ensure that the funds are indeed used only to pay for costs associated with the construction project. In return, the insurer receives a fee for its management services. Insolvencies during the financial crisis For many years, the policies did not give rise to any problems. It was only when the property bubble burst that the situation changed abruptly. For one thing, the banks refused to lend many cooperatives any more money, and for another, many members of the cooperatives lost their jobs and were no longer able to pay their contributions to their project. Other members quite simply lost interest in continuing with projects. Many cooperatives subsequently became insolvent, due also to the fact that their managements were not prepared for the new situation. The members’ demands for repayment of their money could not be satisfied in full, as part of the funds had already been invested in the projects.

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Bonds

The abandoned site of a hotel complex on the Playa de Butihondo on Fuerteventura, Spain.

As far as the insurers were concerned, the case was clear-cut. Since the voluntary cooperative insurance only covered fraud and embezzlement, the insurers refused to repay the monies. However, the courts ­handling the corresponding lawsuits did not reach any clear findings: while some decided that there was no connection between the cooperative insurance and delcredere insurance, and that the former therefore did not cover the failure to hand over the apartment, other courts upheld actions brought by members of the cooperatives. In their opinion, cooperative insurance as such does not exist. Rather, they considered that it constituted a delcredere policy and covered the risk of failing to hand over the apartment. A decision by the Spanish Supreme Court (Tribunal Supremo) was required.

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Terms of insurance unclear A closer look revealed that the insured subject matter was worded vaguely in the terms of insurance. Policies comprise general terms, special terms and individual certificates, which were not very consistent where the insured subject matter was concerned. Wordings range from “covers contractual non-performance by the policyholder” to a specific definition: “It is guaranteed that the sums paid in by the insured will exclusively be used for payments associated with the construction project”. Moreover, the scope of cover as defined in the special terms uses terminology commonly found in the rules on delcredere insurance, namely the “good cause” (buen fin), which is taken to mean handover of the apartment. This term should never have been used in the policy wording if such cover were to be excluded.

Bonds In its judgement No. 540 of 13 September 2013, the Spanish Supreme Court consequently ruled that the cooperative policy was to be deemed equivalent to a delcredere policy. The contributions paid in advance by the members of the cooperative to purchase their apartments must therefore be repaid if the apartments are not handed over. Both primary insurers and reinsurers in Spain were consequently compelled to indemnify claims from cooperative members amounting to more than €800m. Timely recognition of problems Looking back, it has become clear that, although ­voluntary cooperative insurance had existed in the ­Spanish market for many years, none of the parties involved ever questioned its scope of cover. At the request of the insurance companies, the supervisory authority (Dirección General de Seguros) even went so far as to issue a document certifying the existence of this insurance and the cover it extended. Problems did not emerge until the property crisis left many cooperatives floundering. According to the cooperatives, the agreed cover was not what they had wanted, nor was it what they believed they had been provided with; and they invoked coverage that was not within the scope of their policies. These flaws in the terms of insurance remained undiscovered for many years because there were no claims that could have revealed possible loopholes in the wording. The case is a good example showing how external factors – in this case the financial crisis – can change the scope of cover of a policy if the terms have not been worded clearly and leave scope for interpretation by third parties. If wordings allow such scope for interpretation, courts are happy to interpret them in a consumer-friendly way, as happened here in favour of the members of the cooperative.

OUR EXPERT Rafael García Sánchez is a claims lawyer at Munich Re, Madrid and responsible for the Spanish and Portuguese markets. [email protected]

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engineering

Successful mitigation of a power plant loss Proactive claims management is an essential part of efficient claims handling. Following a loss event at a power station in Malaysia in 2011, all participants acted in an exemplary fashion, keeping the costs well below initial estimates despite adverse circumstances. The close and transparent cooperation between policyholder, insurer and experts proved to be the key to success.

Close-up image of the overheated and partly melted rotor blades of the steam turbine.

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engineering Dr. Ilona Strauß

On 31 January 2011, one of the units of the steam ­generator turbine at a Malaysian power plant tripped under a generator earth fault. The steam turbine was damaged by overheating whilst being operated on FSNL (full speed no load) mode in standby. The power plant consists of three units, each with a capacity of 700 MW. Each unit comprises a boiler, a steam turbine and a generator. The station was insured under an industrial all risks policy including business interruption cover. The policyholder immediately notified the manufacturer and called for assistance from the manufacturer’s engineers, who made an initial on-site appraisal once the turbine had cooled down. Decision to have original manufacturer carry out repairs An inspection by the loss adjuster on 9 February yielded a potential loss amount of 100 million Malaysian ringgit (approx. €23m). In coordination with the lead primary insurer and the team from Munich Re, a turbine expert was immediately called in to evaluate the loss after the turbine was opened on 14 February. This inspection revealed that the high-pressure rotor of the steam turbine had sustained significant damage from overheating. The rotor blades of stages 2 to 8 of the high-pressure rotor showed varying degrees of deformation and fracturing. The guide vanes of stages 2 to 8 were also damaged. It was essential that the repairs be carried out as quickly and efficiently as possible to minimise the business interruption loss. Although the actual extent of the property damage had yet to be finally established, two options were considered: the rotor could be shipped by air directly to the manufacturer in Japan, which would probably have meant an inter­ ruption in operation until 12 June. Alternatively, the repairs could be carried out in a local licensed workshop. Although having the repairs done locally would have eliminated the transport costs, opting for the original manufacturer still seemed the better option for a number of reasons. This course of action offered the assurance of a reliable timeframe and would also enable the repairs to be carried out under ideal technical conditions, ensuring optimum integration of the components.

Working under immense time pressure In telephone conferences, the underwriter, Munich Re claims specialists and external experts held in-depth discussions with the broker on the pros and cons of the two options, also exploring other potential solutions, such as temporary repair or the possibility of partial operation. They ultimately agreed to send the rotor to Japan, dispatching it on 26 February. After its arrival on 1 March, the manufacturer’s engineers assessed the various repair options on site and considered measures to accelerate the work, such as amended scheduling, additional shifts, overtime and working on national holidays. Right from the start, all considerations were communicated transparently and discussed amongst the parties involved. The instructed turbine expert also took part in these meetings. In the main, the following courses of action were considered as possible means of minimising both the property loss and, in particular, the business interruption: −−What spare parts were immediately available, or could be fabricated immediately, or were currently in stock at other power stations? Readily available parts should be replaced immediately, while others should initially be repaired on a provisional basis. −−In the event that the rotor was considered to be irreparable: search for a rotor shaft or replacement rotor at power stations that used turbines from the same manufacturer. The search proved unsuccessful, but ultimately this made no difference as additional tests determined that the rotor could ­definitely be repaired. −−Temporary/partial operation via a vaneless idler shaft. This conversion would have been very timeconsuming and would not have reduced the business interruption to any significant extent, as the turbine would have had to be available for installation of the repaired rotor from as early as 1 May 2011.

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engineering

Overall view of the damaged high-pressure rotor after the steam turbine was opened.

−−Temporary operation of the damaged rotor. This loss minimisation measure was impractical as the rotor would have had to be available for testing, fitting of the vanes and balancing. This approach would only have worked if – as originally hoped – only stages 7 and 8 had been affected.

This measure alone substantially reduced the insured loss of capacity. Other loss minimisation measures that were agreed on reduced the overall estimated loss to a third of the initially estimated sum. It was even hoped that the business interruption loss would remain within the time excess.

−−Bringing forward a planned shutdown for maintenance works. The policyholder discussed this with the responsible company at an early stage.

Earthquake wreaks havoc

Measures aimed at reducing the repair time All participants strove to prioritise the reduction of the loss over the analysis of its causes. The policyholder was able to arrange with the manufacturer that this repair work would be carried out on a crisis management basis with utmost urgency. This reduced the planned repair time by some three weeks, with work now scheduled to be completed on 22 May. At another meeting attended by the broker, loss adjuster, local primary insurer, reinsurer and the turbine expert on 11 March, the participants decided to closely monitor the repair work. As an additional measure, the policyholder’s representative announced that maintenance work originally planned for a future date would be brought forward. In this way, the restarted power ­station’s increased availability would make up for the downtime during the repair work.

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Just a few hours afterwards, some news came in from the Japanese manufacturer that did not bode well for the schedule. The Tohoku earthquake, having struck in the vicinity of the repair facility, now looked likely to ruin all the plans that had been made. Although the respective branch office of the turbine manufacturer had escaped damage, it was cut off from the electricity grid. The local public transport network had collapsed and roads were impassable due to long traffic jams. It was impossible for workers to reach or leave the manufacturer’s factory. It was not until 17 March, when a train service, of sorts, was resumed, that they could return to work. To make matters worse, the manufacturer had to contend with several hundred aftershocks, some severe, and repeated bottlenecks and interruptions in the electricity supply. Yet despite all adversity, the manufacturer managed not only to adhere to the repair schedule, but even to complete the repair of the rotor six days ahead of schedule.

engineering Organising the return flight to Malaysia was to prove the final stumbling block. As the situation in parts of Japan was still fraught in mid-May and further exacerbated by a lack of transportation options, no commercial flights were available. A minimum of four additional days would have been lost waiting for the first available scheduled flight. In the end, however, with some help from the loss adjuster, the manufacturer was able to charter an aircraft to transport the rotor back to Malaysia on schedule. The installation and start-up of the rotor proceeded smoothly. Ultimately, the loss amount came in at 35 million Malaysian ringgit (approx. €7.7m), instead of the 100 Malaysian ringgit initially estimated. Loss minimised thanks to close cooperation and communication Notably, it was the close and targeted cooperation between all parties involved, including the policyholder, which made it possible to reduce the originally estimated business interruption loss of 75 million Malaysian ringgit to such an extent that the final loss remained within the time excess. In fact, the loss amount was reduced by roughly ­two-thirds, highlighting the importance of a cooperative and proactive approach by all participants, of a mutual exchange of information within a transparent communication process and of the involvement of experienced experts (both internal and external) in the procedure, along with their respective networks. When policyholders are cooperative and communi­ cation is open, primary insurers and reinsurers in ­particular can significantly contribute to mitigating a loss for the benefit of all parties. This applies in equal measure to property damage and business inter­ ruption.

Our expert Dr. Ilona Strauß is a claims lawyer at Munich Re, responsible for claims in the lines of business engineering, energy and mining, casualty and special enterprise risks. [email protected]

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Casualty

Reform of procedural law has side effects In recent years, the United Kingdom has introduced a number of procedural changes to the settlement of personal injury claims. Although the new rules are generally appropriate, they do occasionally go too far.

Malcolm Henke

It is fair to say that 30 years ago, the legal system in England and Wales fell under the control of the lawyers involved rather than the judiciary. Cases ran at a pace dictated almost entirely by the parties to an action. There were no pre-action protocols, attitudes after claims had been filed tended to intensify conflicts, and exchanges of evidence were at best limited. It was normal to have “trial by ambush” – with surprise attacks launched during the hearing – and joint settlement meetings were unheard of until the morning of the trial, when they were held literally outside the door of the court. In the 1980s, the situation improved slightly with the introduction of “automatic” directions. These specified the steps that had to be taken before the first hearing (known as the directions hearing). However, although this was an improvement on the previous system, directions were rarely enforced and sanctions were unknown at the time. Fundamental reform through Civil Procedure Rules In view of the need to avoid delays in litigation (and to cut costs), the English legal system underwent a major structural reform in 1999 with the publication of the Woolf report and the introduction of the “Civil Procedure Rules 1998” (CPR). For the first time, the parties were required to exchange all evidence to be relied on in the case. In addition, the courts were empowered to control evidence, and to set deadlines for compliance with the procedural rules. This essentially marked the introduction of genuine “case management”.

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After a few months of uncertainty, it soon became apparent that the courts would still allow the parties to retain control in higher value claims. The overriding objective was to allow justice to be done, and this permitted the development of a more flexible approach to the handling of cases. Lump-sum settlements for personal injury claims Up to this time, the majority of large and complex ­personal injury claims was settled by conventional lump-sum settlements. Calculation of future settlements was made on the basis of present value factors. Only a handful of claims resulted in structured settlements (a purchased annuity), as this type of settlement was unpopular with both sides. Claimants ­considered them to lack flexibility, while defendants disliked them on account of the higher costs and limited availability of suitable products on the market. For a lump-sum settlement of a personal injury claim, the sum required by the claimant per year under a given head of damage (the multiplicand) is calculated first. This is then multiplied by the present value factor (multiplier) appropriate to the person’s age and life expectancy. The multiplier was at that time determined by the trial judge and the highest value would be 18. It was commonly referred to as the “judicial multiplier”, as it disregarded actuarial findings. In effect, it was little more than an educated guess of the perceived rates of return on investment.

Casualty Woolf Reforms The first major changes to the way in which damages are assessed coincided with the Woolf report. They were the result of legislation, but were subsequently driven by economic factors. The Ogden Tables were used as the basis for calculation for the first time in the case Wells v Wells [1999] 1 AC 345. These allowed the multipliers to be determined on a far more accurate, actuarial basis. The calculation was additionally linked to a “discount rate”, which represented the assumed net return on a safe investment. The discount rate was initially set at 3%, but it was reduced to 2.5% in 2001. The general rule was: the lower the discount rate, the higher the multiplier and the settlement. Since the ­multiplicands for care costs and case management were already rising by this time, this led to a significant increase in the value of lump-sum settlements. Lump-sum settlement v. periodical payment orders (PPO) The new legislation came into full effect on 1 April 2005. The Civil Procedure Rules CPR 41.4 – 41.10 gave the courts the power to settle cases by awarding periodical payments, which until then had only been possible by means of a contractual agreement. At this time, many claimants took the view that the discount rate was too high and that the required rates of return could only be achieved by taking on unacceptable ­levels of risk. Lump-sum settlements were deemed to be too low, and periodical payment orders (PPOs) became increasingly popular.

In the case of traffic accident claims worth at least £1m, for example, between 2008 and 2010 the probability of a PPO settlement rose from 18% to 35%. By 2012, around 80% of claims worth £7m or more were settled through periodical payments. The total number of periodical payment orders barely increased, however, remaining at around 70 cases per year. Statistics have also shown that the average compensation awarded per PPO has likewise remained largely constant at £75,000 to £80,000 per year. On the basis of statistical findings, attempts were made to force the Lord Chancellor to lower the discount rate in order to reflect the low interest rates and achievable returns on investment in the UK. Despite lengthy and extensive consultations, however, all these efforts have met with deafening silence from the government. As the UK’s biggest provider of PPO settlements under the National Health Service Litigation Authority (NHSLA), it appears that the government is seeking to thwart the reform process. It knows full well that any reduction in the discount rate would make a return to lump-sum settlements more attractive. Despite the uncertainty over possible changes in the discount rate, settlements based on periodical payment orders remain popular for high-value claims. However, now that a return to higher interest rates has recently become more likely, lump-sum settlements are regaining in popularity, particularly if the residual life expectancy exceeds 15 years.

Implications for insurers Insurers have always preferred the finality and certainty of a lump-sum settlement. Today, compensation for severe personal injury claims is usually made by way of a periodical payment order (PPO). Since those specialist annuity providers that once offered structured settlements have left the market, insurers now have to self-fund all PPO awards. This has several downsides: −−The risk of the claimant living longer than expected;

−−The investment risk, on average for 40+ years; −−The inflation risk, since PPOs are usually linked to wages of the care providers; −−Reserves must be set aside and reviewed on a continuing basis; −−Due to insufficient data, it is difficult to compare the cost of a claim including a PPO to a lump-sum settlement.

So far, the consequences of the Jackson reforms appear to be more positive with respect to claims of less than £25,000 (the vast majority of all personal injury claims). Insurers have already seen a reduction in the severity of claims, due to the nonrecoverability of success fees and ATE premiums, and because of more realistic fixed-cost rules. There might even be early signs of a reduction in claims frequency.

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casualty Jackson Reforms

Front loading of costs

The second, and perhaps most seismic, shift in UK ­litigation practice occurred on 1 April 2013, when a vast array of procedural changes took effect after the Jackson Report.

This zealous approach has led to a front loading of costs, particularly in high-value cases. In preparation for the first hearing, the parties must consider and justify which steps they may take in a worst case scenario. They must also prepare, exchange and attempt to agree on detailed cost budgets (Practice Direction 3E). These set out expenditure incurred to date and anticipated expenditure under eight headings and two categories of contingencies. If a party files the budget late, or fails to file, only court fees will be reimbursable. If the budget is underestimated under any one or more of the eight headings, a higher figure cannot be recovered from the other party.

The changes resulting from s 44 and s 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) yielded advantages for defendants. For one thing, claimants are no longer able to enter into conditional fee agreements (CFAs), under which a defendant who loses a case is compelled to pay a success fee of up to 100% of the claimant’s solicitor’s basic costs. Secondly, defendants are no longer required to pay the claimant’s premiums for legal aid insurance concluded after the event (after the event insurance). However, these benefits come at a cost. Where the claimant does not have an “old style” CFA, he will be partly “compensated” by an increase of 10% in the award for pain, suffering and loss of amenity. This provision was introduced by the Court of Appeal in the case of Simmons v Castle [2012] EWCA Civ 1039 and led to an immediate and startling increase in claims costs. The defendant is now also governed by qualified one-way cost shifting (QOCS). With only a few exceptions, if the claimant is successful, he can recover his costs from the defendant. On the other hand, if the defendant succeeds, the claimant is not obliged to pay his costs (CPR 44.13 – 44.18). Changes in procedural rules What neither claimant nor defendant lawyers expected was that these major changes to the funding of claims would be accompanied by the courts seizing significantly tighter control over the whole litigation process. The concept of doing justice between the parties is now subject to strict and rigid compliance with the Civil Procedure Rules, and the response to anything other than mere trivial default is draconian (see in particular Mitchell v News Group Newspapers [2013] EWCA Civ 1537).

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Evidence The parties must consider exactly which witness evidence could be required, provide the identity of each witness and state the issues to which they will give evidence in each case. They must also state the costs of all required expert witnesses. At the first hearing, the court is empowered to restrict the evidence a party is entitled to rely on and/or the costs. This could cause problems if judges who have not specialised in such cases choose to flex their muscles without appreciating the negative impact of their decisions. Appealing such decisions is virtually impossible. There are two possible consequences of this. The first is that the case could proceed to a conclusion with one or both parties being unable to present important evidence. The other is that the evidence may be permitted at a later hearing, giving rise to delays and additional costs. Disclosure of relevant documents In more complex cases not involving personal injury claims, the parties must disclose all important documents at least 14 days before the first hearing (CPR 31.5). They must determine which documents are relevant to the case, and agree how to best minimise the effort and expense of disclosing the documents required in evidence. This is no doubt a meaningful approach in document-heavy commercial cases. However, in lower value cases it often means that a great deal of work must be carried out and expense incurred before the real issues of the case can properly be defined. This can defeat the declared aim of keeping the costs of disclosure proportionate.

Casualty Pre-action protocols All cases are governed by pre-action protocols, which require the parties to consider methods of alternative dispute resolution (ADR). Although ADR is not (yet) compulsory, it is already clear that, irrespective of the outcome of the case, the courts will increasingly penalise in costs those parties who, in the court’s opinion, have not given serious consideration to alternative dispute resolution methods (see in particular PGF II SA v OMFS Co 1 Ltd [2013] EWCA Civ 1288). Lawyers on both sides of the claimant/defendant divide must now fear that their respective parties could subsequently suffer major disadvantages if the case has not been thoroughly prepared.

Conclusion There can be no doubt that the reform efforts launched some time ago were justified. However, the transfer of control over cases to the courts has gone too far. Without adjustments, there is a real risk that unduly rigid application of the rules will lead to inappropriate outcomes. The parties to litigation are currently being committed to expenditure to ensure that the will of the court can be done, without regard for the true interests of clients.

Proportionality of costs On the positive side from a defendant’s point of view, the refocusing on the proportionality of costs has been accompanied by a revision of what proportionality means (CPR 44.3). Although proportionality was a criterion under the pre-April 2013 rules, this rarely prevented a claimant from recovering costs that were deemed to have been reasonably incurred, even if the justification for that expenditure appeared doubtful. Now, the courts no longer allow costs which they consider to have been unreasonably incurred or that are found to be unreasonable in amount. This has undoubtedly led to claimant lawyers becoming more circumspect about their expenditure on cases.

OUR EXPERT Malcolm Henke is a Senior Partner in the law firm Greenwoods in London, where he is in charge of the Catastrophic Injury Group. mch@greenwoods-­solicitors.com

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FLOOD PROTECTION

Benefits far outweigh the costs None of the storm surges which have struck Hamburg since 1962 caused any noteworthy damage in the city’s metropolitan area, not even during Winter Storm Xaver in December 2013. Every single euro invested in flood protection has already paid off several times over.

Flood defence wall at the fish market in Hamburg, Germany.

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FLOOD PROTECTION

Wolfgang Kron and Olaf Müller

Since the catastrophic floods in 1962, nine subsequent storm surges in Hamburg have surpassed the 1962 peak of 5.70 m1 (see Table 1). The highest storm surge of 6.45 m occurred in 1976, while the secondhighest at 6.09 m was recorded on 6 December 2013 during Winter Storm Xaver. On three other occasions, the water reached at least 5.95 m. At no time, however, did the floods cause any noteworthy losses in the city. Yet Hamburg’s port area did not escape so lightly: in 1976, many firms there sustained damage, including the Airbus plant. Craneways were damaged and cables laid in the ground corroded, while many goods stored at ground level were a complete loss. All in all, total losses amounted to the equivalent of around €1bn.

Table 1: Highest storm surges in Hamburg since 1962 17 February

1962

5.70 m

3 January

1976

6.45 m

24 November

1981

5.81 m

28 February

1990

5.75 m

23 January

1993

5.76 m

28 January

1994

6.02 m

10 January

1995

6.02 m

5 February

1999

5.74 m

3 December

1999

5.95 m

6 December

2013

6.09 m

Table 2: BSH definitions Hamburg-St. Pauli water levels Storm surge

3.60–4.60 m

Severe storm surge

4.60–5.60 m

Very severe storm surge

> 5.60 m

BSH = Federal Maritime and Hydrographic Agency

1

Consequences of the 1962 flood Hamburg has remained relatively unscathed by floods in the last few decades and the dramatic events of 1962 have a great deal to do with this. Roughly onesixth of the city was under water and 318 people lost their lives. To prevent further disasters of this kind, Hamburg invested huge amounts in flood protection in the years and decades that followed. The flood protection line was straightened in some areas and dykes were built or reinforced according to modern engineering standards. Work on the defences along the Lower Elbe was also expedited. Today, however, storm surges in Hamburg reach greater levels than they did 50 years ago. This is because the construction of storm surge barriers on the tributaries has shortened the dyke line. Furthermore, climate change and the associated rise in sea levels has also contributed to higher storm surges. Altogether, Hamburg now has a continuous flood ­protection line that is 103 km long and at least 7.50 m high (5.70 m before 1962). This line comprises 78 km of dykes and 25 km of flood defence walls – especially in the city centre – made up of 79 individual structures such as locks, barrages, sluice gates, pumping stations and barrage gates. The dykes have grown from their pre-1962 width of 12 m to a width of 69 m and a height of 8.90 m. In 2012, the Hamburg Senate decided to raise the new high-water protection level – based on the St. Pauli gauge – from 7.30 m to 8.10 m. The protection for Hamburg’s port, however, remains somewhat lower. Without flood protection, a massive storm surge would inundate around 342 km2 or 45% of the city area, affecting around 325,000 inhabitants and 165,000 jobs. This protected area contains assets worth more than €10bn. Cost of flood protection in Hamburg The expansion of flood protection in Hamburg since 1962 can be subdivided into three phases. The costs listed below do not include the measures taken in the port. The reconstruction of damaged dykes and construction of new dykes between 1962 and 1979 cost DM 780m. Assuming that expenditure in the first year was three times as high as in 1979 and declined in a straight line during this period, this yields an inflationadjusted total (based on 2013 figures) of around €1.3bn for this first phase.

All elevations mentioned in the article represent metres above normal sea level. Munich Re Topics Schadenspiegel 1/2014

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FLOOD PROTECTION Following the storm surge associated with Winter Storm Capella in January 1976, around DM 20m was invested in protective measures each year up to 1992, mainly to raise dykes with insufficient height. After adjustment for inflation, this is equivalent to around €220m. In addition, the height of the dykes was increased in 1991 so that a water level of 7.30 m could still be contained at the St. Pauli gauge. For the third phase starting in 1993, the investment totalled around €820m (inflation-adjusted). This means that around €2.34bn has been invested to date to improve flood protection in Hamburg. The third phase of the storm surge protection programme is scheduled for completion in 2017. A new programme is already being prepared to take account of the amended high-water protection levels. Cost-benefit analysis A precise analysis of the costs and benefits associated with flood protection is virtually impossible. However, the costs spent on protective structures can be compared to the losses prevented as a result. A number of assumptions must be made here.

The first version of this analysis (see Fig. 1) is based on the assumption that the losses incurred in the affected city area would be no greater than the €1.68bn (inflation-adjusted figure) from 1962 (minimum assumption). This consequently yields a minimum “net gain” from flood protection of around €6bn (losses prevented: 5 x €1.68bn – costs of €2.34bn = €6.06bn). For a more realistic view, however, it is necessary to include the increase in concentration of asset values over the years. The growth of gross domestic product in Germany is used as a proxy factor for the extrapolation in the second version. In this case, the costs saved would total €20bn, with roughly €6.7bn alone being saved in losses that would have been attributable to Xaver. For the third version, it is additionally assumed that the area flooded – and hence the total loss – would increase with higher water levels. If we assume that the loss increases by 1% for every centimetre that the water rises above the peak 1962 level of 5.70 m, the “net gain” from flood protection totals €28bn. In this case, Xaver would have caused a loss of over €9.3bn. In all versions, the costs-to-benefits ratio would improve considerably if, in addition to the five events considered, the four storm surges with the next-highest water levels of between 5.74 m and 5.81 m had also been included in the analysis. Storm surge loss risk

Construction of the harbour promenade along the River Elbe near Baumwall station in Hamburg.

The loss in 1962 totalled €1.68bn at present-day values. If the catastrophe of 1962 were to happen today, the total loss would be significantly greater in view of the much higher value of assets in the area, and their presumably greater vulnerability to water. It is therefore advisable to consider several scenarios when comparing costs and benefits in a sample calculation. First of all, it is assumed that the five events of 1976, 1994, 1995, 1999 and 2013, where water levels reached at least 5.95 m, would have flooded the same areas as in 1962 if defences had remained at the same level.

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No event has so far breached the high-water protection level of 7.30 m which applied until 2012. It is important in this context to recall that the high-water protection level does not represent the crest height of the dykes. The latter exceeds the high-water protection level by an amount known as the “freeboard”, which takes account of the strongly divergent local variations in wave run-up. This explains why flood protection structures are not consistently at the same height, but vary between 7.50 m and 9.25 m. In addition to the wind set-up and other components of a storm surge, the high-water protection level also takes account of the eustatic rise in sea levels, which is expected to reach 50 cm by 2100. Over the past 150 years, a rise of 25 cm per 100 years has been measured in the mean tidal high water in Cuxhaven. In future, climate change could make it rise by even more, and this would then be taken into account.

FLOOD PROTECTION Fig. 1: Prevention pays off Cost-benefit analysis of flood protection in Hamburg: Even a highly conservative estimate of the losses prevented yields a “net gain” of €6bn as a result of the defences built by the city since 1962. The figure rises to €28bn when the increase in asset values in recent decades and the higher flood ­levels are also taken into account.

€bn 30 25 20

Total costs for flood protection 15



Total losses prevented less costs: Without increase in asset values Increase in asset values in line with GDP in Germany Increase in asset values in line with GDP, plus 1% increase in asset value per centimetre of water level above 5.70 m

10 5 0 -5 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

Data basis: Highways, Bridges and Water Authority (Landesbetrieb Straßen, Brücken und Gewässer) of the Free and Hanseatic City of Hamburg

Fig. 2: Effect of flood protection (schematic) Loss

On less protected coastlines, the rise in losses due to a storm surge follows a flat S-shaped curve (blue) as the return period increases.



Defences are designed to contain storm surges up to the high-water protection level; if the water level rises higher (as assumed here for a return period of 500 years), the defences become completely ineffective (green line).





The red line represents a more realistic loss scenario. Low level of defence High level of defence Typical “0-1 situation”



125

250

500

1,000

2,000

4,000

8,000

16,000

Return period (years)

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FLOOD PROTECTION The dykes are high enough to contain a very high level of water. For Hamburg, the theoretical probability of the new high-water protection level of 8.10 m being exceeded is in the region of once in 7,000 years. Although these probabilities must be treated with caution on account of their long extrapolation period, a storm surge loss due to overtopping is highly unlikely. Nevertheless, a certain residual risk remains. Even now, the possibility of dykes being topped cannot be ruled out completely should the high-water protection level be exceeded. However, exactly where these breaches would occur cannot normally be foreseen. This forms the basis of a risk analysis currently being undertaken by the German government (in 2014). The relationship between the intensity of a natural event (or its probability) and the amount of loss typically generates a flat S-shaped curve (Fig. 2, blue line). However, the picture presented by storm surges on a well-protected coast is completely different. Effective flood protection is largely able to prevent losses as long as the high-water protection level is not exceeded. In the case of higher floods, as illustrated in the chart with a return period of 500 years, the protection structures would be (virtually) ineffective and the loss curve rises sharply. The typical “0-1 situation” represents the case in which no loss occurs as long as the high-water protection level is not exceeded, but then rises abruptly to the maximum loss value. ­Virtually no other natural hazard comes closer to this “0-1 situation” than a storm surge on a coastline with extensive flood protection (red curve). The level of protection on the North Sea coast is very high. Despite this, however, the potential threat posed by an extreme event is still considerable in view of the major concentration of asset values and population density along the coast and in Hamburg. The protective structures withstood the flooding from the 1976 storm surge, which saw a water level of 6.45 m in Hamburg – the highest since records began in 1750 – with the result that this event did not turn into a catastrophe. These examples of cost-benefit analyses show that investing in flood protection has yielded a high return on investment for the city of Hamburg. Although the analysis must be based on certain assumptions and the figures are merely rough approximations, a “gain” equal to around ten times the costs does appear realistic. This gain will increase further with every future storm surge that passes without causing major losses.

>> Y  ou can find out more about floods and other natural catastrophes in Topics Geo 2013 at connect.munichre.com

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How does a storm surge develop? Storm surges are exceptionally high water levels arising from the combination of tides, external surges and wind set-up. They require a strong wind which forces water towards the coast over a period of many hours. Exactly which coastal areas will be affected depends on the path followed by the low-pressure system producing the winds. The water reaches particularly high levels when the maximum wind set-up coincides with tidal high water. The magnitude of a storm surge also depends on ­geometric factors, such as the depth and slope of the seabed, as well as the shape of the coastline. Storm surges intensify in funnel-shaped estuaries, such as the Thames, Elbe and Rio de la Plata, as well as in coastal bays. The mean tidal range (difference between mean high water and mean low water, or between high and low tide) in Hamburg-St. Pauli is 3.65 m. In central and western Europe, the hazard of storm surges is greatest in the winter months, when Atlantic low-pressure systems approach from the west and northwest. The expected magnitude of a storm surge can now be predicted with roughly 12 hours’ forewarning, but the low-pressure system causing the storm surge can usually be spotted several days earlier. Spring tides occur when sun, moon and earth are lined up twice in each month, and the stronger gravitational force leads to an increase in tidal range.

OUR EXPERTS Dr.-Ing. Wolfgang Kron is a hydraulic engineer and Senior Consultant in Geo Risks Research and responsible, among other things, for floods and storm surges. [email protected]

Hydraulic engineer Dr.-Ing. Olaf Müller is head of the department for water and flood protection in the Highways, Bridges and Water Authority (Landesbetrieb Straßen, Brücken und Gewässer) of the Free and Hanseatic City of Hamburg. [email protected]

Casualty

Collective redress in Europe Contrary to the original planning, there will be no uniform collective redress mechanism in the EU, at least not in the near future. Instead, the Member States have been instructed to develop their own models for collective redress. Just how this will affect litigious behaviour and damages payouts is not yet clear.

Ina Ebert

Collective redress played a rather insignificant role in Europe up until about ten years ago. Like punitive damages and contingency fees, class actions were considered a feature typical of US American law. However, there has been growing evidence that, on its own, the traditional European legal system could no longer ensure effective legal protection in every case. The need for reforms became particularly evident in conjunction with shareholder lawsuits involving thousands of claimants, and also following major accidents with cross-border aspects. At the same time, the cross-border trading of goods and services via the Internet became more important, making a harmonisation of consumer protection throughout Europe even more desirable. In subsequent years, both the EU and many European countries sought to reconcile traditional procedural law with the new requirements. Reform efforts at EU level Based on the “EU Consumer Policy strategy 2007– 2013”, the European Commission began to prepare for an EU-wide form of collective redress in 2007. The benchmarks were defined in 2008. The objective for the European collective redress scheme to be invented was to make it possible for consumers to enforce their claims for compensation efficiently and effectively. In addition, providers of goods and services were to be deterred from acting unlawfully; skimming off of the profit gained from incriminated conduct profits was considered as an option. At the same time, however, unmeritorious claims should be discouraged. Above all, great care was always taken to stress that class actions comparable to those in the US, and their associated problems, were to be avoided at all costs.

To this end, numerous hearings, workshops and informative events were organised for all concerned stakeholders. Large-scale studies investigating the status of consumer protection in all the Member States revealed major differences between legal systems. It also proved impossible to meet the different expectations of all the Member States. It was for this reason that the solution originally preferred – a uniform EU-wide form of collective redress – never came about. Instead, the Commission published its recommendation on “Common principles for injunctive and compensatory collective redress mechanisms in the Member States” (2013/396/EU dated 11 June 2013). This recommends that all Member States introduce collective redress mechanisms for the compensation of mass harm situations. Such collective redress must not only ensure comprehensive protection for consumers, but also prevent abusive litigation. Moreover, these mechanisms “should be common across the Union, while respecting the different legal traditions of the Member States”. Above all, “Member States should ensure that the ­collective redress procedures are fair, equitable, timely and not prohibitively expensive”. The individual proposals for such potential collective redress mechanisms presented at national level were similarly challenging and not always free from contradictions. In addition, all Member States were required to set up alternative dispute resolution systems for resolving consumer protection disputes (Directive 2013/11/EU dated 21 May 2013). Reforms by individual European countries While endeavouring to introduce uniform EU-wide collective redress mechanisms, most Member States also reformed their national procedural law. The national legislatures adopted different versions of ­collective redress:

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casualty

Lawyers carrying case files into the Saalbau Bornheim in Frankfurt am Main, which was transformed into a courtroom.

−−Some countries introduced class actions (Italy in 2010, Denmark in 2008 and France in 2014). All of these differ significantly from class actions under US law. Unlike the latter, and almost without exception, they are based on the opt-in principle: in other words, the class of claimants only includes those who have joined the action, and not (as in the case of the opt-out principle) all those who fit the class definition and have not explicitly declared that they do not wish to belong to the class. All European class actions also provide for a variety of protective mechanisms to prevent abusive litigation. The caution exercised by national legislatures stems, on the one hand, from the poor reputation of US class actions in Europe. At the same time, there were also concerns that class actions based on the opt-out principle might violate European constitutional law (above all by violating the right to be heard in court). −−In Germany, the actions brought by around 17,000 Deutsche Telekom shareholders in 2005 led to the adoption of the Capital Markets Model Case Act (KapMuG). This Act makes it possible for shareholders to file a model case for all claimants who have joined together for this purpose (opt-in principle) so that uniform factual or legal issues can be uniformly

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clarified by a higher court. Since 2012, it also provides for a court-supervised collective settlement mechanism to end the dispute. This settlement is binding for all claimants who do not explicitly reserve the right to bring action individually (opt-out principle). The possibility of extending application of the model cases to other types of dispute is currently being discussed. −−The law on collective mass settlements (WCAM) which was passed in the Netherlands in 2005 makes it possible to end disputes involving a large number of parties through a mass settlement controlled by the court. The best known example of a case resolved in this way to date concerned the compensation of Shell shareholders in 2009. What distinguishes the Dutch mass settlement is that even disputes with no more than a marginal bearing on the Netherlands can be settled in this way with binding force throughout Europe. Other European countries have also been discussing the introduction of class actions for some time or have developed other forms of collective redress (e.g. the United Kingdom). 1

Casualty Consequences and outlook Since the majority of collective redress mechanisms in Europe have only been in force for a few years, it is not yet possible to predict their mid-term consequences. However, a number of trends are already emerging: −−The opportunities available in Europe for collective redress have so far only been utilised to a very limited extent. This applies to both the claimants and the courts. −−Where these opportunities are taken, nothing indicates any tangible rise in the frequency of claims or amount of compensation paid. Europe is still a long way off experiencing litigation scenarios comparable to the US. −−Apart from the different claims mentalities prevailing in the two markets, this is no doubt also attributable to the comprehensive protective mechanisms built into all collective redress systems in Europe (strict control by the courts, loser pays principle, no pre-trial discovery, very limited options for punitive damages, if any). −−The downside of this is that collective redress has so far only rarely contributed to a quick, comprehensive and definitive settlement (“global peace”) in the context of complex litigation. −−For the moment, we are unlikely to see a uniform Europe-wide law on collective redress in the near future. From the point of view of the injured parties and their insurers, however, the advantages of ­making greater use of court-controlled mass settlements in certain circumstances, such as shareholder claims, would be worth considering.

OUR EXPERT Prof. Dr. Ina Ebert specialises in liability law and emerging risks, and is a leading expert for liability and insurance law in Corporate Claims. [email protected] 1

With regard to current reforms of procedural law in the United Kingdom, refer also to the article by Malcolm Henke in this issue, p. 36.

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COLUMN

Natural catastrophes

New developments in claims management following natural catastrophes Tobias Büttner, Head of Corporate Claims at Munich Re [email protected]

Recent years have shown: major natural catastrophes become more frequent and cause increasingly costly losses. This development is likely to continue, enhanced by the ongoing climate change and the global trend towards urbanisation and asset concentration. As a result, the cover provided by traditional concepts is now often inadequate when it comes to natural catastrophes, especially in particularly endangered regions. A number of supplementary solutions have therefore been devised, ranging from funds set up on a permanent or ad hoc basis, to alternative risk transfer. In addition to the different formal approach, this also has a specific impact on claims management ­following natural catastrophes. Older examples include the National Flood Insurance Program in the US, which was established in 1968. By coupling government disaster relief with existing flood insurance, it aims to reduce the number of uninsured or underinsured buildings in particularly exposed regions. This gives those affected a minimum level of protection, and at the same time limits the financial burden on the state when providing aid following floods. The idea of mandatory flood insurance is also being debated in Germany,

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­ articularly as a result of the heavy p flooding in 2002 and 2013, but has faced strong opposition. There is some concern that this could cause moral hazard by removing the incentive for structural protective mechanisms. The argument is that the ­burden for taxpayers resulting from significant flood-relief payments would be reduced more effectively by investing in flood protection and construction measures. In emerging economies, on the other hand, attention after a natural disaster is usually focused on keeping up state infrastructure and financing immediate relief for the victims. This was the case, for instance, with the government-financed natural disaster fund set up in Mexico in 1999 (FONDEN). Alternative risk transfer offers additional possible solutions, particularly for windstorm covers such as US Hurricane, Japan Typhoon, Australia Cyclone or European Windstorm. Although coverage is based on the original loss, these differ from traditional (re)insurance covers, as the claims settlement must be adapted to the requirements of the risk carriers. As a rule, claims settlement costs are not dealt with on an asincurred basis, but as a lump-sum surcharge on the ultimate net loss.

Munich Re Topics Schadenspiegel 1/2014

In order to limit the amount of capital tied up, a certain mechanism is normally agreed from the outset to ensure commutation not more than three years after the end of the risk period. In addition, the reserves must always be reviewed by external loss reserve specialists, and all claimed losses must be assessed by external claims reviewers. In non-traditional covers, claims are normally only paid on certain dates once per quarter, together with the premium payments, in order to ensure uniform key dates for accounting. Some of these methods might also be effectively applied to traditional insurance and reinsurance – without thereby restricting checks on losses.

© 2014 Münchener Rückversicherungs-Gesellschaft Königinstrasse 107 80802 München Germany Tel.: +49 89 38 91-0 Fax: +49 89 39 90 56 www.munichre.com Münchener Rückversicherungs-Gesellschaft (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. Certain coverages are not 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. Responsible for content Dr. Tobias Büttner Dr. Paolo Bussolera Prof. Dr. Ina Ebert Dr. Achim Enzian Prof. Dr. Peter Höppe Dr. Stefan Klein Olaf Köberl Arno Studener Dr. Eberhard Witthoff Editor Corinna Moormann, Group Communications (address as above) Tel.: +49 89 38 91-47 29 Fax: +49 89 38 91-7 47 29 [email protected]

Picture credits Cover, pp. 16, 17, 20, 23, 46: picture-alliance / dpa p. 1, top: Munich Re p. 1, bottom: Fotostudio Meinen, Munich pp. 2, 13: Getty Images p. 3, left: Munich Re p. 3, right: FABIAN BIMMER/Reuters/Corbis p. 4, left, right: Munich Re p. 4, middle: picture-alliance / dpa p. 5: 2014 Esri, DeLorme, HERE, TomTom pp. 6, 7: Reuters/Corbis/ALESSANDRO BIANCHI pp. 9, 12, 22, 25, 35, 44, top, 47: Fotostudio Meinen, Munich p. 10: MAX ROSSI/Reuters/Corbis p. 11: The Parbuckling Project p. 14: Dennis Brand p. 24: Corbis p. 27: Gerhard Blank p. 30: picture alliance / ZB p. 31: Rafael Garcia Sánchez pp. 32, 34: Munich Re p. 39: Malcom Henke p. 40: Landesbetrieb Straßen, Brücken und Gewässer (LSBG) p. 42: picture alliance / HAFEN-FOTOS.D p. 44, bottom: Dieter Ackermann, LSBG p. 48: Kevin Sprouls Printed by Gotteswinter und Aumaier GmbH Joseph-Dollinger-Bogen 22 80807 München Germany Additional copies are available at a nominal fee of €8. Please send your order to [email protected] All rights reserved.

ISSN 0941-0805

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