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In the second of a series of joint interviews with AXA XL product and country leaders, Laurent Wüthrich, Product Leader Property, APAC & Europe and Peter Knaus, Country Manager Germany, discuss the implications of natural perils on property insurance and how new solutions can help clients better understand, manage and mitigate these evolving risks.

How are natural perils affecting property insurers?

Laurent Wuethrich: If we look back, property insurance was originally and primarily designed to mitigate fire risk. Yes, the policies also covered losses from natural disasters, but, historically, those were not as significant. Immensely damaging events like Hurricane Andrew in 1992 were uncommon, and global insurers with geographically diverse property portfolios could weather substantial losses in one country or region.

Meanwhile, fire risk has been declining steadily in most parts of the world due to stricter building codes and better building materials and methods. At the same time, losses from natural disasters have been increasing steadily. According to Aon, from 2000 to 2009, the costs of natural catastrophes totalled USD 1.8 trillion. Over the next ten years, that amount grew to USD 3.0 trillion.

Today the dynamics of the property insurance market are highly influenced by natural perils, including hurricanes/typhoons, floods, earthquakes/tsunamis and wildfires.

What is the situation in Germany?

Peter Knaus: Many of our clients in Germany operate internationally and nowadays are more exposed to weather- and seismic-related events in different parts of the world: from hurricanes/cyclones in the U.S. and Southeast Asia, to earthquakes in Italy, Turkey and Mexico, to wildfires in Canada, the U.S. and Australia. And here in Germany, clients also have experienced severe flooding and damaging windstorms or hail.

Thus, it is perhaps not surprising that, according to AXA's latest Future Risks Report, risk experts in Germany regard climate change as society's greatest emerging risk; globally, pandemics are ranked as the number one current threat.

I would also note that these are fast-moving, demanding times, and we're dealing with situations we haven't faced before. For me, this only reinforces the importance of strong tripartite relationships; client-insurer-broker. I also believe that, given the challenges we all face, it is even more critical that we capitalize on new tools and technologies to help clients better prepare for and respond to different natural perils.

It is critical that we capitalize on new tools and technologies to help clients better prepare for and respond to different natural perils.

Such as?

Peter Knaus: An example in Germany is the parametric policy we developed with our colleagues at AXA Climate. Low water levels on the network of navigable waterways in Germany sometimes prevent river barges transporting vital commodities from operating. Any financial losses that occur when that happens aren't insurable under traditional coverages. Moreover, these conditions are becoming more prolonged and frequent.

So, taking advantage of new modelling capabilities, we created a parametric coverage based on water levels. In this case, the policy is triggered and a payout is made when river levels fall below a defined height. The payout covers the vessel's operating costs while it is laid-up, as well as the value of any spoiled cargo. I am pleased to note that the initiative was awarded Insurer Innovation of the Year at FERMA’s 2020 European Risk Management Awards.

Other examples are on the risk consulting side. These include a Risk Scanning offering developed by AXA XL Risk Consulting that quantifies and benchmarks the perils associated with specific assets; its coverage is global. The output is a consistent picture of relative risk levels for the overall portfolio and individual sites. That insight can help clients allocate their resources more efficiently and make targeted investments in prevention, preparation and ongoing monitoring.

Another is called CYMO; it is a monitoring tool created by our colleagues at AXA Climate. CYMO helps clients in the periods before, during and after a natural disaster take the right actions to minimize losses. Once CYMO "sees" that something could be developing, the system sends targeted alerts to the relevant people, telling them what to expect and outlining the steps they should initiate based on predictions about how the event will unfold. These alerts become increasingly detailed and specific as more and more data about the event come in.

While similar approaches have been around for a while, both Risk Scanning and CYMO take advantage of new tools and technologies, including machine-reading and artificial intelligence, that enable us to collect, analyse and synthesise massive amounts of data from disparate sources, and do so faster and more economically. With CYMO, for instance, data feeds from a unique global network of satellites, drones and social networks are used to quickly produce a visual assessment map of the event. That detailed insight can be extremely valuable in organising the disaster response effort.

How are these dynamics affecting the way property programmes are structured?

Laurent Wuethrich: It is true, as Peter noted, that the increasing threat from natural perils is generating increased demand for new solutions. At the same time, another part of this new dynamic includes restrictions on limits and, in some cases, increased deductibles. Both can have important implications for clients and brokers, especially when clients want to maintain their existing limits for natural perils exposures. The reduced capacities proposed by large insurance companies implies that programmes structures will need to include more co- and re-insurers. That, in turn, means risk managers will need to work even more closely with brokers and insurers to find the right solutions to address their company's risks.

Laurent has worked in property insurance for more than 25 years and has been with AXA XL or predecessor companies since 2009. He was recently appointed as Product Leader-Property for APAC & Europe. In this newly created role, he supports local experts as the key interface between the countries, the Regional CUO Laurent Richeme on all technical property-related issues. Peter is AXA XL's Country Manager for Germany and has more than 27 years of experience in the commercial P&C insurance industry.

  • About The Author
  • Laurent Wüthrich, Product Leader Property, APAC & Europe and Peter Knaus, Country Manager Germany
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