Cover photo: Kamppi Chapel, Helsinki, Finland
Two thirds of Austria are located in the Alps. Its geographical location comes with many risks, which will only increase as a result of climate change. Many places are threatened by flooding, hailstorms, winter storms, the effects of snow pressure and landslides. Insurance companies rely on modern data collection and 3D visualisations in order to price these risks appropriately. In the process, Austria has become a pioneer in digital risk management.
Dr Thomas Hlatky spends much of his time placing entire districts of a city under water with just a few clicks of his mouse. If we consider the modern structure right next to the picturesque stream in a suburb in Graz for example, the next flood would cause the building to fill with water right up to the second floor in a matter of minutes. And as for the building next to it, this would be underwater for up to two days. What about sandbags? These would only help if 15,000 of them were immediately stacked on top of one another. Otherwise, as a couple more clicks reveal, the water would simply wash them away.
Fortunately, the disasters shown on Hlatky’s computer screen are only an interactive 3D visualisation. Nevertheless, the properties, streams, mountains and valleys on the screen are real, just as the simulated scenarios represent real risks. Hlatky is Head of the Reinsurance Department at Grazer Wechselseitige Versicherung. He is also responsible for the HORA 3D project at the Austrian Insurance Association. This project works with an innovative visualisation programme for the purposes of hazard overview and risk management.
The interactive hazards map displays the consequences of natural disasters such as flooding, heavy rainfall, hail, snow pressure, storms and earthquakes for every building, city district and region in Austria. However, what is special about this visualisation software is that it is freely accessible online. This means every homeowner, tenant, city planner, politician and business owner is able to check at any time the natural risks that could impact their own home or business and also how and whether various preventative measures would work.
According to Hlatky, with its high level of detail and open access, this platform is the first of its kind. Given Austria's specific risk profile, it comes as no surprise that the country has become a pioneer in digital risk management. “Austria is a country of many hazards,” explains Daniel Degeling, Senior Client Manager for Austria and Central and Eastern Europe at Deutsche Rück. Whilst in other countries, regions are usually dominated by one or two typical natural hazards, in many areas of Austria – two thirds of which are situated in the Alps – several or even all of the major types of hazards constitute relevant risks.
Object-based risk visualisation marking the flood level on the façade of the building for four different flooding scenarios (lighter shades of blue = HQ30, HQ100, HQ300; yellow = HQ300 residual risk)
Source: HORA 3D
The hazards represented by natural disasters remain for many people an abstract concept, that is, until disaster strikes. Projecting and forecasting potential loss events rarely make much of a difference in this respect. Therefore, Austria has chosen a different way of increasing the citizens’ awareness of potential risks. With just a few clicks and using an impressive 3D visualisation, the open access risk analysis programme eHora simulates the impact flooding, earthquakes, landslides, storms, snow pressure and hail would have for each and every region and building in the country. This also allows people to work through how preventative measures might work and where to find out answers to pressing questions such as: Will piling sandbags be sufficient in the event of a flood? How quickly will flood waters reach my property? How long will the building be flooded for? And what impact would a protective wall have?
According to Degeling, this situation means primary insurers are faced with a growing challenge with regard to pricing. This is because climate change has led to loss events becoming larger and more frequent in recent years. However, the general population has not “fully woken up” to this new reality, and any awareness that does develop after a major event, quickly wears off.
In addition, natural hazards such as flooding, high waters and snow pressure are often obligatorily bundled together as “extended natural hazards” which is added to standard coverage within the storm insurance line.
Package deals are typical within Austrian insurance and combine cover for fire, storms and hail, water damage, extended natural hazards as well as liability. This entails a highly technical challenge for insurers if they are to ensure pricing commensurate with the risks for each individual hazard component. Regulations which set out narrow limits with regard to premium adjustments also add to this challenge, as insurers attempt to achieve long-term profitable management.
As for reinsurers, the pressure in recent years has been manageable. This is due to the fact that reinsurance protection for natural hazards risks could be purchased relatively cheaply due to the overcapacity that existed. “However, this has changed in the last two years, following worldwide market hardening,” explains Degeling, “and many Austrian insurers have had to significantly increase their retentions and reinsurance expenditure.” In addition, claims inflation has played an important role with regard to retention increases, but this is offset – albeit with a time lag – through premiums in primary business by means of indexation, which is standard in Austria.
Onnen Siems, Managing Director at Meyerthole Siems Kohlruss (MSK), an actuarial consultancy company based in Cologne, explains that, overall, there is the potential for development with regard to pricing maturity in Austria. This is likely due to the fact that pricing and competitive pressure in the country has not been as intensive as in other markets. “Our data shows that the profitability of many insurance products in Austria has been very volatile over the past few years and has even shown a tendency to decline,” says Siems. MSK organises and assesses various cross-company data pools relating to portfolio and loss reports from a range of Austrian primary insurers. According to Siems, the significance of such analyses (which enable a more precise prediction of expected loss amounts as well as a more accurate identification of those risks which are more profitable) are increasingly attracting attention within Austria. “There is a trend towards greater price differentiation.”
However, insurers are often faced with a classic case of anti-selection if they only offer protection for individual natural disasters. People who live in the mountains will not insure themselves against flooding; whereas people who live in valleys and who are therefore at greater risk will do so. “When taken together, this is currently all leading towards a price deficit on the Austrian market. And this presents a challenge for reinsurers too, as partnership-based reinsurance solutions in close cooperation with customers work better when primary business is operationally healthy,” explains Daniel Degeling.
It is therefore no wonder that serious discussions concerning general compulsory insurance are both frequent and recurring. Natural disaster specialist Hlatky is convinced that only a compulsory all-risks insurance would be capable of bringing about long-term protection for the Austrian population at large.
He also argues that awareness initiatives such as the HORA project helps to ensure that more people are aware of the multifaceted nature of the risks the country faces. “This perhaps makes people think to themselves, ‘Okay, I might not be personally affected by flooding, but the next storm could cause my roof to fly off or the next hailstorm might damage the façade of my building,’” Hlatky explains. “However, unless as many natural hazards as possible can be bundled together within one insurance product, the problem of anti-selection will remain. And this will be very difficult for insurers to solve by themselves without a regulatory framework put in place by the government.”
The economic agreement between the European Union and the Mercosur states is set to strengthen worldwide trade. Negotiations have been going on for more than 20 years now, but both sides continue to make adjustments. Both farmers and climate activists have joined the discussion. From the perspective of insurers, the agreement could present a substantial opportunity as the need for insurance within the region is high.
When Lula da Silva took up office as the new President of Brazil, the country found itself in the worldwide spotlight. Germany’s Federal Chancellor, Olaf Scholz, travelled to South America to congratulate the new President and agree upon a new mutual work plan. Brazil, with its population of some 215 million people, is the largest country in South America and plays a central role in the trade partnership between the European Union (EU) and the Mercosur states. Brazil, Argentina, Paraguay and Uruguay are keen to enter into a free trade agreement with the EU, so now negotiations, which for more than 20 years never moved beyond the planning stages, are entering the final phase.
The result of the agreement would be the largest free trade zone in the world, covering a population of over 770 million people and with the aim of increasing trade by means of lower customs duties. “The agreement will pave the way for us to transform our economies and strengthen technological and industrial collaboration,” stated German Chancellor Scholz during his visit to Brazil. “It will also improve environmental and climate protection and raise labour and social standards.”
Both sides are hoping that the agreement will spur growth. Europe and South America both want to disengage from economic dependency on China, and the free trade agreement could be a means of doing so. In addition, the EU is searching for a replacement for Russian raw materials. As an exporting nation, Germany is particularly dependent on international trade and thus could also benefit from the agreement. For one, the agreement would save four billion euros in custom duties annually, in particular within the automotive, machine engineering and chemical industry. It comes as no surprise then that industry associations such as the Association of German Chambers of Industry and Commerce (DIHK) and the Federation of German Industries (BDI) have spoken out in favour of the agreement. “It is a good basis for mitigating the shortage of raw materials that Europe is facing, as well as for diversifying German companies’ supply chains,” explains Peter Adrian, President of the Association of German Chambers of Industry and Commerce. In times of economic isolationism and protectionism, the Federation of German Industries also speaks of an important signal for a multilateral trade.
The free-trade zone would cover a population of 770 million people, with 512 million in the EU and 260 million in the Mercosur states.
However, the agreement has been met with increasing criticism, in particular from climate protection organisations and agricultural lobbyists. For example, Greenpeace has called the agreement a “poisonous contract”, which will facilitate the trade of products that are harmful to both the environment and the climate such as soya, beef, cars and pesticides. Farmers are also up in arms. The German Farmers’ Association has taken a critical stance on the agreement. “As it stands now, this trade agreement represents a significant threat to German and European agriculture,” remarks Joachim Rukwied, President of the Association, which fears that agricultural imports may threaten the international competitiveness of EU farmers.
However, whilst the agreement has faced its fair share of criticism, it could also offer plenty of opportunities too – especially for insurers as the need for insurance protection is high.
In economic terms, the Mercosur states are heavily dependent on mining, agriculture and oil. However, the majority of companies are SMEs. Accordingly, Deutsche Rück is focussing its attention on local and regional primary insurance companies with strong connections and well-established sales networks within the SME sector. At the same time, the middle class is expanding and, with it, private property and ownership including houses, cars and furnishings. In addition to this, there are also the political and macroeconomic risks.
Without insurance, companies and private property remain unprotected, and the insurance penetration rate within the Mercosur states has traditionally been low. The coronavirus pandemic revealed how the lack of insurance protection not only represents a theoretical problem but also a tangible risk to the economic development of Latin America.
The more uncertain and volatile external factors are, the more important insurance protection and long-term and stable relationships between primary insurance and reinsurance companies become.
“An EU-Mercosur agreement could send a signal,” explains Florian Kummer, Head of Latin American Markets at Deutsche Rück. “Hopefully, this agreement will trigger urgently required reforms in other economic areas too, which will lead to further market stimulation and a reduction in bureaucracy.”
The European Commission is still negotiating with the Mercosur countries regarding an additional declaration to the agreement which would provide clarification on some points of contention. According to reports, the agreement should be in place by the end of June. This would then clear the way for the world’s largest free-trade zone and for an opportunity-rich – albeit challenging – market.
At the start of the decade, blockchain was one of the hottest digital topics in the insurance industry. The big idea was that it would revolutionise the efficiency of data exchange and radically simplify the accounting and administrative processes relating to insurance policies. However, from the very beginning this vision was met with scepticism, for the simple reason that in order to successfully employ blockchain – which functions very well as the practical basis for cryptocurrencies – there first needs to be a meaningful application for it within the insurance industry. After all, without a business model, technology is just technology.
In the meantime, the implementation of the blockchain within the industry has been dogged with difficulties. Last year, the blockchain insurtech B3i filed for insolvency. But B3i wasn’t just any start-up: it was a joint industry initiative that brought together 21 well-known European insurance and reinsurance companies in 2016 in Switzerland. And yet, none of B3i's concepts and ideas made it into standard applications for the market. The problem was the interests of market players (which also included large brokerage firms) were just too broad and the concepts that the start-up was trying to simultaneously apply were too varied.
Does this mean the vision of establishing the technology within the insurance industry is washed up, as some experts have argued? Or is it too soon for the industry to turn its back on blockchain? Not least, because the technology is capable of solving a central issue (faced in particular by reinsurance), namely reducing cost- and resource-heavy administrative processes for very complex documents – a workload many reinsurers will struggle to manage in the future with ever bigger data sets. And also because there have been several successful use cases for blockchain in international insurance markets. For example, use by the European Nuclear Pool for a solution for transport insurance from the strategic alliance of primarily mutual insurance companies in Europe, EURAPCO. Despite all criticism, even in Germany there is a blockchain solution which has proven itself in practice.
Here, the blockchain solution Ritablock has proven itself in practice. The start-up, established by service providers for IT and reinsurance processes Consurance and Inveos has brought to market a useful product for the digital exchange of reinsurance accounting and claims information. Deutsche Rück has been closely following the Ritablock project since its inception. After being successfully piloted in 2019, it was launched commercially in 2021 and has been successfully and securely exchanging reinsurance accounting data ever since.
The user group has been steadily expanding. Over this period, the insurance companies Helvetia, Swiss Re, Talanx, the German public insurers VGH Versicherungen, Öffentliche Versicherungen Oldenburg and ÖSA Versicherungen have all been working with Ritablock. In the Austrian market, Oberösterreichische Versicherung, Grazer Wechselseitige, Tiroler Versicherung, Kärntner Landesversicherung, Niederösterreichische Versicherung and Vorarlberger Landesversicherung are on board.
Ritablock focusses on core components within the process chain – reinsurance administrative and claim settlement processes. The application offers a replacement for the exchange of unstructured accounting data between the primary insurer and the reinsurer as well as for manual maintenance, by means of entirely digital transport and automated mapping with structured and standardised data using blockchain technology. “It is an intelligent solution which brings large productivity gains for both the primary insurer and the reinsurer, as it simplifies data exchange whilst avoiding data discontinuity,” explains Ulrike Friedrichs, Head of System Management at Deutsche Rück.
Ritablock has focussed on creating an application that is manageable but nevertheless capable of automating the entire data exchange, which is still largely unstructured in the market today. The application also demonstrates that blockchain technology, when centred around concrete practical use-cases, can be successfully implemented within the industry. Jean-Pierre Fischer, Markets Director at Ritablock, describes the solution “as a small, simple application for data transfer which reveals the practical advantages of distributed ledger technology. In the future, it will become a standard for data communication within the German market.”
Ulrike Friedrichs, Head of System Management at Deutsche Rück
Whilst the actors involved in Ritablock are optimistic, the future success of blockchain is not a given. This is because it can only evolve into a standardised system if as many primary insurance and reinsurance companies as possible take part in the network. And there continues to be considerable scepticism amongst some insurers regarding the introduction of an additional IT project that will have to be integrated into the partly outdated current systems. IT capacity is often tight due to the ongoing and often overdue renewal of core systems.
However, Friedrichs maintains that the workload involved in the implementation of Ritablock for reinsurance accounting is very manageable – the system can be set up within a month. She points to several examples where Ritablock has been integrated “superbly” into current systems, has been proven to work with all interfaces and can therefore be used by employees quickly without the need for a long acclimatisation period. Furthermore, if companies were to use the Ritablock cloud solution, it would eliminate the workload otherwise required for internal implementation.
In comparison to other markets, the German insurance industry and the German supervisory authority continue to be rather conservative in their response towards digitalisation. This can get in the way of new technologies like blockchain being widely adopted. However, Fischer expects the growing requirements around the security of data transfer will provide a significant boost to the use of blockchain within Germany in the future.
The possibilities offered by Ritablock are growing all the time. Since brokers have so far been cautious about automated data exchange using Ritablock, the online service EBIX has recently launched an ancillary application which is able to collect data from broker portals and automatically transfer it to Ritablock. In addition, this year there are plans to develop Ritablock’s data transfer capabilities in the field of claims. For ceding companies, who are as yet unable to benefit from the solutions discussed above, work is currently underway on an artificial intelligence solution which is able to read data from a PDF document and transfer this to a current system in a structured format.
Friedrichs is convinced the future for blockchain technology within reinsurance is still bright. “There really is the possibility that Ritablock will establish itself as an industry standard, since the application is easy to integrate, and all reinsurance systems can be connected to it. It also functions with all interfaces available on the market. In this sense, Ritablock has the potential to lead blockchain to success both in Germany and in other markets too.”
Deutsche Rückversicherung
Aktiengesellschaft
Hansaallee 177
40549 Düsseldorf, Germany
Phone +49 211 4554-01
info@deutscherueck.de
www.deutscherueck.de
www.deutscherueck.com
www.drswiss.ch
Jan Stepic, Melanie Dahms, Stephanie Embach-Stein, Sven Klein
Andreas Meinhardt (responsible for contents)
intellitext SprachenService
www.intellitext.de
bernauer designbüro
www.bernauer-design.de
ENORM Digital GmbH
www.enorm.digital
shutterstock/alexfan32; Al Carrera; Finn stock; reisegraf.ch; saiko3p
istockphoto.com/gdefilip; Jase Carlos Serrano Ruiz
stock.adobe.com/kugelwolf
Published in June 2023
Sie verwenden einen veralteten Browser, in dem diese Seite möglicherweise nicht korrekt dargestellt wird.