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Insurance solutions for industry
Issue 3/2015
The calm after
the hurricane
Ten years after Katrina, everything is back to
normal in New Orleans. Society and insurers
alike have learned from the devastating catastrophe. PAGE 4
Rail traffic
Product innovation
for SBB
Magnificent head
of hair becomes a risk
Natural hazards
Learning from one
loss for the next
Dear Reader,
Ten years ago, New Orleans was hit by Hurricane
Katrina, one of the most devastating tropical cyclones
ever, and a humanitarian catastrophe which claimed
the lives of 1,000 of the city’s inhabitants. From
today’s perspective, we need to ask: have we learned
from this costly natural catastrophe – both as a
society and as insurers? The first piece of good news
is that the protective measures taken since Katrina
have significantly reduced the flood risk in New
Orleans; overall, the city is better prepared. The
second is that since Katrina, insurers and insured
companies have been working more closely
together in estimating risk.
And there is good news from elsewhere, too: a loss
in Switzerland has also led to development of a new
insurance solution. Together with our client, Swiss
Federal Railways (SBB), and other leading insurance
partners, we have created an insurance solution for
railway companies that, to date, is unique.
I wish you a stimulating read.
Torsten Jeworrek
Member of the Board of Management and
Chairman of the Reinsurance Committee
The next storm is
sure to come
After a levee was breached, the
old houses of the working-class
district Lower Ninth Ward in
New Orleans were swept away.
First, art came back in the form
of the Pink Project art installation. In 2007, the Make It Right
Foundation, established by
Brad Pitt, built 150 new houses
in the district with better flood
control measures.
Page 4
NDBI Product innovation for railway companies 3
Hurricane Katrina 4
In 2005, a hurricane and flooding laid waste
to fun-loving New Orleans
Improved protection for New Orleans
Structural measures are only part
of the solution
We offer more than just capacity Chief Underwriting Officer Beatrix Hartinger
speaks on hazard analyses, prevention and
risk-adequate pricing
Hands, feet, hair
Jonathan Thomas explains how body parts
can be insured
Loss mitigation by learning from past losses What has Katrina taught us?
Imprint and preview
Munich Re Topics Risk Solutions 3/2015
2015 – A crucial year for
climate change
For many years now, the world has
been preparing for the 21st United
Nations Climate Change Conference
(COP21) which is in Paris this year.
Achieving a binding agreement on
the reduction of carbon emissions
to prevent global warming from
exceeding 2 °C would be a major
success for all 195 member states
of the United Nations Framework
Convention on Climate Change
(UNFCCC). This would mean limiting global carbon dioxide emissions
to 1,000 Gt (gigatonnes) of CO2 by
At the G7 Summit in Elmau in early
June, the leaders of the G7 agreed
to significantly intensify climate
protection measures. This increases
the chances that the UN Climate
Conference in Paris COP21 at the
end of 2015 will reach an effective
agreement on climate change.
HSB follows farmers into
the field
Access to insurance coverage against
the negative impact of climate
change in developing countries is
to be extended significantly, and
access to renewable energy is to be
The envisaged expansion of climate
insurance solutions in developing
countries will motivate many privatesector risk carriers to design new
cover concepts and cooperate with
new client groups in the public and
private sectors of these countries.
This will especially benefit lowincome regions, which will thus gain
access to contractually agreed financial transfer payments following
weather catastrophes and thus
become less dependent on (unreliable) aid money.
>> More information at
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Munich Re Topics Risk Solutions 3/2015
New farm equipment and machinery
breakdown coverage offers expanded
insurance for mobile implements
and the precision electronics that
control them, among other enhancements. The optional insurance for
mobile farm implements such as
seeders, spreaders, sprayers, tillers,
and their controlling electronics
addresses, for the first time, a major
gap that has existed in farmowners
insurance. No policy has been available until now that covers both breakdowns to portable agricultural implements and undetectable damage to
sensitive microcircuits or firmware
failure. The coverage will be available
through farm insurers that partner
with Hartford Steam Boiler.
>> M
ore information at
When the trains stop running
In June 2012, a landslide hit the railway lines near
Gurtnellen in Switzerland. Although the property
damage was limited, the business interruption
caused Swiss Federal Railways (SBB) additional
costs of just under 20 million francs. The entire financial loss was indemnified through SBB’s property
insurance only because of the property damage
caused to the tracks.
The risk managers at SBB realised that, without the
property damage, the rockslide would not have triggered an insurance payout, even though significant
extra costs would have still arisen. Risks not involving
property damage are highly diverse in nature, with IT
and increasing digitalisation being the main sources
of risk for so-called NDBI (non-damage business
interruption) losses.
As the most important mobility service provider in
Switzerland, SBB runs one of the densest and most
heavily-used rail networks in the world. SBB can
only achieve further growth by further intensifying
its operations, which is only possible through the
consistent changeover to digitalised train control
systems. If these were to fail, individual high-traffic
sections or even the entire country could be brought
to a standstill for quite a long period of time. Besides
the risks from IT, SBB was therefore looking for an
insurance solution that would cover all the losses
arising from any business interruption, irrespective
of the cause. Within Corporate Insurance Partner,
a “deal team” worked together with SBB to identify
and evaluate possible loss scenarios, as well as their
likelihood of occurrence and their financial impact.
Following an international tender, Munich Re and
two other risk carriers from the insurance industry
were awarded the contract.
We are drawing on the experience gained from this
project to develop comparable solutions for other
railway companies and corporate clients.
Nils Diekmann
Senior Underwriter
[email protected]
Christian Höft
Risk Analyst
[email protected]
Munich Re Topics Risk Solutions 3/2015
Katrina’s legacy
The 2005 Atlantic hurricane season had already
been exceptional by the time the twelfth tropical
depression of the year formed over the central
Bahamas on 23 August. But in less than a week,
Tropical Depression Twelve would prove ex­­­cep­­­­­­­­­­­­­­­­­­­­­­­­t­ional in its own right, becoming one of the
most powerful tropical cyclones ever observed
in the Atlantic and one of the most devastating
catas­trophes in US history: Hurricane Katrina
Mark Bove
After its upgrade to tropical storm status, Katrina
slowly moved westward through the Bahamas and
continued to intensify as it approached the Florida
peninsula. Katrina attained hurricane status just two
hours before making landfall between the cities of
Miami and Fort Lauderdale on 25 August. Katrina battered South Florida with sustained winds of 130 km/h
(80 mph), causing minor damage to buildings and
widespread power outages. After passing over MiamiDade County, Katrina weakened back to tropical storm
intensity before it emerged into the Gulf of Mexico on
26 August.
Back over open water, Katrina steadily strengthened,
quickly regaining hurricane status as it passed to the
north of the Florida Keys. As the storm moved over the
central Gulf of Mexico, it passed over an anomalously
warm Loop Current, with sea surface temperatures
1–2 °C (2–4 °F) above the long-term average.
Left: Tuesday, August 30, 2005 –
Gulfport Casino District shows heavy
damage the morning after Hurricane
Right: Sunday, August 22, 2010 –
Gulfport Casino District five years
after Hurricane Katrina.
Munich Re Topics Risk Solutions 3/2015
A combo picture shows a man swimming by the Circle Food Store with the
skyline in the background in flooded
New Orleans on 30 August 2005 (top),
and the same scene two years later
(bottom) on 23 August 2007.
This unusually warm water contributed to Katrina’s
rapid intensification. It ultimately reached category 5
strength on 28 August with sustained winds of
280 km/h (175 mph). During this time, the storm’s
wind field also expanded dramatically, with hurricane
force winds extending up to 160 km (100 miles) away
from its eye.
Fortunately, Katrina weakened to a category 3 storm
with sustained winds of 200 km/h (125 mph) before
making landfall in southeastern Louisiana on the
morning of 29 August. Heading due north, Katrina
passed about 40 km (24 miles) east of New Orleans,
then briefly passed back over the Gulf of Mexico before
making a final landfall near the Louisiana-Mississippi
border. Despite weakening, Katrina still caused extensive wind damage along the northern Gulf Coast, and
continued to cause significant amounts of wind damage over 200 km (120 miles) inland.
Munich Re Topics Risk Solutions 3/2015
The storm surge
However, it was Katrina’s massive storm surge that
truly devastated the northern Gulf Coast. Unlike
Katrina’s winds, its storm surge did not have enough
time to subside before landfall, allowing for a surge
event far more severe than the storm’s landfall intensity would otherwise suggest. Surge heights ex­­
ceeded 9 metres (30 feet) in southeastern Louisiana
and along the coast, back bays and bayous of Mississippi, damaging or destroying almost everything in
their path. Lesser surge heights extended eastward
to Alabama and the Florida Panhandle, and in all
affected over 320 km (200 miles) of coastline.
For the city of New Orleans, Katrina’s passage was
only the beginning of a much larger catastrophe.
Bounded by the Mississippi River to the south and
by Lake Pontchartrain to the north, New Orleans lies
partially below sea level, and is surrounded by a complex network of levees to protect against flooding,
and pumping stations that remove excess groundwater. In the days leading up to Katrina’s landfall,
mandatory evacuations were ordered for the city,
as there were concerns that the levee system could
fail during such a powerful storm. However, many
residents did not have the financial means to leave
the city, while others ignored the warnings and
remained anyway.
Unfortunately, the dire warnings proved accurate,
as Katrina’s surge proved too much for the city’s flood
defences to handle. Some levees were overtopped
and several others were breached, while power out­
ages knocked the pumps offline. With its defences
breached, the “bowl” of New Orleans slowly filled
up with water from Lake Pontchartrain and the
Mississippi River-Gulf Outlet (MRGO) Canal. In some
low-lying areas, the flood depths exceeded 5 metres
(15 feet). And since New Orleans is below sea level,
the stagnant flood waters covered the city for weeks
until the pumps were brought back online to drain
the city. What remained in the aftermath was a city
covered in pollutants and sewage, and building
interiors covered in toxic moulds. In all, over 200,000
homes and businesses in the city suffered some
level of flooding.
Loss of life and property
The magnitude of losses from Katrina, as well as the
aggregate losses resulting from 12 landfalling storms
during the 2004 and 2005 seasons, also dramatically
altered the landscape of insurance in hurricane-­
ex­posed states. Many insurance companies reacted
to the volume and frequency of the losses by reducing
exposures in hurricane states, particularly along the
immediate coast, causing an increase in coastal risks
borne by state-owned residual insurers. And in areas
where Katrina’s high winds and storm surge both
caused damage, lawsuits emerged around loss causation and coverage in residential policies.
As with all major natural catastrophes, there were –
and still are – many lessons to be learned from Hurricane Katrina. How has Katrina altered our under­
standing of how tropical cyclones may respond to a
changing climate? What have we learned regarding
flood defences in the United States? How did Katrina
change hurricane loss models? What types of insur­
ance coverage issues did Katrina reveal? And what
would losses from this event look like if it recurred
The legacy of Katrina is still felt today. To mark the
tenth anniversary of this extraordinary event, in our
magazine Topics Schadenspiegel 1/2015 we take a
look back and explore in even greater detail key
aspects which, to this day, have lost none of their
>> M
ore information at
Only the humanitarian tragedy of the New Orleans
flood exceeded the physical damage to the city. Over
1,000 residents who stayed in New Orleans drowned
in the flood or died from exposure or lack of food and
water. Many other residents who did not leave the
city sheltered at the Superdome, but conditions in
the stadium rapidly deteriorated in the days after the
storm and it became a crisis in its own right. Many
of those evacuated never returned to New Orleans.
To this day, the population of New Orleans has yet to
return to pre-Katrina levels.
In all, Katrina is estimated to have caused US$ 125bn
in overall damage, of which about US$ 60bn was
insured by private and government entities (all values
in 2005 dollars). Katrina’s insured loss remains the
largest loss caused by a natural catatrophe in history,
in terms of original dollars, and only the 2011 Japan
earthquake and tsunami have caused more overall
damage. Fortunately, despite over 1.7 million claims
filed and over US$ 40bn in privately insured property
losses, only one insurance company went insolvent
after Katrina. The National Flood Insurance Program
(NFIP), which covered most of the remaining insured
loss, did not fare as well, however, as US$ 15bn in
claims sent the federal programme deep into debt,
triggering calls for the privatisation of flood insurance
in the United States.
Mark Bove, a meteorologist in
Underwriting Services/Risk
Accumulation at Munich
Rein­surance America, Inc., specialises in modelling natural
catas­trophe risks in the USA.
[email protected]
Munich Re Topics Risk Solutions 3/2015
Great progress in flood control
Hurricane Katrina struck the Louisiana and Mississippi coast with devastation never before seen. The storm was a shock to American society –
but also to the whole world. The protective measures taken since Katrina
have significantly reduced the flood risk in New Orleans.
Wolfgang Kron
A hurricane landfall on the US Gulf Coast is not a rare
event. A direct hit on New Orleans is. The area was
highly vulnerable to flooding, even from moderate
storms, and exposed to a high likelihood of loss of life
and property. Any event with a return period less frequent than once in 50 years could produce significant
consequences. The city’s existing hurricane protection system had not been completed, due to a lack of
funding, and was in any case designed on the basis of
outdated criteria (IPET, 2009). Experts were aware
that a disaster could happen. An article in the journal
Civil Engineering (Brouwer, 2003) described in con­
siderable detail how a hurricane could cripple New
Orleans and how this could be prevented.
An emergency exercise had even been conducted
using as its centrepiece a hypothetical hurricane,
Pam – a storm roughly equal to Katrina in intensity.
Yet neither society as a whole nor local communities
were genu­inely concerned.
Katrina’s impact
Hurricane Katrina swirled over the open ocean as a
category 5 hurricane. Its size and wind field were that
of a monster storm. It created a huge wind set-up in
the water level long before it reached land. The water
level rose by up to 7 metres along the east side of
New Orleans and up to 9 metres along the coast of
Fig. 1: The risk process
Natural hazard
System performance = Flooding hazard
Flooding hazard
Surge and wave levels
estimated at 138 locations
Performance of entire
350-mile flood protection system
From 76 possible
2) Since 2011
Representing meteorological events with
return periods between
30 and 10,000 years
138 reaches, >350 features and transitions
Risk assessment framework used in the
IPET analysis of New Orleans
Source: Munich Re, based on IPET 2009
Munich Re Topics Risk Solutions 3/2015
Probability and intensity (depth) of flooding
Potential loss of life
vs. flood depth
Expected annual
loss of life
Pre-Katrina and new
protection systems
Potential property damage vs. flood depth
Expected annual
economic loss
With and without
Based on pre-Katrina
(2005) population and
property values
The 2.9-km-long Inner Harbor Navigation Canal surge
barrier reduces the risk of
storm surge coming from
Lake Borgne and the Gulf of
It was the largest storm surge ever recorded in North
America. A 200-km stretch of coastline was devas­
tated by strong winds and flooding. In New Orleans,
located west of the landfall point, the wind was not
the main damaging factor, but rather the flooding.
The city, which is virtually surrounded by water, was
not equipped with sufficient flood protection to cope
with the high surge level. The system failed, and
dykes and flood walls east of New Orleans and along
the numerous canals leading into the city were
breached at more than 50 locations. The “bathtub” in
which New Orleans is located was filled and re­­
mained flooded for over a month. This eventually led
to a depopulation of large parts of the city, which to
this day has yet to recover, ten years after the event.
In order to understand what happened during Katrina
and why, an Interagency Performance Evaluation Task
Force (IPET) was established in October 2005. The
objective of this engineering investigation team, led
by University of Maryland civil engineering professor
Dr. Lewis E. Link, was to learn from Katrina and apply
those lessons to the repair and rebuilding of the
storm-damage-reduction structures in and around
New Orleans. The work accomplished was reviewed
by both the American Society of Civil Engineers and
the National Research Council (NRC) and has been
reported on in a comprehensive nine-volume analysis
(IPET, 2007­–2009).
The reaction
The IPET report describes the risk from hurricaneinduced flooding faced by New Orleans prior to
Katrina, and the risk after completion (in 2011) of the
new 100-year Hurricane and Storm Damage Risk
Reduction System (HSDRRS). The report provides
inun­dation depth maps that show storm intensities
(flood depths for different return periods) and the
impact of different pumping capabilities, as well as
the expected risk of fatalities and property damage
for the pre-Katrina and 2011 conditions.
Something had gone wrong, that much was painfully clear. And it was definitely not solely the –
admittedly unprecedented – storm surge that determined the extent of the disaster. The failure of certain
components of the flood protection system – some
too low, some poorly designed, maintained and/or
constructed – allowed the water to enter the city.
Although the first failures were the physical flood
defence structures, the full magnitude of the disaster
reflected the failure of organisational structures as
well. At least 1,118 deaths were recorded in Louisiana,
the vast majority of which occurred in Greater New
Orleans. New Orleans alone suffered direct property
damage of US$ 30bn.
The US Army Corps of Engineers (USACE), which
is in charge of hydraulic and protection works along
the coasts and large rivers such as the Mississippi,
was blamed for the failure, in some ways justifiably
so, but in others not. Applications to obtain funds
for detected flaws had been denied or postponed for
many years due to budget constraints. On a national
level, the 9/11 attacks had focused fears of possible
hazards on terrorism rather than nature.
A comprehensive risk analysis
Perhaps the most critical information for any individ­
ual or organisation living in a flood-prone area is how
often and how deep flooding can be expected. Associated with this is the expected level of loss of life or
property, i.e. the risk. The IPET analysis in New
Orleans was a prototype approach aimed at providing
a new and enhanced level of this information for large
geographical areas. As a result, no other coastal
region in the US has similarly comprehensive risk
Munich Re Topics Risk Solutions 3/2015
With 350 miles of structures, a complex coastal environment, significant areas at or below sea level and
large and diverse areas of residential, commercial and
industrial assets, the New Orleans region represents
a major challenge for assessing risk. Despite the
sophisticated methods used, this complexity places
limitations on the results. They should, due to their
still significant uncertainties, be viewed as relative
quantities. For example, an estimate of losses for the
100-year flood event should not be used as a forecast.
Rather, it is a measure of the potential for losses.
The fate of New Orleans in the event of a 100-year
flood depends on the performance of the system,
which in turn depends on its ability to handle the
water levels that hurricanes (the natural hazard) place
on the system. It is a common misconception that a
100-year meteorological event creates a 100-year
flood. There are many influencing quantities in transferring a storm to a flood, from meteorological and
geographical factors to the performance of the system. All these aspects were accounted for in the IPET
Structures alone are not enough
Munich Re’s flood expert Wolfgang Kron spoke with Lewis E.
Link, Senior Research Engineer and Research Professor in the
Department of Civil and Environmental Engineering at the
University of Maryland, who chaired the IPET Task Force.
Lewis E. Link chaired the
Post-Katrina Task Force IPET.
Wolfgang Kron: The Katrina disaster
triggered flood-proofing of New
Orleans. Is the city safe now?
Lewis E. Link: The risk of losses has
been reduced drastically, but significant residual risk remains. No city by
the sea can be called safe given our
future climate challenges. The
HSDRRS* is a very substantial base
for continuing to reduce risk into the
Was the risk analysis something
Risk-based design has been around
for many years, but was not a routine
approach to analysis of natural flood
hazard mitigation, especially for such
a large geographical and complex
infrastructure system. This was definitely an unprecedented analysis at
that time.
Were the structures built on the
basis of the risk analysis?
The risk analysis provided a new
level of sophistication regarding the
hazard and greatly informed the
design. Rather than use the statistically most likely surge and wave levels for the design criteria, for example a 100-year flood scenario, 90th
percentile values were used to incorporate the inherent uncertainty. In
addition, Monte Carlo analyses were
conducted to determine the structure elevations that would be necessary to prevent excessive overtopping. Supplemental reinforcement of
backs of the dykes is being considered to further prevent breaching
from extreme events.
The expected loss figures in the IPET
are based, for comparability, on the
situation in 2005, before Katrina
struck. What are the figures now and
what will they be in future?
The combination of the HSDRRS and
planned armouring dramatically
reduces risk of loss of life and property. The residual risk, especially in
economic terms, remains significant
due to the potential for extreme
events and the uncertainty of the
impact of climate. The State of Loui-
Munich Re Topics Risk Solutions 3/2015
siana is funding a regional initiative
to restore ecosystems and reduce
risk for coastal Louisiana, which will
improve the situation.
New Orleans is often cited as a
model of the effects of rising sea
levels. What are the consequences
of climate change for the city?
While the HSDRRS considered sea
level rise and subsidence, it will not
be enough in the long term. Until
New Orleans changes the way it
manages water internally, it is
doomed to continue sinking. This,
coupled with the ongoing loss of
surrounding wetlands, means risk
will steadily increase for the city.
Is the 2012 havoc wrought by Sandy
in New York comparable to the 2005
New Orleans disaster?
The direct property losses were
almost identical, but fortunately loss
of life was much lower in New York.
This was to a large extent due to the
positive elevations in the area and
the lower water levels caused by
The team took the whole range of possible hurri­­­­­­­canes
and the water levels (surge and waves) that these
hurri­canes may generate at many different locations,
and applied this to the system to see how it performed (with respect to its design and reliability), and
to estimate how much flooding could occur at different levels of probability. From the 152 hypothetical
hurricanes used for deriving the hazard distribution,
76 were chosen to define surge and wave conditions
for the actual risk analysis computations. It is only
through viewing all of these scenarios that the big
picture of the risk situation for New Orleans becomes
Sandy. But the lack of preparation
was perhaps even greater in New
York and New Jersey, due to longterm and widespread development in
flood-prone areas.
How can New York be made more
Structures alone are not enough.
Major storm surge barriers can help
protect New York Harbor, but may
seriously increase the surge levels in
areas outside of and adjacent to the
barriers. It will take a package of
measures, including land-use management and nature-based
Are there other hotspots in the US
that might face similar disasters to
those in New Orleans and New York?
Unfortunately, yes. Miami, Tampa
Bay, Boston, Baltimore and Los
Angeles are among the world’s top
20 cities for flood risk. Houston’s risk
is also increasing rapidly as the sea
level rises.
Can we safeguard cities completely
with flood protection systems?
Never. But we can create resilient cities. Structural reinforcement is necessary when you are dealing with a
densely populated urban area, but
not sufficient. We have to change our
mentality completely, learn to live
with the water and embrace natural
systems as a means of enhancing our
well-being and reducing risk.
New Orleans today
The Hurricane and Storm Damage Risk Reduction
System in existence since 2011 has dramatically
reduced vulnerability to flooding for most of the New
Orleans region. Higher and stronger dykes and flood
walls were established over the entire area, and gates
and temporary pumps installed at the ends of the outfall canals. In particular, pumping has been designed
to reduce flood depths in 100- and 500-year flood situations significantly, in turn reducing losses and the
threat to people. A 100-year flood event is generally
the result of heavy rainfall, not overtopping or breaching from a hurricane surge. But because this system
was de­­signed conservatively to include the uncertainty in the 100-year surge and wave levels, it would
also significantly reduce probability of severe flooding
even in events with up to a 500-year return interval.
The IPET analysis considered two different pumping
levels, 50% and 100% of ideal pump capacities. Since
the performance of the pumping system is limited by
the drainage systems that convey water to the pumps,
the 50% value is closer to what is practical in real conditions.
While some areas could still experience significant
flooding and losses, the situation now represents the
best structural risk mitigation status New Orleans
has ever had. Given similar evacuation conditions
to those seen in Katrina, the 2011 system is expected
to reduce potential loss of life by as much as 86%
without pumping and up to 97% with 50% pumping
for a 100-year flood event. It also markedly reduces
potential for loss of life from a 500-year flood event
(98%). Given the same property distribution and values that existed prior to Katrina, it would reduce
direct property damage by 90% for a 100-year flood
event and by 75% for a 500-year flood event with 50%
pumping, compared to the pre-Katrina situation without pumping.
It must be stressed that the loss reduction (Fig. 2) is
based on the population and value distributions in
2005 before Katrina struck. Further studies are under
way to achieve an up-to-date risk assessment based
on current figures, with fewer people and lower
values, and future scenarios, with a probable increase
in both parameters (see interview on page 10). It is
also important to note that New Orleans is not the
only risk hotspot. A large proportion of losses in 2005
– especially the insured losses – occurred along the
coast east of New Orleans, for example in the casino
and hotel areas of Biloxi, Mississippi. The whole
coastline should therefore be in focus, not only New
>> M
ore information at
and Storm Damage Risk
Reduction System
Munich Re Topics Risk Solutions 3/2015
Fig. 2: Level of expected property losses in New Orleans
Pre-Katrina HPS (2005)
< 10%
10 – 30%
30 – 50%
50 – 70%
70 – 90%
HSDRRS (2011)
Relative property loss for different return periods of flooding at 50% pumping capacity in
2005 pre-Katrina conditions with the Hurricane
Protection System (HPS), comopared to today’s
situation with the Hurricane and Storm Dam-
age Risk Reduction System (HSDRRS) in place.
Coloured areas reflect the different drainage
basins within the city.
Source: Munich Re, based on IPET 2009
Wolfgang Kron is a hydraulic
engineer and Senior Consultant
in Geo Risks Research, and
responsible, among other issues,
for floods and storm surges.
[email protected]
You can never achieve 100% risk reduction no matter
how large you make the dykes or flood walls.
It is therefore imperative that structural improvements be coupled with additional non-structural
measures in order to help reduce the risk further.
These may include more effective evacuation
or emergency responses to reduce people’s exposure
to flooding, and flood-proofing, compartmentalisation
or land-use zoning to reduce property damage.
The key question is: what is the extent of losses that
a flood would generate? If both depth and losses
remain relatively small, the system in place is suffi­
cient. If either is large, additional measures are
needed. The results of the IPET studies, especially
the risk analysis and assessment tools, will be an
effective platform for better policy and planning
decisions aimed at hurricane risk reduction.
Brouwer, G. (2003): The Creeping Storm. Civil Engineering,
June 2003, 46-88
IPET (2007-2009): Performance Evaluation of the New
Orleans and Southeast Louisiana Hurricane Protection System. Final Report of the Interagency Performance Evaluation
Task Force, Volumes I-IX, March 2007 to June 2009
IPET (2009): A General Description of Vulnerability to Flood­ing
and Risk for New Orleans and Vicinity: Past, Present, and
Future. Supplemental Report of the Interagency Performance
Evaluation Task Force, June 2009 (https://IPET.wes.army.mil)
Munich Re Topics Risk Solutions 3/2015
We offer more than just products
and insurance solutions
The devastation that Hurricane Katrina caused on the northern
Gulf coast in 2005 changed the insurance industry. Beatrix
Hartinger, who has been in charge of the global property
business as Chief Underwriting Officer in Corporate Insurance
Partners since 2015, sees not only technical underwriting,
but also service to the client as the basis for lasting client
Topics Risk Solutions: Ms. Hartinger,
what was your personal experience
of the catastrophe in New Orleans?
Beatrix Hartinger: In 2005 I was
living and working in Chicago.
Through the US media, I followed
the dramatic events in the five states
hit by the hurricane much more
closely than would have been possible in Germany. Above all the plight
of the people there, which just
kept getting worse from day to day,
deeply affected me. The human
suffering and helplessness in the
face of that terrible natural catastrophe … we can’t allow anything like
that to ever happen again.
Katrina also churned up the insurance landscape.
Yes, quite radically. In terms of
insured loss, Katrina remains the
most expensive natural catastrophe
of all time. Handling the claims was
often a very complex matter. Coverage issues, such as differentiating
between flood and storm, and the
subsequent plundering, confronted
many insurers, brokers and clients
with enormous challenges. Quite
a number of claims were settled
in court. In addition, many insurers
reduced their exposure along the
coast as a result of the severe
hurricane season in 2005. We at
Munich Re also had to review our
assessment of the region.
What has changed since then?
We have done our homework on the
insurance side of things: we have
reworked our natural hazard and
individual risk models, and we have
improved the accumulation scenarios and the related overall exposures,
and learned from the claims and their
effects on our insurance coverage.
Today our knowledge here is at a very
granular level.
What do you mean by that in real
The way we assess exposure to natural hazards has changed decidedly
since 2005. Today we are in a position to analyse even several thousand
locations belonging to one client
at geocoordinate level, with the aid
of tools. We evaluate every single
client venue reported to us as to its
insured risks. The way we control our
natural hazard accumulation has
also improved significantly. Today
we monitor this precisely using
geocoordinates, which enables us
to recognise liability peaks and supports us early on in our portfolio
management work.
At some venues, an on-site inspection together with our colleagues
from HSB and our service unit LCE
(Loss Control Engineering) can follow. There too, we cover all the risks:
fire, explosion, storm, and more and
more flood analysis as well. Right
then and there, on site, we not only
record information and risk circumstances for our underwriting people,
we also recommend effective preventative measures for the venue.
What does this mean for our clients?
We clear up the coverage issues
more in a dialogue with the client.
The goal is to adapt the extent of
cover to the client’s specific need,
and to clarify the wording in advance
in order to prevent misunderstandings in the event of a subsequent
claim. Insurers and insured companies have been working more closely
together in estimating risk since
Katrina. That is something positive
that has come out of that disaster.
bha[email protected]
When analysing single risks, this
means that we assess them better
and can price them more fairly and
individually. And the more exact
analyses also help us in our dialogue
with the client. We discuss identified
risks and dangers, as well as our
assessment and valuation, with our
business partners.
Munich Re Topics Risk Solutions 3/2015
Not just for stars
and starlets
Covers for body parts have been a highprofile niche business since the rise of the
movie industry. But there is a great deal more
to body-part insurance than media hype. Considerable experience is called for, as Jonathan
Thomas of Watkins Syndicate explains.
Much talked-about early examples
of body-parts covers included insurance for actor Jimmy Durante’s hallmark large nose and, in the 1940s,
a US$ 1m cover for actress and
pin-up girl Betty Grable’s shapely
legs – which became known as her
“million-dollar legs”. Today, covers
range from at-risk body parts of
professional athletes, like footballers’
feet, to a male fashion model’s
chest hair.
Former American football star Troy
Polamalu’s shampoo sponsor had his
90-cm-long hair insured for a million
dollars. Why? Because the opposition
kept trying to pull the Pittsburgh
Steelers defender down by his locks.
Underwriting body parts demands
the ability to think laterally and
extrapolate, coupled with the discipline to turn down unfavourable
risks. Jonathan Thomas, Head of
Speciality on the Watkins Syndicate
at Lloyd’s, spoke with Topics Risk
Solutions about this fascinating
underwriting challenge.
How did Lloyd’s get involved in this
type of insurance?
The first requests for insurance on
body parts came from the entertainment industry, which is of course
centred in California. Lloyd’s had
made an excellent name for itself
with swift and straightforward settlements in the aftermath of the San
Francisco earthquake, so it was the
first port of call for movie actors. The
cover calls for a detailed approach
and the corporate flexibility to innovate and extrapolate from what
already exists.
In many of these cases, the risk
cohort must be tiny. How can you
possibly calculate something as
obscure as chest hair?
Well, you don’t have a cohort specific
to chest hair. What you do have is a
cohort specific to a range of bodyparts coverages coupled with an
extraordinary level of underwriting
flexibility, within a management
structure that allows you to extrapolate and contingency load for areas
where information is insufficient.
Lloyd’s syndicates are particularly
suited to offering that climate of
opportunity. That applies to specialty
covers for professional athletes too.
When a sportsperson with a recurring injury buys accident and health
insurance, many underwriters will
exclude the injured part.
Munich Re Topics Risk Solutions 3/2015
Also worth insuring:
US singer Mariah Carey’s legs
What are the main challenges in
insuring body parts?
When they come to us, we sometimes design special covers and
“buy back” parts of the excluded risk.
Years ago, I had a request for an
exclusion buyback policy on a football player’s patella tendon. It had
been partially torn and the primary
insurer had shied away from including it. I was able to take failure rates
of patella tendons used in operations
to replace the anterior cruciate ligament in order to get a realistic picture of how it could be expected to
stand up over time. I’ve worked at
Lloyd’s for 30-odd years, and over
that time many people I’ve worked
with have contributed to a kind of
lateral thinking that looks at things
in an innovative way rather than in
the top-down prescriptive manner.
Munich Re Topics Risk Solutions 3/2015
Defining the body part can be a
challenge. You have to decide exactly
what language to put in the policy.
It‘s a meeting of minds between the
insured and the underwriter. In terms
of sports disabilities, head injuries
and concussions are an emerging
challenge. The recent settlement in
the US for American football players
who sustained head injuries playing
in the NFL has lowered tolerances
and triggered a knock-on effect in
other sports. I expect to see more
and more specialised underwriting
approaches develop in this area in
coming years, partly due to this landmark settlement but also because of
the major medical advances in testing for concussion.
Could you describe the target group?
The people who approach us about
body-parts insurance tend to fall
into three categories. There are those
who think they need a policy but
actually don’t. Take, for example,
a surgeon wanting to insure his
hands. Now, I would say he should
take out a more comprehensive form
of disability insurance, because any
number of impairments – say, losing
his eyesight – could be just as careerending or limiting.
The second group would be people
looking not so much for a policy but
rather for a media opportunity.
They’re fine, because we can design
a cover that has legitimate risk transfer coupled with interesting details
that will attract media attention.
I developed a facial hair cover for a
man with a prominent moustache
that stipulated it had to be groomed
exclusively by professionals who
had passed the tonsorial examination
according to the standards of the
Barbers’ Association of America.
The third category is made up of
professionals who really need to
insure a given body part. These
include hand models, foot models
and wine tasters or perfumiers
whose livelihood depends on their
noses. And of course professional
athletes, who come to us for exclusion buyback policies.
What’s the strangest thing you’ve
ever been asked to insure?
There have been so many odd
requests, a lot of which we have
turned down. Underwriting the
cleavage of the Italian TV presenter
was quite special in that we had to
first define precisely what the cleavage comprised and what degree
of scarring would threaten her career.
Her concern was real, as there had
been a number of acid attacks. In the
end, the policy covered a larger area
of skin, including her back. It gave
her peace of mind and enabled her
to continue in her profession.
Jonathan Thomas
Head of Speciality on the
Watkins Syndicate at Lloyd’s
[email protected]
The two groups of clients we actually
do insure tend to balance each other
out. This enables us to take on the
outliers, provided we take care to
write a smaller line on them, charge
appropriate premiums and underwrite them rigorously. This way,
body-parts insurance is in fact the
same as every other line of insurance.
It reflects the lateral thinking and
detailed knowledge that characterise
how we do business at Lloyd’s.
Munich Re Topics Risk Solutions 3/2015
Natural catastrophes
Loss mitigation by learning
from losses
Tobias Büttner, Head of Corporate Claims at Munich Re
[email protected]
Ten years on, Hurricane Katrina
remains one of the costliest losses
ever sustained by the insurance
industry. Looking back on an event
of this magnitude always raises the
question of what lessons can be
learned for similar scenarios in the
future: Which measures to limit the
extent of the loss were successful?
And what part does the insurance
industry play in all this?
In the aftermath of Katrina, building
codes were improved in an attempt
to take precautions against similar
loss events, particularly in the US
states with the greatest exposure to
flooding. These efforts revealed the
importance of ensuring close coordination of public and private prevention measures. But they also highlighted the difficulties that can arise
when many different organisations
with convergent responsibilities are
involved. At the same time, the consistent enforcement of the new building codes and safety standards were
frequently hampered by a lack of viable alternatives to building in certain
areas and the scarcity of the financial
resources of those involved.
On the whole, however, recent experience with hurricanes in the US has
shown that a greater risk awareness
of all parties concerned can help to
limit the losses. For instance, there
can be little doubt that the early
warnings and large-scale evacuation
measures helped to significantly
reduce the losses from Hurricane
Sandy in 2012.
The cyclones Odisha and Hudhud in
India are another prime example of
the effect that timely and consistent
precautionary measures can have:
Odisha claimed 10,000 lives in 1999.
In 2014, the hazard zone was evacuated quickly and over a large area
before Hudhud struck. Thus, although
the two cyclones were very similar in
scale, Hudhud claimed only 84 lives.
Examples demonstrating the efficacy
and wisdom of loss prevention measures also abound in Europe. The Elbe
floods in 2002 and 2013 both caused
insured losses of around €2bn. However, the similarity in loss figures was
caused by a significant increase in
insurance density and value concentration in the region during the intervening period. The overall economic
loss in 2013 was only about half as
high as in 2002, dropping from over
€11.5bn to less than €6bn.
Munich Re Topics Risk Solutions 3/2015
This reduction was mainly due to
the expansion and improved maintenance of the dyke network. Apart
from this, preventive measures by
homeowners and firms, such as
relocating heating systems to upper
floors or sealing buildings more
effectively, also helped. Here too,
however, close cooperation between
all public and private players was
clearly an important factor in mitigating the overall loss, rather than
simply shifting the loss burden.
The insurance industry’s role in this
development goes far beyond the
transfer of financial risks. Timely
information on the potential risks
raises risk awareness and draws
attention to the options available
for prevention. At the same time,
attractive premiums help to create
incentives for preventing or at least
limiting losses.
>> M
ore information at
Preview 4/2015
Right place, right time
Many energy sources, including wind and
solar power, deliver a fluctuating supply. In
response, energy-storage technologies are
advancing. But with the progress come risks:
understanding and insuring them are key to
viable sustainable energy systems.
© 2015
Münchener RückversicherungsGesellschaft
Königinstrasse 107
80802 München
Tel.: +49 89 38 91-0
Fax: +49 89 39 90 56
Münchener RückversicherungsGesellschaft (Munich Reinsurance
Company) is a reinsurance company
organised under the laws of ­Germany.
In some countries, including in the
United States, Munich Reinsurance
Company holds the status of an
unauthorised reinsurer. Policies are
underwritten by Munich Reinsurance
Company or its affiliated insurance
and reinsurance subsidiaries. Not all
coverages are available in all
Any description in this document is
for general information purposes only
and does not constitute an offer to sell
or a solicitation of an offer to buy any
Responsible for content
Group Communications
Regine Kaiser
Group Communications
(address as above)
Tel.: +49 89 38 91-27 70
Fax: +49 89 38 91-7 27 70
[email protected]
Picture credits
Cover: dpa Picture Alliance/Brett Duke
U2: Robert Brembeck
p. 2 (1): Lee Celano/Reuters/Corbis
p. 2 (1): Hajime Ishizeki/Corbis
p. 2 (2): Getty Images
p. 3 (1): dpa Picture-Alliance/
Robert Hardin/Julian Elliott
p. 3 (2), 3 (3), 12, 13: Foto Meinen
p. 4, 5: dpa picture alliance/landov/
Michael Democker
p. 6: Rick Wilking (Top), Lee Celano
p. 9: Mark Bover
p. 9: Patrick Quigley
p. 10: Lewis E. Link
p. 14: Getty Images
p. 16: Shannon Stapleton/Reuters/
p. 17: Watkins Syndicate 457
p. 18 Illustration: Kevin Sprouls
Inside back cover: shutterstock
Editorial deadline
14 July 2015
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Lloyd’s biggest marine insurer with an extensive
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Tel.: +44 20 78 86 39 00
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Munich Re Topics Risk Solutions 3/2015
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