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302-05482 en
302-05482 en
Dear Reader,
The international headlines of the past few years It is time for a re-analysis of Europe’s meteorological
have been dominated by extreme hurricane events risk situation. This publication gives you the most
along the US coastline. Katrina was certainly the recent assessments of all the relevant weather risks
most costly loss on record, with dramatic conse- in central Europe and an outlook on the changes
quences in human terms, but Europe has also been we can expect in the coming years. The spectrum
hit recently by an unusually large number of weather- ranges from storms and floods to the effects of
related catastrophes and disturbing new develop- extreme temperatures. One chapter, devoted
ments. To name but a few examples: the Elbe flood to the insurance-related aspects of weather risks,
of 2002, Germany’s most costly natural catastrophe; summarises current regulations in the different
the hot summer of 2003, a 450-year event, in which markets, providing a handy reference guide as to
more than 70,000 died in Europe due to the heat; how neighbouring markets are dealing with the
the August 2005 floods in the Alps, Switzerland’s risk situation.
most expensive natural catastrophe on record;
Hurricane Vince, which developed off Madeira The central message is that, as a result of climate
before heading towards Europe; Winter Storm Kyrill, change, past loss experience is no longer a suitable
Germany’s most expensive and Europe’s second yardstick for predicting future losses. Instead,
most expensive winter storm, involving major the consequences of global warming, which vary
losses across much of central Europe. In addition, from region to region, must be anticipated now,
eastern Europe repeatedly suffered prolonged, and reflected in pricing and risk management. We
widespread floods. Analyses undertaken using our trust that you will find the information contained
NatCatSERVICE database clearly show that the in this publication to be both of practical use and
number of weather-related natural catastrophes in informative.
Europe has more than doubled since 1980. There
is increasing evidence that this trend is already
driven by climate change.
The risks 10
Windstorm risks 12
Flood risks 20
Extreme temperatures, snow accumulation
and risks in mountainous regions 26
Underwriting aspects 32
Summary 50
Appendix 54
Underwriting aspects, p. 32
Increasing concentration of values in exposed
regions is a major loss driver. The insurance
industry faces the task of devising products
to address new challenges.
Scientific aspects
Insurance aspects
Catastrophe losses have vastly increased for insurers in recent decades, five
out of six natural catastrophes being triggered by weather extremes. Munich
Re considers deductibles an effective means by which insurers can manage
the risks, since the burden is more widely shared. Sublimits of up to 50% of the
sum insured, on the other hand, are less efficient because, across the portfolio
as a whole, they are much higher than the probable maximum loss Munich Re
expects for natural hazards. However, sublimits can be useful when applied to
individual risks.
The market review (see pp. 34–41) provides a comparison of the differences
between and special aspects of the various markets, so that we can learn and
benefit from one another. Hail and storm insurance penetration in the central
European countries reviewed is 80–100%, but the figure is generally much
lower for flood risks. This is because the storm and hail perils are often covered
under the fire policy. Market penetration in Switzerland, where the insurance
of natural hazard risks (except earthquake) is normally obligatory, is virtually
100%. In Austria, unlike the other countries analysed, the state has set up
an emergency fund for exceptional natural hazard events, financed out of
tax revenues. However, there is no legal entitlement to compensation.
State help is primarily used to deal with flood risks and reduced agricultural
yields. Reduced yields have increased insurers’ loss ratios considerably in
some years, resulting in higher premiums for farmers. In central Europe, cover
in Austria is among the most comprehensive. In addition to hail, policies also
cover frost, windstorm, flood, drought, and prolonged rainfall at harvest time,
premiums being subsidised by the state to the tune of 50%. The provision of
blanket, state-subsidised multi-peril crop insurance necessitates a risk partner
ship between the agricultural sector, the insurance industry and the state.
Alternative risk transfer methods are assuming greater importance, given the
growing loss potential. The securitisation of catastrophe risks by the issue of
catastrophe bonds on the capital markets has soared since Hurricane Katrina.
In 2006, around US$ 5bn worth of catastrophe risk bonds were issued, twice
as much as in 2005. In all, catastrophe bonds currently amount to around
US$15bn. Experts believe that, in the medium term, 20% of catastrophe risk
capacity will be placed on the capital markets. In addition, catastrophe risks are
traded using insurance derivatives. Thus, companies can protect themselves
in the short term against the financial consequences of exceptional weather
factors. It is now also possible to place risks with lower return periods (25–30
years), following an initial phase in which mainly top-layer risks were securitised.
Munich Re was one of the first companies in the finance sector to draw attention
to the problem, pointing out in a 1973 publication on flooding that the growing
losses might be due to human-induced climate change. The 2007 IPCC (Inter
governmental Panel on Climate Change) report confirms the statements and
warnings we have issued over the last three decades: it is more than 90%
probable that climate-changing trace gases released into the atmosphere by
human activity are the primary cause of the global increase in temperature.
– Increased westerly air flows during the winter half-year have also resulted in
a 20–30% rise in precipitation over western and southern Germany in recent
decades, often bringing torrential rain and floods.
– A climate model analysis by the Max Planck Institute for Meteorology in
Hamburg projects an increase in winter precipitation of some 10–20% between
the 1961–1990 and 2071–2100 averages for Germany as a whole, and as
much as 30% on the North Sea coast, in Schleswig-Holstein and in the Central
German Uplands.
– Switzerland has experienced a far higher number of intense precipitation days
(at least 70mm over a minimum 500 km2 surface area) on the northern edge
and in the interior region of the Alps.
– Winter precipitation is projected to increase by some 10–20% in the Swiss
plateau region, southern Switzerland, many parts of Upper and Lower
Austria, Burgenland, Styria and Carinthia, most of the Czech Republic,
parts of the Slovak Republic and in the Alpine regions of northern Italy.
There has been a particularly steep rise in Fig. 1 Observed annual, winter and summer
average temperatures in Europe since 1970. temperature deviations
Source: CRU, 2003; Jones and Moberg, 2003 Temperature change (°C) relative to average temperature in the period 1961–1990
Year
Winter 1.0
Summer
0.5
0.0
–0.5
–1.0
–1.5
1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
Year
– By the end of the 21st century, surface temperatures in winter across northern
Germany will be 3–4°C higher than in 1961–1990.
– Temperatures in southern Germany, Switzerland, Austria, the Czech Republic,
the Slovak Republic, Hungary and northern Italy will increase by more than
4°C.
– The intensity and frequency of heavy winter precipitation will rise substantially,
and it will fall more often as rain than snow. Flood exposure will increase.
– The 2°C rise in regional temperatures already predicted for the coming decades
will result in a 40% decrease in Alpine winter sports areas with virtually
guaranteed snow. If temperatures increase by 4°C, only 30% of this already
reduced area will be left.
– The high-lying permafrost areas are receding and the increase in freeze-thaw
cycles is loosening rock and detritus, which could cause more severe rock falls
and avalanches.
– Higher winter precipitation in the form of rain will soften the soil, resulting in
more frequent landslides.
70°N 10°C
7
5
4
60°N
3.5
3
2.5
Comparison of changes in European 50°N 2
temperatures and precipitation during the
1.5
periods 1980–1999 and 2080–2099.
1
40°N 0.5
Left: Change in annual average temperature
0
(°C). Right: Percentage change in precipita-
tion amount (subdivided into winter and –0.5
summer). –1
30°N
– Total precipitation in the summer half-year will decrease, but some events
could be more intense, so that rainfall will be distributed over a smaller
number of occurrences.
– One climate model shows that average July–September precipitation will be
significantly less than in the period 1961–1990, the reduction being as much
as 20–30% in parts of Austria, northern Italy, the Czech Republic, Switzerland
and the Slovak Republic.
– Conversely, 1% heaviest five-day summer precipitation will increase in parts
of northern Italy and northern Switzerland and along a band comprising
northern Austria and many parts of the Czech Republic, Poland and eastern
Germany.
– Models indicate that a warmer climate could mean fewer low-pressure rain
systems forming in the northern Mediterranean basin due to central European
trough conditions. However, those precipitation events could become more
intense.
Thunderstorms
– The tendency towards thunderstorm formation, with the risk of hail, strong
gusts, tornadoes, flash floods and lightening, will increase to a varying
extent, depending on the region. This trend has been confirmed by observa-
tions in the Swiss plateau region and in southwest Germany, where it has
been directly measured during the past 30 years.
The following chapters explain the scientific basis underlying the main perils
that affect central Europe – windstorm, flood and extreme temperatures. In
addition, the specific underwriting characteristics of the relevant countries are
summarised.
60°N 60°N 15
10
5
0
50°N 50°N
–5
–10
–15
40°N 40°N
–20
–30
–50
30°N 30°N
10°W 0° 10°E 20°E 30°E 40°E 10°W 0° 10°E 20°E 30°E 40°E
Local severe weather events, on the other hand, A thunderstorm consists of a towering cloud in
occur year-round, but are most frequent in summer. which there are powerful updraughts and down
Although limited in area, the complex nature of draughts. It brings storm-force and hurricane-force
such events (lightning, torrential rain, hail, down- gusts, lightening and precipitation. Thunderstorms
bursts and tornadoes) can mean accumulated are classified according to their dimensions and
insured losses of the order of several billion euros. the way in which they form.
– Supercells are storms in which wind speed Tornadoes – Limited in area but highly destructive
increases and wind direction varies with height Tornadoes (on land) and waterspouts (over water)
so strongly that a rotating updraught is produced are large vortices of air that rotate about a vertical
that lasts for at least 10–20 minutes (meso axis. They normally extend from the edge of a
cyclone). Supercells are much larger and more storm cloud to ground level. According to Alfred
organised than normal single cells. They last Wegener’s 1917 definition – still accepted as
longer and bring heavy precipitation, being authoritative – they are fully or partially visible and
accompanied in 30% of cases by extreme have exceptionally high destructive potential. The
weather phenomena such as hail, downbursts terms whirlwind and tornado are used synonym
or tornadoes. ously. There is no difference between tornadoes in
North America, Europe and other regions of the
Hail: High accumulation loss potential world with regard to physical nature and severity –
Hail, a by-product of severe thunderstorms, is of only in terms of occurrence frequency.
major significance to the insurance industry. Hail
designates precipitation in the form of grain-size The ground-level diameter of tornadoes can vary
lumps of ice of at least 5 mm diameter, smaller par- from some tens or hundreds of metres to as much
ticles being referred to as snow pellets. The largest as 1–2 km in a number of observed instances. This
recorded hailstone was found in Nebraska, USA, broad range can also include multiple vortex tor
on 22 June 2003. It had a diameter of 17.8 cm and a nadoes, in which two or more vortices rotate about
circumference of 47.6 cm (softball size). a common centre. Tornadoes can last anything from
a few minutes to an hour. The translational speed is
The terminal velocity of hailstones increases in normally 50–100 km/h. Wind speeds inside a tornado
proportion to the square root of their diameter. can be as high as 500 km/h. The international
Thus, a 1-cm hailstone impacts at a speed of standard used to measure tornadoes is the six-
around 50 km/h, compared with 170 km/h in the category Fujita Scale, which is based on maximum
case of a 14-cm specimen. Hailstones of this size wind speeds. The 12-category Torro Scale is also
can have fatal consequences for humans and ani- used in Europe. Since weather stations seldom
mals. The vertical and, in particular, horizontal survive the passage of a tornado, intensity is nor-
speed can increase if the hailstorm is accompanied mally estimated on the basis of the extent of loss:
by storm-force gusts, and this results in much from minor property damage to total destruction.
greater damage to vertical surfaces such as walls
and windows. Tornado losses are mainly caused by wind pres-
sure and – at higher wind speeds – flying debris.
Buildings may also implode due to a sudden drop
in the pressure within the tornado, particularly if
the façade is made of sealed glass panels.
Rostock
Hamburg
Berlin
Düsseldorf
Frankfurt Prague
Nuremberg
Stuttgart
Munich Linz
Zurich
Graz
Geneva
Milan
Zagreb
Tornado frequencies in central Europe Average annual number of Bologna Occurrences per year
Systematic recordings can only be obtained with tornadoes per 10,000 km2 per 10,000 km2
Genoa
between 1995 and 2006. 0
the aid of a high-resolution weather radar network,
This shows that windstorms 0–0.3
tornadoes being of relatively limited dimensions.
of this type tend to be 0.3–0.6
Europe has only had such networks since the 1980s 0 50 100 Kilometer
concentrated primarily 0.6–0.9
and 1990s, so that observations of weaker torna- on central Europe. (Data 0.9–1.3
does have increased substantially in the last ten source: European Severe 1.3–1.6
years. On the other hand, no clear trend has Weather Database) Tornado event
emerged with regard to severe events. In Europe,
some 170 tornado observations are recorded each
year, in addition to around 160 waterspouts (torna-
does that form over water and do not make land-
fall). Scientists believe that the actual figures for
Europe are closer to 300 tornadoes and 400 water-
spouts per year.
According to findings in countries in central Europe Loss susceptibility is not constant but a factor
for which detailed information on major loss events which can change significantly over a period of
is available, insured properties have tended to be time. Risk assessments (accumulation studies,
increasingly prone to windstorm and severe weather minimum required premium rate analyses) there-
damage in recent years (ratio of loss to sum insured). fore have to be adjusted accordingly.
This is in part due to:
56% 64%
20% 24%
24% 12%
Winter storm
Hail
Severe weather events/tornadoes/local storms
* At 2006 values.
* Original values, not adjusted for inflation; converted into € at month-end/year-end exchange rates.
Losses
Germany
United Kingdom Netherlands
– Ten fatalities
– 12 fatalities – Five fatalities
– > 1.5 million individual losses
– Estimated > 0.5 million individual losses – Damage throughout the country
– Hundreds of thousands of
in central and southern England
households suffered power cuts
– Tens of thousands of households left Belgium
– Rail transport at a standstill throughout
without power – Two fatalities
the country
– Beaching of container ship MS Napoli – Damage throughout the country
– Slight to moderate storm surge on the
North Sea coast
France Austria
– Two fatalities – > 150,000 individual losses
Switzerland
– Only northern France affected – 20,000 households hit by power cuts
– Local wind speeds up to hurricane
force (> 120 km/h)
Czech Republic Poland
– Minor damage
– Three fatalities – Four fatalities
– Damage throughout the country – Damage throughout the country
Flood risks
Flood
Changes in central Europe’s “flood weather”? Reasons for increased flood losses
There is no doubt that a warmer global climate will The rise in flood losses is primarily due to the
raise the concentration of water vapour in the increasing development of land near rivers and
atmosphere. This will not only increase precipita- lakes. Mistakes have been and still are regularly
tion generally but also lead to more extreme rain made in construction and land-use planning. This
intensities in the event of regional or local severe situation could be rectified if responsibility for land
weather events, as observed in many places over use were transferred from a local to a higher level.
the past few years. The variability of precipitation It should be mandatory that anyone proposing to
events is growing and extreme weather conditions build be informed of current risk exposure. Such
are becoming more frequent. information would include the potential uninsur
ability of property on a specific plot of land.
Central Europe is increasingly being affected by
westerly weather patterns and Vb depressions (see People like to live near water, in many cases know-
photo above). During Vb weather conditions, low- ingly accepting the risks, and forgetting about them
pressure systems from the Mediterranean basin entirely as time passes without incident. Further-
move eastwards of the Alps in a northerly direction. more, values in exposed areas can soar, thanks to a
German Weather Service studies show that the sometimes illusory feeling of safety, if protective
incidence of Vb weather conditions has risen sharply measures (such as warning systems, flood barriers,
in recent decades. For example, in summer 2005, civil protection structures) have been installed.
there were three consecutive Vb weather periods
in the space of just six weeks. Never before have properties been as large, as
valuable and as vulnerable as at present. Heating
This does not go against the general trend towards systems and the associated oil storage tanks are
drier summers in some regions. Current climate- among the main problems. Moreover, the base-
change studies indicate that winters will become ments of apartment or commercial buildings often
wetter and summers drier (at least in southern house the central control systems of lifts and air-
Germany). However, rainfall will be heavy and con- conditioning facilities, storage rooms and some-
centrated into periods of a few days in the summer. times even computer centres.
The high intensities will bring more flash floods.
Nevertheless, the ratio of insured to overall flood
losses remains relatively small in central Europe,
largely due to the low market penetration. Further-
more, most losses involve uninsured public facil
ities such as roads, railway lines, dykes, river
channels, bridges and other infrastructure instal
lations (e.g. water supply and sewage systems). In
Germany, private-property losses accounted for
around 60% of €350m in the Whitsun 1999 floods
in Bavaria, for 43% of €8.6bn when the River Elbe
flooded in Saxony in 2002, and for just 15% of
€330m in the 1997 River Oder floods in Brandenburg.
Italy
Italy came within a hair’s breadth of disaster when
the areas along the middle and lower reaches of
the Po escaped flooding in November 2000. A repeat
of the November 1951 floods would produce tens
of billions of euros in losses. As things stand at
present, however, less than 5% would be insured.
Czech Republic
Almost all parts of the Czech Republic have been
hit by one or more flood events in recent years.
A rainfall centre at the heart of the country could
affect the entire Czech Republic at once. Losses on
the Elbe (2002) would then be added to those of the
Oder (1997), producing a potential total of around
€5bn. A substantial portion of this would be insured.
Slovak Republic
Torrential rain and subsequent flash floods, caus-
Loss potential ing tens of millions of euros in losses, are virtually
a regular occurrence. A precipitation centre situated
slightly to the south of that of 1997 (in the region of
Major loss scenarios and their loss potential the High and Low Tatra mountains) and producing
similarly copious quantities of rainfall could affect
A handful of events stand out in the chronology of the whole country.
the last 15 years’ flood disasters (Table 4). In future,
still greater catastrophes may occur, causing even Bratislava, the capital, faces a completely different
higher losses. major loss scenario. The River Danube is joined to
the north of the city by the River Morava, and then
Germany crosses the country’s economic heartland. How-
Values along the Rhine and its tributaries are much ever, the most recent major flood events – in 2002,
greater than those of the Elbe region in 2002. On 2005 and spring 2006 – caused little damage,
the other hand, the Rhine has different hydrological despite flow return periods of some 50–100 years.
characteristics, so that it is not necessarily appro-
priate to draw direct parallels. However, it can be Slovenia
assumed that an extreme weather event on the Slovenia is also prone to events capable of trigger-
Rhine could involve economic losses considerably ing nationwide flash floods, debris flows and land-
greater than the €11.8bn Elbe losses in 2002. More- slides. The country had a taste of what might be in
over, although flood cover is not as prevalent under store in August 2005. Although Slovenia has no
household policies in western Germany, the insured major water courses, the country is crossed by two
losses could also exceed €5bn due to the Rhine typically alpine rivers, the Drava and the Sava,
area’s high industrial values. whose flood peak is potentially a multiple of the
average flow rate.
Austria
A precipitation event on the scale of 2002 (over
€400m in insured losses) could unleash disastrous
floods along the Danube if the centre were slightly
further south. In addition to losses on smaller
rivers and streams, cities like Linz and even Vienna
would have huge loss potential. Whilst the prob
ability of a Danube flood affecting Vienna is low,
the river bed within the city being designed to cope
with a 1,000-year discharge, the relatively minor
Wien river is more likely to pose a threat in the
event of heavy local rainfall. Despite strict limits on
the insurance of residential buildings, insured
losses could be over €1bn, and as much as €3bn if
the limits were raised or removed completely.
Whilst there is currently no standard definition of Rising temperatures in central Europe – A prelude
the term “heatwave”, it clearly comprises two elem to subtropical conditions?
ents: exceptionally high air temperatures and a – The probability of a summer as hot as that of
period of several days’ duration. In the USA, a 2003 has increased by a factor of 20 in the last
heatwave is defined as a series of more than three two decades. According to statistical analyses by
consecutive days on which temperatures are over Swiss climatologists, this is to be expected every
32.2°C (90°F). In central Europe, the term heatwave other year in the last third of this century, that is
is usually applied to periods of several days during to say it will become the norm.
which daytime air temperatures exceed 30°C. – Another Swiss study shows that the frequency of
tropical days in Europe will have changed by the
Similarly, there is no clear definition of “drought” end of the current century. Central Europe will
or “dry spell”. Drought is commonly understood to have an additional 40 tropical days each year, and
be a relative concept that denotes a reduction in northern Italy up to 60 more (Fig. 11).
water availability in a particular region over a given
period compared with the long-term average. Thus, Drought
drought signifies a temporary shortage of water
that is normally of gradual onset, as opposed to Drought can be caused by increased evaporation
aridity, a permanent state. Opinions are divided as or reduced precipitation but is generally due to a
to whether climatological or hydrological extremes combination of both. During the prolonged high-
are in themselves sufficient to constitute drought, pressure weather conditions in summer, increased
or whether it has to be demonstrated that they have air temperatures and intense solar radiation cause
resulted in adverse consequences. The problem greater evaporation, whilst precipitation amounts
with drought as opposed to permanent aridity is are low. That is why droughts and heatwaves fre-
that nature (flora and fauna) and human beings quently coincide. Since they tend to be caused by
have not adapted to the conditions, and this gives large-scale, persistent atmospheric conditions,
rise to a high degree of vulnerability. they usually affect widespread areas. Higher water
consumption by agriculture, industry and the pop-
Heatwaves ulation in general also causes, or at least exacer-
bates, drought. In the hot summer of 2003, central
Heatwaves affect people directly, increasing the and eastern Europe suffered a major drought. Fig.
burden on the cardiovascular system and thus 12 shows the areas most severely affected.
causing higher morbidity and mortality. They can
also be a food-hygiene hazard, creating ideal con-
ditions for the spread of salmonella, for instance.
Fig. 11 Are the tropics extending into Europe? Fig. 12 Precipitation anomalies, summer 2003
75°N
70°N
65°N
60°N
55°N
50°N
45°N
40°N
35°N
30°N
30°W 20°W 10°W 0° 10°E 20°E 30°E 40°E 50°E
The map shows how the number of days Average summer precipitation in 2003 as
with a maximum temperature of more than a percentage of precipitation in the period
30°C will change by the end of the century 1961–1990.
if the IPCC-A2 climate scenario (pessimistic,
with very high emissions) is compared with Source: The Global Precipitation Climatology
the reference period 1961–1990.
Specific characteristics
of the target markets
Market penetration for storm and hail cover in the central European markets Germany
reviewed is fairly high, at around 80–100%. This is mainly due to the fact that
Obligatory cover
both risks were often covered under fire policies in the past, or considered in
association with the fire peril. Market penetration is much lower in the case of
flood risks. As cover for natural perils is obligatory in Switzerland, market pene
tration for natural hazard insurance in general is virtually 100%. In Slovenia Market penetration
too, almost 100% of personal lines policyholders have at least windstorm and
hail cover, both still being insured under the fire policy. Similarly, market
penetration in the Czech Republic and in the Slovak Republic is over 90% in Available covers
(shows current terms and
the case of private households as a result of regulations in force prior to the
conditions for the main lines
political opening-up of the East. Since the 1997 and 2002 floods, this cover has
of business)
only been offered in the Czech Republic subject to sublimits.
The following tables list further differences between the various markets
together with the characteristics of each one.
Germany
No legally obligatory covers. Art. 3 of Council Directive 92/49/EEC of 18 June 1992 provided that the monopoly which existed in Germany at
the time had to end by 1 July 1994. This concerned the Hamburger Feuerkasse’s windstorm insurance monopoly and Baden-Württemberg’s
law of 7 March 1960 relating to the compulsory cover of buildings against storms and other natural hazard losses.
– General terms and conditions of household – Special terms and conditions for the – Special terms and conditions for the
contents insurance (“VHB 2008”) insurance of additional natural hazards insurance of additional natural hazards
– General terms and conditions of household (“BWE 2008”) (“BWE 2008”)
buildings insurance (“VGB 2008”) – General terms and conditions for the – General terms and conditions for the
– General terms and conditions of windstorm insurance of additional perils under insurance of additional perils under
insurance (“AStB 2008”) industrial fire policies (“ECB 2008”) industrial fire policies (“ECB 2008”)
– General terms and conditions for the – Terms and conditions for the insurance of – Terms and conditions of insurance for
insurance of additional perils under additional perils under fire business additional perils under fire business
industrial fire policies (“ECB 2008”) interruption policies for industrial and interruption policies for industrial and
– Terms and conditions for the insurance of commercial enterprises (“ECBUB 2008”) commercial enterprises (“ECBUB 2008”)
additional perils under fire business – General terms and conditions for – General terms and conditions for
interruption policies for industrial and comprehensive property and commercial comprehensive property and commercial
commercial enterprises (“ECBUB 2008”) insurance (“VSG 2008”) insurance (“VSG 2008”)
– General terms and conditions for – General terms and conditions for electronic – General terms and conditions for
comprehensive property and commercial equipment insurance insurance (“ABE electronic equipment insurance insurance
insurance (“VSG 2008”) 2008”) (“ABE 2008”)
– General terms and conditions for electronic – General terms and conditions for machinery – General terms and conditions for machinery
equipment insurance (“ABE 2008”) breakdown insurance (“AMB 2008”) breakdown insurance (“AMB 2008”)
– General terms and conditions for erection – General terms and conditions for erection – General terms and conditions for erection
all risks insurance (“AMoB 2008”) all risks insurance (“AMoB 2008”) all risks insurance (“AMoB 2008”)
– General terms and conditions for machinery – General terms and conditions for machinery – General terms and conditions for machinery
breakdown insurance (“AMB 2008”) business interruption insurance (“AMBUB business interruption insurance (“AMBUB
– General terms and conditions for machinery 2008”) 2008”)
business interruption insurance (“AMBUB – General terms and conditions of contract – General terms and conditions of contract
2008”) works insurance (“ABN 2008” and “ABU works insurance (“ABN 2008” and “ABU
– General terms and conditions of contract 2008”) 2008”)
works insurance (“ABN 2008” and “ABU
2008”)
(Continued overleaf)
Definitions of perils
Austria Austria
Obligatory cover
In Austria, private insurance companies cover windstorm, rock-
fall, falling stones, landslide, hail and snow load. Following
Market penetration
floods in 2002 and 2005, there has been an increase in the
number of products covering natural hazards including flood.
First-loss covers are frequently utilised, loss limits being rela- Insurance terms and
tively modest (for example €4,000 or €8,000). Sublimits under conditions
commercial and industrial policies are often expressed as a
Available covers
percentage of the sum insured.
– Windstorm is a weather-related air – Flood is inundation of the insured – Landslide is the natural slide or fall of
movement of at least force 8 on the premises by substantial quantities of earth or rock masses.
Beaufort Scale (min. 63 km/h). surface water due to – Snow load is the effect of the weight of
– Hail is solid precipitation in the form a) the bursting of the banks of surface (still snow or ice masses.
of ice pellets. or flowing) bodies of water, – Avalanches are snow or ice masses that
b) precipitation, descend the side of a mountain.
c) the emergence of groundwater at the
surface as a result of a) or b).
– Backwater means that, contrary to the
intended purpose, water enters a building
through drainage pipes, or installations
connected to such pipes, when surface
(standing or flowing) bodies of water
burst their banks, or as a result of
precipitation.
See table on the left See table on the left See table on the left (as for flood)
Two zones, broken down by postcode Four ZÜRS exposure classes (ZÜRS: zoning No zoning available
system for flooding, backwater and heavy
rain)
No No No
Separate conditions for windstorm and hail Specific conditions for natural hazard Specific conditions applicable to natural
insurance hazard insurance
Avalanche, storm surge, flood, inundation Losses caused solely by the rise of a water
table.
Wind speeds of over 60 km/h Flood is the inundation of the insured Flood debris accumulation is caused
premises. by mass movements of soil, water, mud,
and other components triggered by the
natural effects of water.
Obligatory cover
Market penetration
Sums insured for natural hazards under commercial and indus- Insurance terms and
conditions
trial policies depend on the type of business, the location, and
the other risk parameters that apply in the individual case. If
there is above-average exposure to natural hazards, individual Available covers
occurrence limits or maximum exposure limits are imposed.
Deductibles can be as high as 10%, but are generally lower.
Following the flood events of 1997 (primarily in Moravia) and Most frequent exclusions
August 2002 (mainly affecting the Vltava and Elbe river basins)
there were proposals in the Czech Republic to ensure that the
Definitions of perils
terms and conditions of flood and inundation policies were more
commensurate with the risks, for instance by reducing loss limits
and increasing deductibles. At the same time, substantial
amounts were invested in measures designed to prevent or miti-
gate losses.
Deductibles
Obligatory under fire policies Obligatory, under fire policies Obligatory under fire policies
Same as the fire sum insured Same as the fire sum insured Same as the fire sum insured
Under the fire insurance policy Under the fire insurance policy Under the fire insurance policy
Avalanche, storm surge, flood, inundation Losses caused solely by the rise of a water
table
Wind speeds of over 75 km/h Flood is the inundation of the insured Flood debris accumulation is caused by
premises. mass movements of soil, water, mud and
other components and is triggered by the
natural effects of water.
Intercantonal Reinsurance Union (IRV), Intercantonal Reinsurance Union, Swiss Intercantonal Reinsurance Union, Swiss
Swiss Natural Perils Pool Natural Perils Pool Natural Perils Pool
No No No
General terms and conditions for natural General terms and conditions for natural General terms and conditions for natural
hazards, terms and conditions for commer- hazards, terms and conditions for commer- hazards, terms and conditions for commer-
cial and industrial enterprises cial and industrial enterprises cial and industrial enterprises
Buildings and contents insurance, insurance Buildings and contents insurance, insurance Buildings and contents insurance, insurance
for commercial and industrial enterprises, for commercial and industrial enterprises, for commercial and industrial enterprises,
engineering, etc. engineering, etc. engineering, etc.
General exclusions (e.g. unfinished General exclusions (e.g. unfinished General exclusions (e.g. unfinished
buildings under buildings insurance) buildings under buildings insurance) buildings under buildings insurance)
Windstorm is the dynamic effect of an Flood constitutes an incursion of water Landslide signifies the movement of stones
air mass on the insured premises and is that remains in or flows through the insured or earth masses from a higher to a lower
defined as being at least force 8 on the location for a given period of time. location due to natural hazards.
Beaufort Scale (wind speeds 62–74 km/h)
at the insured property.
Obligatory cover
Slovenia
Market penetration
Losses incurred in the past along the Sava and Drava rivers have
Available covers
increased demand for other natural hazard covers such as flood.
However, market penetration in Slovenia remains low compared
with other countries.
Most frequent exclusions
In general, loss limits and deductibles are not common under
private buildings and contents policies. In the case of commer-
Definitions of perils
cial and industrial risks, the normal practice is to assess the spe-
cific risk, maximum loss limits and/or deductibles being based
on the particular risk parameters (e.g. location, concentration of
values, vulnerability).
Deductibles
Flash floods that trigger landslides are becoming more common
in Slovenia due to climate change and topographical factors.
This could bolster demand across the board for cover of weather
Specific market features
risks other than windstorm, hail and flood.
Italy Italy
Obligatory cover
Private insurance companies normally include storm and hail
cover under the fire policy. Flood cover is rarely granted to pri-
Market penetration
vate households. Whilst it can be covered under commercial and
industrial policies, it is not available on a stand-alone basis but
included under the fire policy, subject in most cases to loss limits.
Private individuals who live in a designated disaster area can Insurance terms and
apply for state compensation. The scheme has only been used conditions
for flood and earthquake events in the past, but not as yet for
windstorm events. Deductibles
Perils covered
No No No
General terms and conditions for fire and General terms and conditions for fire and General terms and conditions for fire and
household insurance, terms and conditions household insurance, terms and conditions household insurance, terms and conditions
for commercial and industrial enterprises for commercial and industrial enterprises for commercial and industrial enterprises
Buildings and contents insurance, insurance Buildings and contents insurance, insurance Buildings and contents insurance, insurance
for commercial and industrial enterprises, for commercial and industrial enterprises, for commercial and industrial enterprises,
engineering, etc. engineering, etc. engineering, etc.
General exclusions (e.g. unfinished General exclusions (e.g. unfinished General exclusions (e.g. unfinished
buildings under buildings insurance) buildings under buildings insurance) buildings under buildings insurance)
Windstorm is a weather-related air mass Flood is the accumulation of enormous Landslide signifies the movement of stones
with a wind speed of more than 60km/h at water masses, caused by exceptional or earth masses from a higher to a lower
the insured premises. rainfall, that exceed the capacity of the location due to natural hazards.
water systems or are not able to drain away.
No No No
No separate terms and conditions for Specific natural hazard insurance terms and Specific natural hazard insurance terms and
windstorm and hail; included in the fire conditions, included in the fire policy conditions, included in the fire policy
policy
Yes, depending on the type of risk in the Yes, depending on the type of risk in the Yes, applied according to the individual risk
individual case individual case type
Earth movement, volcanic eruption, Heavy seas, high and low tide, seaquake, Static flood (water is not flowing), earth-
seaquake, inundation, flood, ingress of salt landslide, subsidence, local landslide, quake, avalanche, volcanic eruption,
water, landslide; also exclusion of specific humidity, dripping, infiltration of dampness dampness, dripping, infiltration of damp-
parts of buildings e.g. chimneys, antennae, through walls (literally exudation), ness via walls (literally exudation),
satellite dishes, solar installations infiltration; original version: “mareggiata, infiltration; original version: “allagamenti,
marea, maremoto, frana, cedimento, terremoto, slavine, valanghe, eruzione
smottamento, umidità, stillicidio, trasuda- vulcanica, umidità, stillicidio, trasudamento,
mento, infiltrazione” infiltrazioni”
Weather event: (1) Hurricane, wind, Flood, alluvial deposits, static flood/ Local landslide, landslide, subsidence;
windstorm, thunderstorm, hailstorm, dampness also caused by earthquake; original version: “smottamenti, franamenti,
tornado; original version: (1) “Uragano, original version: “inondazioni, alluvioni, cedimenti del terreno”
vento e cose da esso trascinate, bufera, allagamento/bagnamento anche causato
tempesta, grandine, tromba d‘aria ed altre da terremoto”
simili manifestazioni atmosferiche”; (2)
Moisture due to hailstorms, snowmelt
Reduced agricultural yields substantially increase One alternative is a comprehensive crop insurance
insurers’ loss ratios in individual years. Farmers pay scheme covering individual farmers against reduc-
the price. tions in yield. This type of system, which allows
farmers to actively manage the risk, is found mainly
Increasing weather extremes in Europe, such as in the USA and Canada, but has also been intro-
prolonged hot spells, severe hailstorms or flash duced in Spain and Portugal. In the event of loss,
floods, put strains on agriculture. Demand for the the farmer is legally entitled to the insured yield
cover of crop failure due to natural hazards is grow- amount for that particular farm, payment being
ing. made immediately after the loss has occurred.
Marine insurance
Marine risks – On water and on land
Whether in the Baltic, in the Mediterranean or Although the Mediterranean basin enjoys a tem-
on inland waterways, the transport of goods perate climate, violent storms can occur here, too.
by water is exposed to special perils in central In addition, shipping in the Bosporus has grown
Europe as elsewhere. The weather, in particular, substantially following the opening-up of the
takes its toll. former Soviet Union. This combination of bad
weather and an increase in traffic is having a nega-
tive impact on safety.
Baltic Sea – Fog and freezing conditions
North Sea and Baltic – Millions of
The shipment of goods plays a key role in our glob
alised economy, with its international division of
transshipments
labour. According to the World Trade Organization,
the annual increase in the volume of international Cargo can be affected by adverse weather condi-
trade currently outstrips the growth in worldwide tions even when the sea voyage has ended. On
GDP (2005: 6%, 2004: 9.5%). As the volume of trade reaching port, for example, it is exposed to high
increases so, too, does the number of shipments. winds and storm surges in transhipment facilities.
The new EU member states are also making their Transshipments handled by Germany’s North Sea
presence felt, and the focus of cargo movements and Baltic ports have risen by 17% in volume, show-
within central Europe is shifting from west to east. ing how crucial such facilities are to meet demand.
Another reason for the greater volume of trade is Storage capacity is constantly being increased: the
growing demand for fossil fuels. new JadeWeserPort container terminal in Wilhelms
haven, for instance, the CT 4 terminal extension in
Accidents are a regular occurrence in the Baltic due Bremerhaven and Hamburg’s new, fully automated
to the huge volumes of traffic at various critical Altenwerder container terminal (combined total
shipping points, a situation further aggravated by capacity of 12m TEU annually1). The concentration
weather conditions. The principal risk to shipping of values at storage sites is growing rapidly as a
is not so much extreme windstorms, as in the result of this impressive expansion in existing port
Atlantic, but a combination of frequent and sudden facilities.
fog and bad weather. The prolonged winter cold
spells, too, are fraught with hazard, loss potential
also being higher because, in many cases, due to
high freight rates and lack of appropriate vessels,
the ships do not have ice-class hulls.
The loss potential from weather-related natural The convergence of the (re)insurance and capital
catastrophes has now reached a critical point as markets has given rise to new risk transfer tools,
regards amount and severity, which poses new modelled on established capital market instruments.
challenges for the insurance industry. Munich Re, The catastrophe bond market has experienced
like all leading international reinsurers, is exposed spectacular growth, particularly since Hurricane
to the accumulation loss issue and resulting loss Katrina. Some US$ 5bn worth of catastrophe risk
potential. The way forward lies in exploring alter- bonds were issued in 2006, double the 2005 figure.
native methods of risk transfer and exploiting the Experts believe that, in the medium term, up to
virtually inexhaustible capacity of the international 20% of catastrophe risk capacity could be placed
capital markets to absorb such risks. on the capital markets. Catastrophe risks are also
traded as insurance derivatives. These can be
purchased to mitigate the financial impact of bad
weather.
2 Detailed article in Schadenspiegel 3/2005 special feature issue on water, pp. 14–17.
Following Katrina, the spread on securitised catas- Munich Re itself uses catastrophe bonds to hedge
trophe risks, particularly for peak scenarios such against weather-related natural catastrophes (wind-
as hurricane USA, increased substantially after a storm Europe, hurricane USA).
period during which prices had been steadily falling.
Thus, the capital markets and the traditional rein- Munich Re’s Risk Trading Unit advises and assists
surance markets were not dissociated, prices in clients on the transfer of risks to the capital markets,
both having kept pace with each other. from structuring to placement. Key factors in the
successful handling of our clients’ transactions are
Although transactions were initially confined mainly Munich Re’s balance sheet and its risk-bearing
to top-layer risks, it is now possible to place risks capacity.
with lower return periods (25–30 years).
Weather insurance is affected by the weather, and that the index and
trigger selected match its exposure.
Utility companies are sensitive to the weather on It has, for some time now, been possible to insure
the production side as well as the consumer side. sports and music events not only against natural
For instance, shortages of water during periods catastrophes such as windstorm but also against
of drought are a problem for hydroelectric power adverse weather. Classical open-air concerts are
stations, and even nuclear power stations can be especially vulnerable, because the musical instru
forced to close down if there is a lack of coolant. ments must on no account be exposed to rain. If
If power grids are overloaded by constant use of persistent rain disrupts major tennis tournaments
air conditioners, this can result in supply shortages like the French Open, finals may have to be post
or even power cuts. By contrast, since photovoltaic poned instead of being played at lucrative, week
systems require adequate amounts of daily sun end peak periods. For this reason, organisers will
shine, the corresponding solutions could be based often opt for cancellation-of-events insurance
on global solar radiation indices. Weather insurance including adverse weather cover, which indemni
in this context generally covers investment projects fies additional costs or loss of revenue if precipita
and the loans granted to finance them. tion exceeds a certain number of millimetres.
We face the prospect of heavier winter storms, more devastating floods, and
longer dry spells than ever before. The fact that the frequency of such scenarios
as winter storms is not increasing can be of little consolation compared with
the growing severity and frequency of local events like heavy precipitation,
thunderstorms and hail.
The insurance industry doubtless faces heavier loss burdens. At the same
time, demand for private and commercial insurance is expected to rise, with
utility and shipping companies insuring against the risk of low water levels
during hot spells, for instance, and sectors where turnover is especially prone
to seasonal weather conditions purchasing more weather derivatives. Although
now well established in the USA, this form of cover is rare in central Europe,
perhaps owing to the historical absence of extreme events.
Demand for natural hazard extensions will also grow in personal lines business,
as people become more aware of the risks of snow load and heavy precipitation
in many areas of central Europe.
Global warming constitutes both a risk and an opportunity for the insurance
industry. From either perspective, the challenges the industry faces are many
and varied, but not insurmountable provided the tried and tested principles
are respected: risk identification, risk assessment, adequate cover at an appro-
priate price. We are, however, less and less able to rely on historical events
and experience as a guide. We will have to make more use of scenarios to
simulate future developments, and models will be applied on a wider scale.
Complete transparency of individual risks will be absolutely essential and
geocoded risk data the norm. Underwriting controls will be necessary to avoid
local accumulations.
Policy terms and conditions and extensions will have to be crystal clear. The
more imprecise the terms and conditions and the more limited the loss experi-
ence, the greater the fluctuations in losses from extreme events.
The insurance industry has to ensure that people appreciate this fact in order
to prepare the ground for appropriate deductibles. Insurance companies will
have to promote and reward active risk management and loss prevention.
The authorities, too, have a part to play in this, by not granting construction
permits in high-flood-risk areas and by introducing more stringent building
codes.
Munich Re has the expertise and resources to assist clients with their insurance,
risk analysis and risk management concerns. We will be happy to advise you
on a range of risk transfer alternatives – from traditional reinsurance to catas-
trophe bonds and derivatives.
CatLossEstimation Service: Insured market losses due to severe weather run into billions each year in
Europe. Winter storms and hailstorms can leave a trail of catastrophe and trig-
Using geocoding to visualise ger a flood of insurance claims. Munich Re’s CatLossEstimation Service pro-
losses motes proactive claims management by using modern geoinformation tech-
nology and address geocoding techniques to forecast losses. Insurers can
establish the potential impact of a windstorm or thunderstorm on their port
folios in less than 48 hours. The service also facilitates claims handling and
accumulation control.
The service also helps to detect attempted fraud. Claims technicians can
quickly identify on a map whether a reported loss is well outside the storm
field, and decide if an invoice can be settled without further enquiries or if
adjusters should be appointed. The CatLossEstimation Service also produces
portfolio analyses, performing an additional quality control by highlighting
discrepancies in the portfolio. It can, for example, identify risks with incorrect
street names or postcodes or sums insured that exceed a certain limit.
Initially, the cedant forwards precise details of all risk addresses in the port
folio to Munich Re for geocoding – i.e. determining the latitude and longitude
coordinates for each risk.
Use of a virtual project room, accessible via the client portal, facilitates com-
munications between the insurer and Munich Re. This facility guarantees
secure data-sharing and advises major changes by e-mail. Following a storm,
the storm field and the geocoded client portfolio are linked and both datasets
compared. In this way, the risks that are relevant for insurance and loss pur-
Capable of making a
big impact: hailstones poses, namely those affected by winds of a minimum Force 8 on the Beaufort
the size of golf balls Scale, can be filtered out. The extent to which a portfolio has been impacted
(Moses, New Mexico). can be determined from the wind speeds and sums insured. Evaluations are
available one to three days after a storm.
A few weeks after the event and further to processing of the claims notifica-
tions, the insurer advises the actual loss burden and affected risks. The Cat
LossEstimation Service links these data with the forecasts made previously
to establish the specific characteristics of the portfolio. Each new loss event
produces a more detailed analysis.
Each year, we analyse and document over 700 events. The database currently
has more than 25,000 entries. It contains data on the major catastrophes of the
last 2,000 years and on all post-1980 loss events.
Key features:
– Interactive dialogue with Munich Re’s natural hazard maps
– Identification of 600,000 cities worldwide and their natural hazard exposures
– Identification of CRESTA zones
– Up-to-date catalogue of worldwide catastrophes, including information on
overall and insured losses
– Country profiles, with information on geography, economy, population and
insurance markets
– NATHAN is available in two versions. The internet version can be accessed
at www.munichre.com/nathan. Clients can access a more detailed version at
connect.munichre.com.
Key features:
– Natural catastrophe PML analyses
– Simulation of historical or hypothetical catastrophe scenarios
– Estimates of the impact of catastrophe scenarios on individual portfolios
– Probabilistic analyses and cartographic representations
– Analyses of earthquake, storm and flood risks
Key features:
– Automatic representation of the geographical coordinates of all (risk) loca-
tions in the portfolio
– Analysis of portfolio quality (identification and rectification of incorrect risk
addresses)
– Greater transparency, better risk management
– Enhanced risk-modelling and accumulation control
– Multi-location policy capability (identification of all individual risks)
– Secure data-sharing in Munich Re’s client portal (connect.munichre.com)
Key features:
– Innovation: High-level transparency and visualisation for risk assessment
and accumulation support
– Worldwide evaluation of natural catastrophe hazard potential for regional
and global portfolios
– Portfolio identification and cartographic representation (based on maps or
satellite images) according to optional parameters (such as sum insured,
class of business, client)
– Support for proactive risk management (e.g. by identifying hot spots and
clusters) and highlighting of business potential
– Automatic identification of CRESTA zones (accumulation control)
– Secure data-sharing via Munich Re’s client portal (connect.munichre.com)
Thanks to its in-depth global experience, our multidisciplinary team can pro-
vide clients with first-class support in the introduction and implementation of
geoinformation technology (e.g. portfolio geocoding, application of geoinfor-
mation systems).
Key features:
– Access to a pool of expertise on a relatively new area of underwriting –
geoinformation
– Support for insurers in the planning and implementation of in-house solu-
tions
– Access to an international network of experts, service providers, and geo-
data providers
– Support with the setting up of specialised training courses (e.g. marine,
aquaculture)
– Expertise on issues in the field of airborne data, satellite data, and satellite
navigation (GPS, Galileo).
Table 5 Beaufort Scale Beau- Designa- Average wind speed Example of the effects of wind inland
fort tion at a height of 10 m
In Europe, wind speeds are often Scale above ground
M/s Km/h
measured on the Beaufort Scale,
0 Calm 0–0.2 <1 Smoke rises vertically.
invented in 1806 by Sir Francis Beau-
1 Light air 0.3–1.5 1–5 Direction of wind shown by smoke drift.
fort (1774–1857), a rear-admiral in the 2 Light 1.6–3.3 6–11 Wind felt on face; leaves rustle; ordinary
Royal Navy. It calculates wind speeds breeze vanes moved by wind.
according to the effects produced. 3 Gentle 3.4–5.4 12–19 Leaves and small twigs in constant motion;
The scale ranges from 0 (calm) to 12 breeze wind extends light flags.
(hurricane force). 4 Moderate 5.5–7.9 20–28 Small branches are moved; dust and loose
breeze paper raised.
moderate
wind
The international standard for measuring tornadoes is the Fujita Scale, which
is based on maximum wind speeds. Since weather stations seldom survive
the passage of a tornado, intensity is normally estimated on the basis of the
extent of loss. This ranges from minor property damage to total loss. In Europe,
both the Torro Scale and the Fujita Scale are used. The Torro Scale has twice
as many stages (T0–T11). Different Torro intensities are allocated to the average
loss rates for light and solid constructions.
Dr. Marcel Grandi Dr. Joachim Herbold Prof. Dr. Dr. Peter Höppe Benedicta Kramer
Consultant, Senior Underwriter, Head of Geo Risks Research, Underwriter,
Senior Manager – Agricultural Department, Corporate Underwriting/ Agricultural Risks,
Structuring, Corporate Underwriting/ Global Clients Corporate Underwriting/
Risk Trading Unit Global Clients Global Clients
Dr.-Ing. Wolfgang Kron Ernst Rauch Christian Sitterer Dr. Anselm Smolka
Senior Expert, Natural Head of Department, Head of Department, Head of Department,
Catastrophe Extreme Corporate Climate Centre Divisional Unit: Germany Risk Evaluation Natural
Scenarios, Geo Risks F&E Natural Hazards, Geo Perils, Geo Risks Research,
Research, Corporate Risks Research, Corporate Corporate Underwriting/
Underwriting/Global Clients Underwriting/Global Clients Global Clients
Printed by
Druckerei Fritz Kriechbaumer
Wettersteinstrasse 12
82024 Taufkirchen/München
Germany
© 2008
Munich Reinsurance Company
Königinstrasse 107
80802 München
Germany