Cover photo: Kö-Bogen in Düsseldorf, showcase project for urban greening
In densely populated areas with a large portion of sealed surface areas, heavy rainfall can lead to floods – resulting in major and costly damage. However, there are ways of making urban spaces more resilient to severe and persistent rain. Adding greenery is one of them.
On 2 July 2011 at around 7pm, disaster struck in Copenhagen. A storm resulted in severe rainfall over the Danish capital. In some places, two months’ worth of rain fell in just a few hours. Entire streets were flooded. The Rigshospitalet hospital only narrowly escaped a full evacuation. Road traffic reached a standstill for up to three days, rail traffic ground to a halt for a whole week, and 50,000 households were left without water and heating for seven days. This massive cloudburst cost the insurance industry DKK 6.2 billion (approximately EUR 830 million), with insurance companies receiving around 90,000 loss claims.
Last year, researchers at the University of Copenhagen published a study on the severe weather event. They concluded there was a clear correlation between the intensity of the cloudburst and the temperature in the atmosphere before it occurred. According to the researchers, the study shows that one hundred years of increases in temperature due to human activity has doubled the risk of severe weather events like this one happening in Copenhagen. If temperatures continue to rise, so too will this risk.
Other countries are also facing severe rainfall on an increasingly frequent basis. According to the German Insurance Association (GDV), one in ten households in Germany was affected by heavy rainfall between 2002 and 2021. The German Meteorological Service believes that, due to climate change, the likelihood of extreme rainfall (such as that which caused the Ahr Valley flood in 2021) has increased ninefold.
This underlines just how important it is for towns and cities to make rainwater management a priority concern – not just in Germany but elsewhere too. Meike Müller is a geoecologist working at Deutsche Rück’s NatCat Center in Düsseldorf. She monitors natural hazards and the associated risks for the reinsurer and assigns responsibility to the insurance industry as well. “There are ways of mitigating the consequences of heavy rainfall and, in this respect, insurance companies can help make sure information is accessible.” Together with her colleagues at the NatCat Center, Müller collects data, analyses it and extracts the key information from it in order to produce risk assessments. “We publish these regularly because it’s extremely important to make the necessary background information available in order to derive suitable follow-up actions.”
The good news is that urban areas could be adapted to become more resistant to severe rainfall events. Urban greening has a key role to play. This includes both the grounds and areas around and on buildings.
In contrast to the unsealed soil of rural areas, where forests, fields and meadows support the natural water cycle, in towns and cities rain often falls on sealed ground, meaning it is prevented from seeping away or being stored. As Prof Stephan Pauleit, holder of the chair for Landscape Development Strategy and Management at the Technical University of Munich, explains, the underlying problem is that “the natural water cycle in towns and cities has been disrupted.” He adds that “with the amount of rain that is falling, urban drainage systems are becoming increasingly overwhelmed. Drainage alone will not provide a sufficient solution in the future.”
Meike Müller, geoecologist at Deutsche Rück’s NatCat Center: “Ultimately, the aim for cities and towns must be to better emulate the natural water cycle.”
It’s not just a matter of unsealing and planting vegetation on the ground, however. Green roofs also have a part to play in helping improve heavy rainfall resilience. “Green roofing is a key factor because even so-called ‘extensive green roofs’ – i.e. plants on a 10- to 15-centimetre-deep substrate – are able to store significant amounts of water. Several studies have revealed that on average, over the year around 70 percent of the rainwater that falls on a green roof does not enter the drainage system but instead evaporates,” states Pauleit, explaining the impact of this method. This statistic demonstrates that green roofing is a highly effective means of ensuring towns and cities are better prepared for heavy rainfall and is something which architects could implement more often. What’s more, according to Meike Müller, plants fundamentally improve the microclimate and also have a cooling effect by contributing to evaporation and shading.
Copenhagen has learned its lesson from the severe storm of 2011 and is now looking to go beyond simply planting green roofs. Instead, urban planners have turned their attention to restoring the natural water cycle. The Danish capital has developed a strategy entitled the Cloudburst Plan which aims to implement around 300 individual projects to transform Copenhagen into a sponge city by 2035.
“As the name suggests, a sponge city functions like a sponge,” says Pauleit. “Instead of draining and diverting water, a sponge city is able to absorb it, store it and eventually return it to the cycle.” In addition to planting façades and roofs, the most important strategy in the creation of a sponge city is unsealing covered ground.
Furthermore, existing green spaces can be converted into basins with underground infiltration systems. In very simple terms, these function like troughs which collect water and allow it to drain away gradually.
For architects and urban planners, Pauleit sees one requirement for future city and real estate planning as particularly important. He believes it is essential for professionals to consistently take into consideration the rising levels of precipitation in the future. It is almost always the case that what is good in terms of preventing flooding is equally beneficial to the city’s population. “A city with good rainwater management is also a city that provides its inhabitants with a more attractive, airier and greener living environment. And, generally speaking, that’s exactly what people want.” Of course, people are not the only winners. Greener spaces also open up new habitats for insects and birds.
What influence does the broker market have on life insurers’ biometric product strategy and what role can reinsurers play in this?
Within the German life insurance market, the biometric business – all risks related to human life conditions such as death, birth, disability, age and number of children – is undergoing a period of disruption. Stoked by specialist rating agencies, it has been experiencing fierce competition for a number of years now with respect to policy conditions.
With a constant flow of new improvements to coverage and ongoing differentiation of occupational groups, insurers are jockeying to gain the business of those in the preferred target group – people who are not employed in physical labour or trades jobs. Attractive risks and low premiums are used as a way of appealing to this group. And with many life insurers having recently diversified their biometric products to offer an alternative to standard retirement provisions, competition has become even more intense.
From a sales perspective, the biometric business operates differently from the retirement provision market. Whilst exclusivity agreements remain key, the biometric business is dominated by brokers, pools and large sales organisations. Occupational disability and disability insurance are predominantly sold via these channels. As a result, there’s no avoiding brokers when it comes to growing business in the German biometric market.
Occupational disability insurance is complex, and customers require a significant amount of consultation and advice. There are quite a few brokers specialising in this field who have accrued considerable know-how. At the same time, the market position is dominated by distributors and broker pools. As sales channels, these have become the key driver of market developments, particularly in terms of new conditions and products.
Accordingly, when designing products and defining strategy, it’s now essential for insurers to consider exactly what the various types of brokers are looking for. Insurers looking to benefit from emerging growth areas will need to differentiate themselves from the competition by offering innovative products for previously neglected and underdeveloped target groups.
How can reinsurers support primary insurers with this? In addition to risk transfer, the basic services offered by every life reinsurer also include support in product and process development as well as the provision of additional tools. However, these services alone will not help primary insurers overcome the product strategy challenges they are currently facing. Instead, reinsurers need to take on a strategic consultancy role for their primary insurer clients. For example, if a broker-dependent insurer seeks to attract new target groups, the reinsurer could work with them to identify these groups and propose a suitable product designed to win them over. A key to success in this respect is taking into account the needs of the different types of brokers.
By doing so, reinsurers take on a much larger role than before. This allows them to bolster their range through services, which – in markets such as Germany and Austria – are becoming increasingly important as a supplement to the standard provision of capacity.
“As sales of income protection products stagnate, life insurers are attempting to win over new target groups. This means there is a need for creative and, above all, practical ideas that can be seamlessly integrated within the consultation process,” explains Frank Schoenen, head of Life and Health Product Management at Deutsche Rück. He recommends implementing a consultation strategy that includes an analysis of the insurer’s product portfolio, processes and sales support. Insurers therefore receive concrete recommendations for action, which they can implement together with their reinsurer.
Deutsche Rück has established an extensive sales network to meet this demand that’s unique within the German reinsurance market. Working closely with brokers, pools and financial distributors, Deutsche Rück is well-placed to develop new product ideas. A good example here is coverage for children’s healthcare – a product that, according to Deutsche Rück’s analysis, had not previously been available on the market.
“We discuss initial ideas for new products with the experts from our sales network before testing them in a way which allows us to obtain brokers’ direct input,” explains Schoenen. “This network functions as a kind of test lab for new ideas. If these concepts are well received by brokers, we then develop them into concrete products which we can offer to primary insurers.”
Involving brokers closely in the product design process could also be an interesting approach for other European markets where brokers play an important role in the biometric business. “Involving distributors is important for ensuring the success of both primary insurers and reinsurers,” Schoenen concludes. “If a product does not meet the requirements and needs of those selling it, it will not sell. Something which does not sell, fails to generate premiums for the primary insurer as well as for the reinsurer.”
The war in Ukraine has created unease and uncertainty for insurers: Are cyberattacks covered by current standard war exclusion clauses? The industry has been busily debating new standards to establish greater clarity on this issue.
At the onset of Russia’s war against Ukraine, images started appearing on our screens that we had believed to be a thing of the past: tanks rolling uninvited across national European borders. There was no question that these events constituted war. Since then, there has been a large number of civilian casualties, along with undeniable acts of war that caused the destruction of civilian buildings. For example, a missile attack on a distribution centre of the private Ukrainian postal service Nova Poshta, which devastated a terminal near Kharkiv.
From an insurer’s perspective, it is clear that incidents such as these – indisputably caused by war – are not covered by insurance. This is the premise of the so-called war exclusion clause which is written into insurance policies. “The exclusion of insurance payments in the event of losses resulting from war has been the standard in property and technical insurance for decades now,” says Marc Steinbrecher, head of Facultative Property and Casualty Business and Property Line Management at Deutsche Rück.
However, these clauses harbour a problem that has been causing concern within the insurance market over the past year. Insurers are struggling with the issue of what actually constitutes loss resulting from war these days and what does not? If a tank destroys a building, the answer is clear. But does damage resulting from a state-associated group of hackers carrying out a targeted attack on a company’s IT infrastructure constitute an act of war, and is it therefore excluded from insurance cover? Or are cyber insurers required to pay, as they would for other hacker attacks and their consequences?
The truth is, in the 21st century, operations of warfare also take place within cyberspace – an environment which did not exist when the standard formulations used for current war exclusion clauses were first written.
The war in Ukraine is the perfect example where “acts of war” are no longer limited to land, air and sea, but increasingly taking place within cyberspace. As of February 2023, analysts from the CyberPeace Institute in Geneva had already identified and investigated more than 1,100 cyberattacks and operations in connection with the Russia-Ukraine war. They reached the conclusion that cyber operations are an integral component of this war. Some of these operations have even targeted institutions and companies in Germany.
In general, wars are defined as hostile actions carried out by two enemy states against each other. In terms of insurance law, this raises the question: Are the hackers state actors, are they at least coordinated by state actors, or are they run-of-the-mill cyber criminals? This question is vital to insurers because “if there is only the slightest reason to suspect that the attack is state-backed, insurers may dispute their obligation to pay compensation for the loss,” says Steinbrecher.
“In Germany, insurers have previously tended to align with the recommendations issued by the German Insurance Association (GDV) and have adopted these guidelines for cyber insurance as well,” adds Steinbrecher. “However – and herein lies the problem – war exclusion clauses have essentially remained unchanged since the Second World War.”
The model terms and conditions set out by the German Insurance Association state: “The insurance shall not cover damage caused by war, warlike events, civil war, revolution, rebellion or insurrection. This shall apply without consideration of contributory causes.”
Losses caused due to political risks and terrorism are similarly excluded, and the model terms and conditions also give examples for these cases. However, there is no explicit reference to cyber operations. This is why the German Insurance Association is currently reviewing recommendations for a new cyber warfare exclusion clause.
Marc Steinbrecher, head of Facultative Property and Casualty Business and Property Line Management at Deutsche Rück
Discussions regarding a war exclusion clause have been ongoing at the international level for a few years now. The aim is a clause that reflects the real risks represented by an asymmetric cyber war. In late 2021, Lloyd’s Market Association (LMA) published a range of new standards. These were designed to expand war exclusion terms to encompass state-backed cyber operations, i.e. acts which, although they cannot be traced back to a state actor, still constitute a component of military action. The LMA proposed several clauses to demonstrate what this might look like. These clauses all stipulate that cyberattacks initiated by a state shall, in the future, be considered military action and therefore fall under the war exclusion clause.
Lloyd’s of London have said this is cause for companies to take responsibility for bolstering their cyber security and that the insurance industry should share knowledge and strategies in support of this. “The responsibility for tackling the cyber challenge can’t fall to the industry alone; it’s important that as a collective we collaborate, educate and intelligently create awareness of the risks associated with cyber,” was the statement given by Patrick Tiernan, Chief of Markets at Lloyd’s, at the first Lloyd’s Cyber Summit in November 2022.
According to Steinbrecher, whether insurers decide to adopt the recommendations issued by the German Insurance Association or those proposed by the LMA is a matter of secondary importance and should be the subject of their respective business considerations. He explains that what is crucial is that stakeholders do not lose sight of the heart of the matter: “Any cyberattack that has been carried out by a state, with state backing or in alignment with a state must, without question, be subject to exclusion. This is particularly important if the attack has impacted infrastructure.” Collateral damage resulting from cyberattacks also needs to be clearly excluded.
The expert from Deutsche Rück also emphasises one key point that must not be lost in the discussions around terminology and clauses: “What we’re talking about here is an act of war, in other words, part of an operation that has the potential not only to endanger property but life and limb. When such an event occurs, we as a society have greater problems to deal with than debating whether or not something is covered by insurance.” For this reason too, it’s imperative that a consensus be reached within the insurance industry regarding reliable standard clauses that can be implemented as soon as possible.
Deutsche Rückversicherung
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Jan Stepic, Melanie Dahms, Stephanie Embach-Stein, Sven Klein,
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Published in December 2023
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