Location risk intelligence

Mark Maroon:

Hey, everyone. Welcome to Climate check. This is Mark Maroon, Vice President and Head of Portfolio Management and Reinsurance at American Modern, a Munich Re company.

Today we're joined by Thomas Walter, Product Marketing Manager for Risk Management Partners at Munich Re.

Thomas, thanks so much for joining us today.

Thomas Walter:

It's great to be part of your podcast today.

Mark Maroon:

Oh, it is great to have you. So maybe just to start, can you tell us a little bit about your role and a little bit about Risk Management Partners' focus?

Thomas Walter:

Yeah. Risk Management Partners is developing and also marketing a software solution that allows our customers to master physical risks coming from natural disasters and climate change. And the solution is called Location Risk Intelligence. It was developed for Munich Re internally in the beginning, and now we are happy to sell it to over 200 satisfied customers worldwide since six or seven years in the meantime.

Mark Maroon:

Oh, that's great. So maybe can you just give everybody a little bit of a high level overview of what Location Risk Intelligence is?

Thomas Walter:

Yeah. It's a digital solution that allows our customers to understand in detail how high their risk exposure is to natural disasters, physical climate change, and also the financial impact of climate change. And in order to understand, measure, and then also to find the right mitigation measures for their business challenges they have.

And, as our customer portfolio is very broad and heterogeneous, um, the demands of our customers are also very different. Ranging from doing a good underwriting exercise and, and doing a perfect pricing for my insurance activities, ranging over to meeting their requirements of reporting for any companies, um, in Europe mainly, but also across the globe.

Mark Maroon:

Uh, that's great. So, I mean, given the broad swath of insurers and businesses who take advantage of a product like this, maybe can you talk a little bit about how the climate change and extreme weather tend to impact them?

Thomas Walter:

So if we look about businesses located in Europe, we can see a quite interesting or, um, situation at the moment. Because on the one hand side the drought stress and the heat stress is increasing, which is putting pretty new challenges to really, say, production facilities, transportation routes, securing your supply chain on the one hand side.

On the other side the precipitation stress is also increasing heavily. And we have seen, for instance, heavy of, amount of hailstorm across major European countries. In Italy, in Germany we have had severe hailstones, we have made record measurements of the largest hailstone sizes that were ever found, approximately weighing up to two pounds.

So this is a massive impact your real estate has, your production facility has. Or the products that you were producing, like cars or raw materials, and if they are in contact with those natural disaster once this will have a ma- massive impact on your business targets, on your loss ratio, et cetera.

So here we help the companies to understand the risk before it's going to happen. And we might say that the climate change is only leading to a small increase in average temperature, but we need to understand that this small increase of average temperature is resulting in a huge increase of probability of extreme weather wins and therefore losses.

And climate change is not limited to any country, it's, it's a global issue. And we are serving it also with global data as Munch Re is globally active. And in order to do our own business, um, we need to understand the risks of natural disasters and climate change worldwide.

50 years ago we recognized internally that climate change is impacting our business, and this is why Munich Re set up this huge database, in order to understand our business better. And our customers got to learn about it, and they wanted to have this data too. And we started with the first articles and press releases about it, then we had the global map of natural disasters, and that showed everyone the risk exposure they are facing. And this is how our customers got aware of it.

And in the meantime, we serve customers in the insurance industry, but also in banking, financial institutions, in real estate, but also manufacturing companies and service providers rely on our data for various activities they need to do. And also they, they have to do in order to comply to regulations.

Mark Maroon:

Well, what kind of regulations do you see that they typically tend to come across?

Thomas Walter:

So it also depends here on the industry they are, um, in. And, for instance, financial institutions have to meet various requirement they need to do in order to do proper financial reporting. But in Europe, for instance, over 50,000 companies are in the meantime pushed to deliver transparency across their climate risk exposure, including physical climate risks.

And this is where they need to report in detail about their risk exposure, and what kind of mitigation activities has. And, um, how they are prepared, or how well they are prepared for the future and the challenges that they are facing also from climate change.

Mark Maroon:

Yeah. So maybe let's follow up on that a little bit. So if we just kind of go forward with the assumption that the exposure to the climate risks that these industries have increasing, is there a way for insurers or maybe some other financial institutions to mitigate the impact so they can remain a sustainable resource for the organizations that rely on them?

Thomas Walter:

Yes, absolutely. And in order to, to find the right mitigation measures, the right risk transfer solutions, for instance, they need to understand their risk exposure at first. And I think this is the, the highest problem and difficulty most of our customers have, they are kind of blind.

They do not know, "Where is the exposure? Or how highly am I exposed to risk of natural disasters and also climate change?" Which is change, uh, includes it, which is moving or changing and becoming more intense.

And this is what is creating a big difficulty for them. At the moment they just feel that the risk is materializing much more often, much more intense than what they were used to compared to in the past. But they don't know how this is going to develop.

And understanding this, um, development of how climate change is impacting the events of natural disasters is a super critical resource of information they need to have in order to make better business decisions.

Mark Maroon:

One of the themes that we have across the series is sort of trying to address the insurability gap that we see on a global basis, certainly insurance penetration is going to be a little bit better in some regions than others.

But maybe can you help us understand how our commitment as Munich Re to expand insurability and resilience in the face of climate change isn't really about sidestepping risk, right, or leaving businesses without the coverage that they need, but helping to provide solutions.

Thomas Walter:

E- exactly. So we, we cannot take away the climate change, uh, we (laughs), we have, we have no chance, unfortunately. However, what we can do is we can inform our customers precisely about what we predict for the future, and what our data predicts for the future.

And this information is of so much value, um, because it allows you to act proactively, to understand the risk before something is happening, and to take the right mitigation activities.

Mark Maroon:

Well I'm sure, maybe just to pull on that string a little bit further, I'm sure that you've seen a lot of different examples of mitigation being done across different industries. Maybe can you just give us a couple of examples of some of the more material things that you've come across?

Thomas Walter:

Yeah. The, the mitigation, um, activities, they differentiate between the industries widely. So for an insurance company it's the question, "Where do I wanna have, uh, which kind of risk?" And we can see insurance companies stepping out of higher prone areas, and they do not provide any coverage anymore in that areas.

We can see that banks are hesitating in providing loans and credit to house buyers, because they are uncertain about how the climate change will affect the value valuation and value development of property in certain areas.

And if we look at, uh, manufacturing companies, we can see that climate change and natural disasters have the power to impact global supply chains, create supply chain disruptions, and create severe losses, profitability problems, and also, um, credibility in the market, because they cannot fulfill their commitments towards their customers.

Mark Maroon:

And I think we're starting to see a little bit of an increased emphasis, especially on the manufacturing and the supply chain side, in terms of business interruption or contingent business interruption and the potential payouts there.

So is that something that really comes across your radar too much?

Thomas Walter:

Oh, yes. Certainly. I think Corona pa- pandemic was, um, the, more or less, the multiplier of the world, um, supply chain disruption, so everybody's aware of supply chain disruptions. And we have to see, even if Corona is kind of managed, yeah, in a way, um, still supply chain disruptions exist.

And one of the main drivers for supply chain disruptions is natural disaster events, because they have the power to stop production from your own production sites, but also from your suppliers. And as the majority of supply chains is global, because some parts of the components is coming from anywhere across the globe, you will be hit by any kind of natural disaster event, um, with a high probability.

Mark Maroon:

It reminds me of that old proverb, where if you see a butterfly flaps its wings, halfway around the world you see the impacts on the other side, right? And certainly, if you start to see some extreme events happening in certain places, yeah, it shouldn't be a surprise that potentially you're going to find some impacts on a global basis.

So, Thomas, I think that's a great place for us to maybe put a bow on the conversation. Thank you so much for joining us today.

Thomas Walter:

And thank you, it was a pleasure.

Mark Maroon:

And listeners, if you liked this episode, please subscribe to our podcast for easy access to past and future episodes of Climate check. And as always, for more information head on over to munichre.com/climatecheck. We'll see you next time.