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Emerging risks and insurability in a complex environment
Dr. Markus Wadé
Integrated Risk Management
Group Accumulation & Emerging Risks
Sopot, 7 May 2014
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Organisation of Munich Re
Munich Re (Group)*
Primary InsuranceReinsurance Munich Health
Asset management
*This listing is incomplete and provides no precise indication of shareholdings.
Belgium
Corporate Insurance Partner
Great Lakes Reinsurance (UK) PLC
KA Köln.Assekuranz Agentur GmbH
MSF Pritchard Syndicate 318
Temple Insurance Company
Watkins Syndicate
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Agenda
� Knowledge and insurability
� Emerging risk management at Munich Re
� Challenge of increasing interconnectedness � Challenge of increasing interconnectedness
and complexity
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What defines the limits of insurability and
private insurance?
Supply side
� Perceived insurability
- Randomness
- Definite loss
- Calculability of loss
Demand side
� Risk awareness
� Risk appetite
� Willingness and ability to buy - Calculability of loss
(e.g. frequency, severity)
� Availability of capital
� Willingness and ability to buy
insurance cover at a given price
� Regulatory restrictions
� Role of public vs. private insurance
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Knowledge and the limits of private insurance
Insurability
Known unknowns /Emerging risks
Mature risksLimits ofinsurance
Unknownunknowns
Knowledge
Judgement Quantification?
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Corporate risk manager:
„Of all the risks I have there are…“
7%
93%
Not Insurable Insurable
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Paradigm-changing events for risk management
(Examples)
Starting 1970s/80sAsbestos
11.9.2001
Terror-attack on WTC
29.8.2005Hurricane Katrina
Starting 2007/2008Financial Crisis
8-10/2011Thailand Floods
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Globalization/Urbanization
Climate change/ Scarcity of
raw materials
Major global trends in the risk landscape with
increasing complexity and interdependencies
New technologies
Demographic development
Increased regulation &
market volatility
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Significant consequences of these trends already observable –
Speed of transition and future impact hard to forecast
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Definition of emerging risks at Munich Re
Emerging risks (ER) are newly developing or changing risks
They include trends and potential shock events with
� a high degree of uncertainty (occurrence probability, loss amount)
� a substantial potential impact on an organization
Identification Analysis Management
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The ER Think Tank
is an international, heterogeneous &
inter-disciplinary team of specialists
Emerging risk management framework
Life
The ER Process is
managed by the
ER Core Team
(Steering Committee)
Life
Non-Life
ERGO
IRM
Group-/RI-Dev.
ALM
UW
Claims
Monthly
meetings
Claims
CorporateUW
IntegratedRisk Mgmt
GroupDevelopment
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Integrating knowledge from a group-wide ER community
and external experts
Round tables / Conference calls:
� Europe & North America
� Asia & Australia
� Africa & South America
� Clients (e.g. CRO Forum Emerging
Risk Initiative)
� Non-governmental organizations
� Regulatory authorities
Internal External
� Africa & South America � Regulatory authorities
� Universities, research institutes
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Emerging risks recently analysed
� Dependency on
IT infrastructure
� Cyber liability
� IT viruses
� Cloud computing
� Cyber war
Focus topic cyber risks Related publications
� Cyber war
� Technology at the limits of
controllability
� Biometrics
� Social media
� Artificial Intelligence
� Privatisation of government
responsibilities
� Autonomous vehicles
� Counterfeit products
� Distressed cities
� Food security & safety
� Wind turbines
� Hydrofracking
� Social unrest
Selected topics discussed in 2012/2013
� Solar storms
� Obesity
� Scarcity of resources
� Protectionism
� Migration of species
� Loss of biodiversity
� Contentious diseases
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Output of the emerging risk process
• Long-list of potential ER
• Fact sheets• Topic paper
• Guidelines and controls
• Model adjustments
Identification Analysis Management
Reporting
potential ER• ER radar
• Annual Emerging Risk Report• Board submissions
• Topic paper• Scenarios
• Model adjustments• New services or
products
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Increasing global interdependences have an impact
on the insurance industry
Complex loss scenarios Characteristics
� Historical data less reliable /not
available
� Contagion effects and indirect
consequences become more importantconsequences become more important
� Robust, but fragile phenomena
� Triggers and courses of loss events
harder to identify, model and control
� Higher frequency of surprises
• Protecting diversification benefits becomes more difficult
• Danger of a widening gap between client needs and limits of insurability
Source Network: World Economic Forum, Global Risks 2014
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Society &
Politics
Environment &
Nature
*
* *
Project: Development of systematic risk landscape
for events and interactions
Structure of CARE
Economy Technology*
*
*
**
* *
Target is the systematic identification of complex loss scenarios
using interdisciplinary expert knowledge
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To analyze the collected information efficiently,
we are currently developing a software tool
Interactions are used to construct event cascades or networks of variable depth
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External emerging risks information by Munich Re
www.munichre.com →→→→ The Group →→→→ Emerging Risks
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Thank you very much for your attention
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Dr. Markus Wadé