Partnership needed
Member of the main board of Munich Re. responsible for Europe, Asia and Africa, Karl Witmann, was in South Africa recently for the release of their local company’s results.
He says that while Q1 achievements are up, the challenge now is to make that sustainable.
“Our industry has a sad track record, it is cyclical and unprofessional, and dictated to purely by availability – when capacity is scarce then prices go up, and visa versa. We want to change the way this is done.”
He called on reinsurers to move and get away from unprofessional cyclical behaviour. They (Munich Re. will focus on bottom line – profitability. They want to teach themselves that they wish to provide risk adequate prices and terms and conditions.
Here is an example of what he means: Let us look at three areas where risk adequate prices could and should be applied in the life, motor car, or earthquake areas.
The exposure is different. For example it is more risky to cover a motocross rider than a couch potato, or to cover a car which is on the road often, compared to one in the garage. In terms of earthquakes – it is more risky in Tokyo, than Germany.
One thing that does remain constant though is that there are three partners in the process: policy holder, insurer, and reinsurer.
Reinsurers have the stats, actuaries, scientists, and specialists, plus lots of data and material. “We need to come to consensus in terms of the risk and exposures. We need to look at the price, and terms and conditions. If the exposure changes, then the price will change.”
The risk partnership applies to the phenomenon of global warming, There are three parties, with the governments entering into the equation.
“They need to play three roles and have three responsibilities.”
Internationally they need to reach consensus on tackling global warning and the development of renewable energy. There has been some movement in Rio, Kioto, and more recently Bonn.
“Secondly local government has to step into the equation.”
“Buildings should not be built in exposed areas, like riverbeds prone to flooding, and in earthquake zones builders and local governments must ensure that building codes are adhered to.
"Thirdly governments need to understand that there is no profit.”
Governments the world over tax reinsurers on balances left over at the end of financial years, not realizing that those funds are generally kept to take care of the catastrophe when it happens. And it will eventually happen.
There is no financial year end when it comes to catastrophes.
