TUESDAY 25.10.11 Insurers must grasp the


automotive supply industry and semiconductor production – means contingent


A


n increasing interconnection of risk especially in two critical global industries – the


business


interruption (CBI) losses are becoming a serious problem for multi-national companies and insurers must get a handle on the true extent of this risk before it is too late. That was the stark message delivered by Ludger Arnoldussen, member


of Munich Re’s board


of management, at a press conference in Baden- Baden yesterday (Monday). He said the Japanese earthquake and subsequent tsunami earlier this year represented a wake-up call for the industry. It devastated some critical global supply chains prompting CBI claims from around the world. “Reinsurers need to think about this topic – Ja-


pan was the wake-up call,” he said. “No one can afford to have uncalculated exposures any more. More transparency and certainty is needed with this risk. Strong action is needed and we are de- termined to discuss this with our business partners. We cannot be nonchalant any more – this is no lon- ger a phantom risk, it is a real significant risk that we must deal with.” He claims that some of the big players in these two critical global industries have sought cheaper


What’s inside


2 EVENT OF BIBLICAL PROPORTIONS IS NEEDED FOR TURN 4 MULTIPLE MODELS MAKE FOR BETTER RISK MANAGEMENT 6 THE ONLY WAY IS UP FOR SOFT CASUALTY RATES 8 SEEK HIGHER PROFITS OR RETURN CAPITAL, REINSURERS WARNED 13 WHY IT’S A TOUGH TIME TO BE A RE/INSURANCE BOSS


14 TOKIO MILLENNIUM RE TARGETS EUROPE 15 ANY RATE HIKES WILL BE GRADUAL AND SMOOTH 16 REINSURERS ARE SEEKING NICHE RISKS 17 NO CONSENSUS ON FRAGMENTED MARKET 18 ENGINEERING RISKS MEAN CHALLENGES AND OPPORTUNITIES


dangers of CBI risks Contingent business interruption risks are a serious and growing problem that the industry must tackle now, warns Munich Re.


pricing at the expense of diverse supply chains in recent years. This has left them vulnerable to CBI risks. “They sought better prices but disregarded risk management. On top of this, the insurance in place is either priced too low or not specified at all. The industry must work together to ensure this risk is now understood and adequately priced,” he said. Since the Japan earthquake, Munich Re has


been conducting an analysis of this problem. It has concluded that, due to their interconnected global supply chains, these two industries specifically are at risk from catastrophe-instigated CBI losses and it has established which catastrophes pose the great- est threat in different parts of the world. Munich Re has cross referenced the global hubs


of these industries with geographical areas prone to severe catastrophe losses. It has concluded that the semiconductor production industry is at risk from earthquake risks in Japan, Taiwan and on the Pacific Northwest coast of the US and typhoon risks in Japan and Taiwan. The automotive supply industry is at risk from


earthquake risks in Japan and on the Midwest and West Coast (California) of the US while typhoons also pose a threat in Japan. “These two sectors in particular, have a critical exposure to this problem in these areas.” Arnoldussen said.


Ludger Arnoldussen, Munich Re Munich Re said it is working to help the indus-


try get a handle on this risk and find solutions. “We will give our clients chance to absorb this informa- tion. We will obviously respect existing policies that are in force but this must then be changed and we do not think that will take long,” Arnoldussen said. “As 2011 showed, catastrophes can happen at any moment and the prudent risk manager should only ever need one wake-up call before they act.” But Arnoldussen stressed that the people best


positioned to solve this problem are risk managers within multi-national corporations who have an intimate understanding of their businesses’ global supply chains. They should then work with their insurers in the first instance to find a solution as a matter of urgency, he said. “A problem such as this comes down to a lot of


detail – to pouring through lists of suppliers and that is difficult for us as underwriters to judge,” Arnoldussen said. “Also, some companies don’t want to give us that sort of information because it is confidential. That is why it is better their own risk managers tackle this problem.”


TODAY BADEN-


BADEN Research, analysis + opinion on international insurance + reinsurance


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20