Economic conditions and renewals
The most serious losses in Europe this year were in connection with the floods that struck Central Europe in mid-July. Overall losses amounted to an estimated €46bn, of which over €9bn were insured. In Germany, the flooding – which produced overall losses of around €33bn and insured losses of at least €7bn – was the most expensive natural catastrophe in its history. In addition to improved preventive measures, the influence of climate change, which makes precisely this type of regional extreme rainfall more probable, has to be taken into greater account in risk assessments.
At the same time, the eurozone has seen a recent spike in inflation – well above 3% in September, and climbing to over 4% in Germany. Higher inflation also leads to higher claims costs. In the long term, the inflation rates will likely normalise again, but remain above the pre-COVID level. In contrast, interest-rate levels have remained virtually unchanged. Taken together, these two factors are producing an upward pressure when it comes to insurance prices.
Very large losses and the role of insurance
In response to the very large losses resulting from the flooding, the pandemic, and increasingly also cyberattacks, Munich Re’s strategy is to be a reliable point of contact for all aspects of clients’ risk management in the context of very large risks – from consulting on risk prevention and risk transfer, working hand in hand with the state or the capital market wherever necessary, to providing support with disaster recovery.
The latest very large losses, including those in Europe, show that the role of insurance must extend far beyond assuming risks and compensating for losses. Consulting based on sound risk expertise can promote more active prevention, helping to prevent or reduce losses. Risk assumption puts a price tag on risks, which supports risk-adequate action. We contribute our know-how on risk avoidance and the development of innovative insurance solutions like state-supported pools. And when it comes to managing losses, insurers can help by entering into partnerships with suitable companies and by working to ensure that claimants receive support that goes beyond simple loss compensation.
Where people’s risk awareness is too low, or the risk exceeds the risk-bearing capacities of private insurers, reinsurance providers actively work to help find new solutions. Examples to be mentioned include the perennially discussed topic of compulsory flood insurance in Germany, or the potential expansion of state-supported risk pools, which would be necessary in order to cover pandemic-related business interruptions. State-supported risk pools would also be needed to combat certain systemic cyber risks, e.g. those resulting from cyber warfare, since they can’t be borne by insurers alone.
“This is how I see the future role of insurance: We want to be the central partner for comprehensive risk management, to be a resilience provider, if you will. The basis for insurance, and for risk management of any type, is to monitor and understand risks, and to subsequently develop forward-thinking solutions that can strengthen society in the long term. And of course we want to help reduce the considerable gaps in insurance that can still be found in many industrialised countries, like insurance for flood losses in Germany. Otherwise, many people will have no way to cover their losses, or will have to hope they receive state support, even though these losses could have been insured in exchange for a suitable premium,” said Höpke at the Baden-Baden Reinsurance Meeting.