DIALOGUE GLOBAL RISK - Allianz Global Corporate
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ANALYSIS AND INSIGHT FROM
GLOBAL RISK
THE WORLD OF CORPORATE
RISK AND INSURANCE
DIALOGUE
Allianz Global Corporate & Specialty
LIGHTS! CAMERA! INSURANCE!
TV and film production poses all sorts of risks. Find out how
insurers help keep the cameras rolling until the final cut
FIGHTING FIRE WITH FOAM
How to extinguish wildfire risk is a burning issue for insurers and
business. Predictive and proactive mitigation responses can
reduce loss
MAKING A NOISE ABOUT “SILENT” CYBER
How insurers are rethinking underwriting to provide
certainty around cyber risk
FLY ME TO WORK!
Fast, economic and traffic-free - drone taxis are predicted to
take-off in a big way. How ready are they for launch?
contents
After record-breaking 2017 and 2018
CONTENTS
seasons, what can be done about
wildfire risks?
AGCS is on Twitter
Follow the Twitter handle
10
@AGCS_Insurance
GLOBAL RISK DIALOGUE
Photo: Wikimedia Commons
WINTER/SPRING 2019
So-called “silent” cyber exposures are making
EDITION
a noise in the insurance world. What are these
exposures and how are insurers responding? PUBLICATIONS EDITOR
Greg Dobie
greg.dobie@allianz.com
PUBLICATIONS/CONTENT
SPECIALIST
Joel Whitehead
joel.whitehead@agcs.allianz.com
CONTRIBUTORS
Daniel Aschoff, Florence Claret,
Gundula Eckert, Christina Hubmann,
Greg Langley, Alejandra Larumbe Milla,
Jessica Pilon, Heidi Polke-Markmann
Publishing House
Larino Design
14
PRINTER
KNP Litho Ltd, Kent, UK
GLOBAL HEAD OF
COMMUNICATIONS
Photo: iStock Hugo Kidston
hugo.kidston@allianz.com
Between dangerous stunts,
explosions and human error, a lot
DISCLAIMER
can go wrong on a film set
Copyright © 2019 Allianz Global
Corporate & Specialty SE. All rights
reserved.
The material contained in this
publication is designed to provide
general information only. While every
effort has been made to ensure that the
information provided is accurate, this
information is provided without any
representation or warranty of any kind
about its accuracy and Allianz Global
Corporate & Specialty SE cannot be held
responsible for any mistakes or
omissions.
18
Allianz Global Corporate & Specialty SE
Fritz-Schaeffer-Strasse 9, 81737 Munich,
Germany
Commercial Register: Munch HRB
Photo: iStock 208312
March 2019
2
contents
news editorial
04 News From AGCS And Allianz
in brief
As much as the insurance industry changes,
05 Loss Log: Business Interruption
many of the same risks remain. New risks
demand fresh solutions – cyber, drones. Yet,
so many perils are “old school” – fire, wind,
06 Claims: Animals And Insects
flood. In this sense, insurance is both ever-
and never-changing. This edition of Global
Risk Dialogue looks at both new and
07 Evolving Financial Institution Exposures
traditional exposures.
“Silent” cyber exposures – those not
covered by traditional property and
08 4 Questions For: Chris van Gend,
Global Head Of Engineering, AGCS casualty (P/C) policies – create a great
deal of uncertainty for customers, brokers
and insurers, alike. Going forward, AGCS is
09 Risk Consulting In Focus: Polar Haul Allianz’s Center of Competence for Cyber
and will globally manage all P/C cyber
exposures across the Allianz family. How
will this approach help us better tackle
FEATURE ARTICLES cyber risk? In this issue, we will help you
understand the approach and what it
10 Wildfire Risks means for cyber risk mitigation.
Another new peril – still evolving – is the
14 “Silent” Cyber Risks
introduction of unmanned passenger or
“drone” taxis. Although only experimental,
such vehicles promise to change
transportation and mobility insurance. How
Lights! Camera! Insurance! will the new technology be regulated? How
18 Without insurers, there would no
movie magic. Find out why
will insurance respond? Our experts weigh-in.
Finally, wildfire risks have recently “exploded”
in California, wreaking havoc on personal
and commercial property. We take a look
at a novel fire-fighting approach – spraying
Taxi! Fly Me To Work, Please!
biodegradable insulated foam onto
22 One day, unmanned “drone” taxis will
fly passengers. What are the risks?
structures and vegetation to suppress fires
and save property – to see how insurers are
using new technology to battle traditional
Aviation Claims Trends fire risks.
26 What are some of the main factors
currently influencing loss activity?
Enjoy the issue.
IN CONCLUSION
30 Risk Snapshot:
Updating A Dutch Lock For The 21st Century Chris Fischer Hirs
Group CEO
31 Content Showcase
Allianz Global Corporate & Specialty
3
News
News from AGCS
and Allianz
AGCS OPENS REINSURANCE BRANCH IN MUMBAI
ALTERNATIVE RISK
Asia-Pacific region, explore growth TRANSFER EXPANSION
opportunities and better serve global
corporate customers operating in Large companies increasingly seek
India. CB Murali, previously Head of more control over their risk
the Global Risks Division at Bajaj management beyond traditional
Allianz, will assume the role of CEO, property or liability insurance
AGCS India. products for their more complex
emerging or “intangible” risks. In
The Indian insurance market is the response, AGCS has reshaped its
world’s 11th largest (5th in Asia behind Alternative Risk Transfer (ART)
China, Japan, South Korea and Taiwan) line of business into two new
Photo: iStock
by premium volume and holds specialist teams.
India’s bustling economy has outpaced significant potential for economic
China’s four out of the last five years
growth – although the real potential is Capital Solutions brings together
AGCS has expanded into India – one of in non-life insurance, where India’s the insurance and capital markets
the largest, most under-penetrated and penetration rate is just 0.93% of GDP1. – areas where capital market
fastest-emerging re/insurance markets Predicted reinsurance premiums investors such as pension funds
– following the government’s 2016 should increase at 11% to 14% are interested in accessing
move to open the reinsurance market to compound annual growth rate (CAGR), insurance risks to diversify their
foreign companies. to $11bn by 20222. Besides 2017, India’s portfolios, for example through
economy has surpassed China as the catastrophe bonds. It is led by
AGCS’s new Mumbai branch will allow world’s fastest-growing every year former ART Chief Underwriting
for further expansion across the since 20143. Officer, Richard Boyd.
AGCS WINS TWO EUROPEAN RISK MANAGEMENT AWARDS The remaining ART practice groups
– corporate solutions, reinsurance
European Risk Management and climate solutions – continue
Awards, presented by the Federation under the existing name of
of European Risk Management Alternative Risk Transfer, led by
Associations (FERMA) and Michael Hohmann, who moved to
Commercial Risk Europe. ART from his former position as
Global Head of Liability at AGCS.
The technology award acknowledges
the supply chain analytics tool, BI In its previous, ‘combined’ set-up, ART
Prepared, a prototype app which developed into a major global line of
helps customers and AGCS manage business, contributing €1.135bn of
business interruption exposures. The gross written premiums and fronting
captive management award revenues in 2017.
recognizes a blockchain-based
prototype for captive management
which shows that international
insurance transactions and money commitment to develop innovative
transfers can be significantly solutions enabling “faster, simpler
AGCS won top place in the categories accelerated and simplified. and more transparent services.” “It is
“Technology Innovation of the an honor for us to be recognized by
Year“ and “Captive Management AGCS CEO, Chris Fischer Hirs, Europe’s leading risk management
Solution of the Year” at the annual said the awards reflect AGCS’ body.”
1
Swiss Re: Sigma No. 3/2018 3
International Monetary Fund, World Economic Outlook,
4 2
GIC Re, Red Herring Prospectus, 2017 October 2018
IN BRIEF
Loss log
BUSINESS INTERRUPTION
Risk management experts have voted the impact of business interruption as the top risk for companies in the
annual Allianz Risk Barometer for the past seven years. What are the main loss drivers?
MOST FREQUENT CAUSES OF BUSINESS INTERRUPTION CLAIMS
Storm
Fire, explosion
30% 21% Flood
Crime/disorder
2%
(354 claims)
(248 claims)
4%
(51 claims) Minor weather
(28 claims)
events
Water damage Machinery
2% Damaged goods
2%
12% 5%
breakdown
(28 claims)
(27 claims)
Earthquake
(139 claims) (64 claims)
3% Collision/crash
(32 claims)
2%
(25 claims)
Source: Allianz Global Corporate & Specialty. Based on analysis of 1,175 corporate insurance claims between
July 2013 and July 2018 which have both a property damage and business interruption loss component
Insurance claims analysis from AGCS (€2.2mn/$2.5mn), with both of these property loss2, or 45% higher.
highlights the growing relevance of totals now significantly higher than Storm is the second most frequent
business interruption (BI) as a five years ago. cause of BI loss, accounting for 21%
consequence of property insurance of claims by number with the
losses, heightened by today’s As the claims analysis demonstrates, average BI loss costing €3.8mn
increasingly interconnected and (see graphic above) the tremendous ($4.3mn), compared to around €2mn
globalized business environment. effect BI can have on a company’s ($2.26mn) for the average direct
revenues if it is unable to operate or property loss. Together, fire and
Almost all large property insurance deliver products or services can result explosion and storm incidents
claims now include a major BI from a number of scenarios. According account for over half of all BI claims
element, which typically accounts for to AGCS, fire and explosion incidents by number and almost 80% of the
the majority of the loss, when are the most frequent cause of BI loss, total value.
previously the split might have been accounting for almost a third (30%) of
nearer to 50:50. The average BI claims by number1. BI costs following a Find out more about the top
property insurance claim now totals fire can significantly add to the final causes of corporate insurance
over €3mn ($3.4mn) at €3.1mn loss total. For example, the average BI losses in the Global Claims
($3.5mn). This is more than a third loss, from a fire or explosion incident is Review and the top business risks in
(39%) higher than the corresponding €5.8mn ($6.7mn) compared to €4mn the Allianz Risk Barometer.
average direct property damage loss ($4.52mn) for the average direct www.agcs.allianz.com/insights
1
GCS. Based on the analysis of 1,175 corporate insurance claims between July 2013 and July 2018 with a total value of €6.3bn ($7.1bn) that have
A
both a property damage (€2.6bn) and business interruption (€3.7bn) component
2
AGCS. Based on the analysis of 354 fire claims between July 2013 and July 2018 with a total value of €3.5bn ($4bn) that have both a property damage (€1.4bn) and business interruption (€2.1bn)
5
component
IN BRIEF
Never work with
animals or insects…
Heard the one about the raccoon and the destroyed interior of an unlocked truck? What about
the coyote that ensured a company’s sprinkler system was permanently extinguished? Or the fowl
play from a turkey which had a gobble of someone’s leg? These aren’t just a list of bad jokes but are
actual examples of some of the many claims insurers receive involving animals and insects.
Based on AGCS analysis of more than which is when deer are engaged in the National Pest Management
470,000 global corporate and fierce mating battles. Association and the University of
specialty insurance industry claims Kentucky, found that infestations in the
over the past five years in its latest By far the most expensive insurance US continue at high rates, with 97% of
Global Claims Review: Top Causes claims result from bird incidents, respondents having treated for
of Corporate Insurance Losses which are the third most frequent bedbugs in the past year. That number
report, almost 2% (6,888) of these cause of animal-related claims (1,146). is significantly higher than 15 years ago,
claims have involved animals, costing This is hugely influenced by one type when only 25% of pest control
in excess of $500mn. of loss – bird strikes with airplanes – professionals reported treating for
for which there have been over 900 bedbugs. Meanwhile, in the UK, there
Dog incidents such as bites and claims in the past five years. The has been a year-on-year increase in
scratches are the most frequent cause average bird strike claim costs around incidents since 2006, which shows no
of animal-related claims, accounting €322,000 ($368,000) in insured losses. signs of plateauing, according to Bed
for 30% (2,077). On average they cost Bugs Limited, one of the world’s first
almost €7,000 ($7,940). The second A BEDBUG FOR INSURERS dedicated bedbug extermination
most common cause of loss is deer companies1. While bedbugs are found
incidents (particularly involving Bedbug incidents such as bites and year-round, infestations peak during the
collisions with vehicles). On average, infestations account for almost 8% (534) warmer months of the year (April to
these incidents cost in excess of €5,500 of animal-related claims received by August in the northern hemisphere). The
($6,240) and account for 17% (1,186) of insurers, according to the analysis, and problem is exacerbated by a number of
all animal-related claims received by have generated around €2.5mn factors including warmer weather, bugs
insurers. The peak period for incidents ($2.84mn) worth of claims over five developing resistance to chemical
(and claims) in the US is during years, with the number of incidents treatments making eradication harder,
October and November each year – rising. For example, the 2018 Bugs and even people returning from their
otherwise known as the rutting season, Without Borders survey, conducted by holiday with bedbugs in their luggage.
Top 5 animal-related causes of insurance loss
(according to number of claims)
1. Dog incidents 2. Deer incidents 3. Bird incidents 4. Cats 5. Bedbugs Other
e.g. bites e.g. collision with e.g. collision with e.g. bites e.g. bites, infestations 20%
30% vehicles 17% planes 17% 8% 8%
Source: Allianz Global Corporate & Specialty. Based on analysis of claims of 6,888 insurance industry
claims between July 2013 and July 2018 worth approximately €466mn ($526mn).
1
The Guardian, Bedbugs plague hits British cities, August 19, 2018
6
Photo: iStock
IN BRIEF
EXPOSURES for FINANCIAL
INSTITUTIONS CONTINUE TO EVOLVE
The financial services industry is going through significant change and directors and
officers (D&Os) have to navigate their companies through this tough environment.
Global Head, Financial Institutions (FI) Insurance at AGCS, David Van den
Berghe, identifies the major trends boards need to stay on top of.
1. FIs and their D&Os are facing which may incentivize shareholder in the Banking, Superannuation and
increasing exposure with the growing activism. Financial Services Industry”. The report
willingness of both investors and identifies areas where the financial sector
regulators to hold them accountable for 7. For FIs in Europe, the Middle East and is expected to make significant changes
matters that involve culture, governance Africa, 2018 was a year of multiple and where regulatory supervision could
and oversight responsibilities. regulatory deadlines, including the EU’s be strengthened. It remains to be seen
Markets in Financial Instruments Directive, what policy responses will be given to the
2. Boards, risk committees and senior the Payment Services Directive and the Commission’s recommendations and how
management have to demonstrate General Data Protection Regulation, and regulated entities will react. It is not
that they understand the impact of potential compliance violations with these unlikely that regulators will take a
technological innovation, cyber risks, regulations has led to higher exposure. stronger stance in relation to their
changing consumer preferences and enforcement activities.
even climate change on their business 8. In Southern Europe, Spanish banks’
models and risk profiles and that they exposure to Turkish debt and the 3. Distributed ledger technology could
are ready to take effective mitigating impact of widening spreads on Italian bring greater efficiency to custody,
actions where needed. sovereign debt on the balance sheet of payments and securities trading,
Italian banks have been noted. adding new risk control challenges.
3. From a financial perspective, we have AGCS expects more attention on
seen pressure on revenues stemming 9. In Africa, there has been a rise of security standards going forward, also
from the low interest rate environment, digital-only banks and some recent from regulators.
while since early 2018 stock market high-profile company failures, as well
volatility has also started to increase. as large crime losses, which have led 4. The Basel Committee for Banking
to a corporate governance crisis in Supervision published the final reforms
4. Banks in Australia, Korea, Malaysia, South Africa. for the calculation of risk-weighted
Singapore and Thailand are assets which includes new rules for the
experiencing rising household debt, 10. For FIs in Brazil, it is a positive sign standardized measurement of
while Chinese lenders are exposed to that, continuing in 2019, the economy is operational risk, as from 2022.
some weak regional economies and expected to slowly climb out of its deep
reliance on volatile funding. recession with new regulation likely to INSURANCE IMPACT
boost the real estate market and
5. In the UK, banks have been busy mortgage lending. For FI insurance, these trends translate
complying with ring-fencing regulation into companies buying more stand-alone
and preparing for the possibility of a OPERATIONAL RISKS transactional risk cover as well as more
turbulent Brexit. In addition, the UK cyber insurance, in addition to fraud and
Senior Managers and Certification 1. Globally, conduct risk and professional liability. With many FIs
Regime, and its 2018 amendments, sets operational resilience remain the operating in multiple jurisdictions, AGCS
out minimum standards of behavior headliners. In the UK, in particular, senior also observes a need for more efficient
and the Financial Conduct Authority executives have been placed in the line coordination of international programs.
(FCA) expects firms to promote cultures of fire and companies are facing higher AGCS is investing significantly in its
that support the spirit of regulation in capital charges following a series of network and expertise to best respond to
preventing harm to consumers and outages (technology failures). Adequate these evolving needs.
markets. data security and cyber resilience is also
a key theme in the UK’s FCA’s business
6. US regional banks are facing rising plan for 2018-2019. OUR EXPERT
shareholder merger objections while
David Van den Berghe
Canada is now ranked second to 2. In Australia, the Royal Commission david.vandenberghe@allianz.com
Australia in terms of litigation funding, released its final report “into misconduct
7
Photo: iStock
IN BRIEF
ENGINEERING/CONSTRUCTION TRENDS
4 questions for …
Chris van Gend
Global Head of ENGINEERING, AGCS
As construction projects become bigger and harder to fund, market challenges mean
many insurers are exiting the engineering sector. Regulatory scrutiny and socio-political
uncertainties threaten investments and project delays impinge on contractors’ expenditures.
Add to the mix the strain of new technologies and growing cyber threats, and it’s tempting to
sound “retreat”. But there are rewards for staying the course, explains Chris van Gend.
WHAT ARE SOME GLOBAL TRENDS doubtless continue, since developing we’ve seen them start to gain traction.
AND THEIR MAIN DRIVERS FOR THE countries need continuing infrastructure For example, building information
CONSTRUCTION INDUSTRY? investment and developed countries modeling (BIM) – 3D model-based
need to replace aging infrastructure. technology that allows for more
Many insurers are exiting the Uncertainty is the enemy of investment, efficient planning, design,
construction sector or scaling back their however, so we’d like to see a more stable construction and management – is
offerings. The past year saw many socio-political environment. replacing traditional 2D design
losses from fires, mechanical failures methods and may change how
and natural catastrophes, including the WHAT ARE SOME SIGNIFICANT DELAY IN projects are designed and delivered.
Hidroituango dam collapse in Colombia START-UP (DSU) TRENDS? WHY IS DSU But increased reliance on technology
which is estimated to be more than INSURANCE A VOLATILE ISSUE? increases cyber threats – an exposure
$1.2bn1 and which may prove to be the much less focused-on in this sector
largest construction loss in history. The Business interruption (BI), contingent BI, than in others. We help customers
sector’s problems are years in the supply chain risks – each has had become aware of new technologies,
making: growing portfolio volatility; significant insurance coverage in but simultaneously educate them
years of declining rates; and widening property markets for years. Construction about new cyber threats and the
coverages. Construction is a long-tail DSU insurance take-up has increased as importance of adding cyber risk
business. Today’s premium is from customers see the need to protect management to their risk registers.
projects written several years ago. completed project revenues – often Cyber awareness is key in today’s
driven by lenders – while, at the same world and we offer a variety of
WHAT IS THE STATE OF GLOBAL time, coverages and the insured parties coverages in the event of a cyber
CONSTRUCTION PROJECTS? WHAT have broadened. BI losses can be incident.
ARE THE EFFECTS OF PROTECTIONISM, substantial, but construction risks are
BREXIT AND TARIFFS? volatile because there is greater
uncertainty regarding rebuild-times and Find out more about AGCS’s
Construction projects are far more global the project completion. DSU exposures Engineering and Construction
than in the past, as sizeable are much more difficult to assess. Insurance at
infrastructure projects are moving more Thankfully, DSU losses are rare, but they www.agcs.allianz.com/solutions/
to international companies. Equipment is can be significant. In 2018, AGCS had engineering-insurance.
being sourced internationally and enough DSU losses to erode several
construction site risk management is years of DSU premium. Engineering
improving – a positive development from portfolios for many carriers are much
both a cost perspective and from the smaller than property books, so these
BIOGRAPHY
Chris van Gend
standpoint of a continuous process covers bring a level of portfolio volatility
improvement, knowledge-sharing to support losses and, since projects are Based in Munich, Chris van Gend
strategy among contractors. But there are non-recurring, there’s no chance to joined AGCS in 2013 as Regional
downsides: contractors operating in new recoup losses at renewal. Manager Engineering, Asia, where
territories must comply with new he developed the construction and
regulatory environments, building codes, HOW HAVE ADVANCEMENTS IN operational power portfolio and led
etc. which can lead to delays, pressuring TECHNOLOGY AFFECTED PROJECTS? underwriting teams throughout the
schedules and creating overruns. Political region. Van Gend works out of the
uncertainties can result in project delays The construction sector is slow to Munich office.
and even cancellations. Projects will adopt innovative technologies, but
1
Insurance Insider, Ituango Dam loss $1.2bn and rising. October 9, 2018
8
Risk Consulting in Focus
Polar haul
During the ‘polar vortex’, AGCS Senior Marine Risk Consultant, Randall Lund, is onsite as an 820-ton,
97-meter long petrochemical distillation splitter undergoes a four-day, 80 mile crawl – ‘the heaviest load in
Alberta highway history’.
project site at the Heartland
Petrochemical Complex, 80 miles away
Photo: AGCS
in Fort Saskatchewan.
Alberta’s provincial government calls it
the “heaviest load in Alberta highway
history” – a splitter that will separate
propylene gas from 22,000 barrels of
low-value Alberta propane per day and
process it into 525,000 tons of high-value,
easy-to-transport polypropylene (PP)
pellets per year to be used in the
manufacturing of currency, medical
products, apparel, computers and other
petrochemical products.
“This was a massive endeavor,” says
Lund. “It was a significant news story in
the local and regional press and was
AGCS is the leading insurer on the move
the culmination of a lot of coordinated
It’s a January midnight on the frozen project work by AGCS, Dacro (the
Canadian prairie near South fabricator), Inter Pipeline (the project
Edmonton, Alberta, as polar winds FACTS AND FIGURES owner), Mammoet (the heavy-lift
sweep in on a slanting snow. 820 = weight in metric tons transporter) and Kiewit (the
(about four times the contractor), local authorities and
AGCS Senior Marine Risk weight of a blue whale) everyone else involved. For AGCS, it
Consultant, Randall Lund, dressed was a real team effort – from ARC
in layers topped by a thick parka, 97 = height in meters (about the colleagues in both North America and
stands in the -30⁰C cold with length of a football field) Germany to underwriting in New York.
hundreds of other onlookers 1 = years to fabricate the A great team win!”
watching eight semi-trailer trucks splitter
latched to two-by-four, 26-line self- AGCS is the leading insurer on the
propelled modular transporter 80 = percent of all materials move, providing project cargo cover for
(SPMT) trailers bound together in a sourced in Alberta the journey to the project site and
coordinated, centipede-like line haul offloading of the splitter, once it arrives.
a piece of industrial equipment as 80 = miles for the move A marine delay in start-up (MDSU)
long as a football field onto Highway from Edmonton to Fort policy is in place to secure coverage.
14 – a combined total of 912 wheels Saskatchewan
digging into the frozen pavement. Once the project site is operational in
4= days to complete the move
late 2021, it will be Canada’s first
The hauling contraption is massive 912 = total number of truck/ integrated propane dehydrogenation
and crowds line the highway at all trailer tires on equipment (PDH) and polypropylene (PP)
times of day and night over the four- transporting tower complex.
night move just to get a glimpse. Local
media has warned the public for days 13,000 = number of direct and
of highway closures and delays along indirect Canadian jobs OUR EXPERT
the route stretching from the Dacro created for the four-year
Randall Lund
Industries assembly yard in South project
randall.lund@agcs.allianz.com
Edmonton to Inter Pipeline’s $3.5bn
9
wildfires
BURNING ISSUE:
FIGHTING FIRE
WITH FOAM
Another record wildfire season has come and gone; each new season seems worse than
the last. While mitigation against firestorms is tricky, evolving technologies like fire-fighting
foam used for pretreatment and suppression around the perimeter of a property, can help
businesses avoid peril and keep a company’s doors open as long as possible.
Each year, California burns – some commercial) and killed over 80
seasons worse than others. people1. It became the deadliest
wildfire in California’s history and the
$19BN
In 2018, major fires stretched from the worst in a century in the US2.
Oregon border in northern California
south to the Los Angeles suburbs – a Just three fires, alone – the Camp,
Estimated losses distance of over 685 miles (1,100 km). Woolsey and Hill fires – caused total
The worst was the Camp Fire (so insured losses of $9.05bn3, which could
from California
called because of its outbreak on balloon to over $13bn when final
wildfires in 2018 Camp Creek Road in Butte County), tallies are in. CoreLogic, a third-party
which broke a 2017 record for the loss estimator, places total California
number of structures destroyed wildfire losses for 2018 at between
(15,573 – 472 of which were $15bn and $19bn4.
1
CBS News, Rain could cause ash flows in town devastated by Camp Fire, November 20, 2018
2
Government of California, Cal Fire Incident Information: Camp Fire, November 20, 2018
3
Claims Journal, About $9B in Insured Losses After Three California Wildfires, December 13, 2018
4
Insurance Journal, Report Puts Losses from California Wildfires at $15B to $19B, November 27, 2018
10wildfires
So, is this a new normal? And how can
Photo: iStock
improved risk mitigation techniques
Photo: Wikimedia Commons
THE 1 MINUTE DIALOGUE
help extinguish wildfires.
u Although wildfire numbers have
Foam “coverage” for remained relatively constant,
fire-protection season-on-season, their size,
volatility and impacts have
Among fire mitigation solutions, one of dramatically increased
the more novel is the application of u Risk modeling experts attribute
environmentally-safe, biodegradable “mega-fire” events to increased human
fire-fighting foam used for pretreatment activities in fire-prone areas, more dry/
and suppression around a property’s dead vegetation due to drought and
perimeter and buildings when fire worsening weather volatility
threat is imminent. u Innovative fire-fighting methods, such
as spraying biodegradable insulated
One such solution, marketed by foam onto structures and vegetation,
Consumer Fire Products, Inc. (CFPI), have been successfully used to
a professionally trained brigade of fire suppress fires and save property
professionals dedicated to wildfire
u A variety of insurance covers are
property protection, is applied available to mitigate against fires
manually from private fire trucks and, during the wet season that
fashioned with state-of-the-art follows, mudslides in previously
equipment. The brigades coordinate burned areas
closely with local incident command
centers and operate within active fire
zones, at the behest of insurers and
other interested parties. Although the ability to know exactly
where to invest and deploy protective
In 2018, AGCS had significant services real-time is challenging, the
accumulations of customers concerted monitoring of conditions
concentrated in the areas of the with underwriters enabled protection
Mendocino Complex and Woolsey services, once deployed, to continue
Fires, with variations in topography, until conditions like wind speed, low
density of vegetation and exposed humidities and underbrush dryness
construction. The Allianz Risk diminished enough over a seven-day
Consulting (ARC) and MidCorp period to safely discontinue services.
Underwriting teams conferred and
decided conditions within these PREDICTIVE AND PROACTIVE MITIGATION
areas warranted engaging CPFI
services for certain customers Insurance can offer mitigation
California’s Carr Fire in 2018 was the 8th most destructive
wildfire in the state’s history
(see box page 13). solutions to wildfire events, through
close association with support
AGCS worked with CFPI to evaluate services like CFPI.
Of the 20 largest wildfires in California exposed locations, assess fire threat
history, 15 have occurred since 20005. and prioritize deployment of “We are pleased to support
And while data show the overall resources. Eight customers with communities struggling to mitigate
frequency of wildfires has remained significant exposure and in close extreme catastrophes like wildfires,”
relatively constant season-on-season, proximity to the forecast fire path says Scott Steinmetz, Global Head of
the size, volatility and impact of wildfire were identified, representing all Risk Control, MidCorp, AGCS.
events has dramatically increased. segments of the MidCorp portfolio.
CFPI patrolled these locations and He explains that innovative
Reinsurance and risk modeling took precautionary measures such as approaches and services such as
experts have begun using terms such clearing brush, relocating flammable CFPI’s represent a part of the new
as “mega-fires” and “the new materials away from combustible frontier in predictive and proactive
abnormal” when mentioning recent construction and, as a last resort mitigation responses and that the
wildfire trends and have identified when under imminent threat, insurance industry should be at the
some contributing trends to worsening spraying buildings and foliage with center of the dialogue as such
conflagrations (see box page 12). biodegradable, fire-fighting foam. capabilities emerge.
5
Advisen, California fires: Why there will be more disasters like Paradise, November 19, 2018
11wildfires
support and respond to wildfire events
when they occur and help solve
problems in the very communities in
which we also live. We are committed to
bringing risk awareness, property
preparation and customer service
wherever we can.”
INSURANCE SUPPORT
Besides property insurance, which covers
existing structures, and time element
coverages to protect against business
interruption, some “inland marine”
coverages can also help in the rebuilding
Source: Wikimedia Commons
phase (e.g. repairing a burned-out site
Remains of Paradise, California, after the Camp Fire, November 2018
that is damaged by ensuing mudslides).
CONTRIBUTING FACTORS TO WORSENING WILDFIRES Builders risk coverages protect real
•
• Increase in property development in and adjacent to areas between estate developers, contractors,
unoccupied land and human development (90% of wildfires are caused by subcontractors, architects and
people – accidentally or purposefully) property owners against rebuilding
or remodeling damages.
• Increase in fuel loads such as dead trees on the ground due to drought
and insect infestation, and a decrease in fuel moisture content as a result of • Installation floaters insurance
prolonged arid conditions protects machinery and equipment
• Increase in weather volatility year-on-year, as well as longer dry seasons to be installed at a project or job site
when intense seasonal wind patterns are most conducive for fire spread or in temporary storage awaiting
installation.
• Changes in fire behavior, with rapid expansion becoming more explosive
due to a confluence of extreme conditions including high temperatures, low Riggers liability covers the legal
•
humidities, strong winds, high fuel loads (vegetation and structures) and liability of contractors acting as
steep, hilly terrain riggers for third-party property that
• Multiple fires have erupted at the same time and often in close proximity, they are holding for others.
stretching the availability of fire-fighting resources and their capability for
aerial drops of retardants due to massive smoke plumes which reduce Construction block insurance covers
•
visibility. all projects until the customer’s
interest ceases.
After an event, insurers should
ramp-up communication efforts with AFTER THE FIRES, DELUGE: MUDSLIDE MITIGATION
customers – making immediate Often, heavy rains during the wet season in previously burned areas can
contact and maintaining it until cause devastating mudslides which can further exacerbate and even increase
adjusters can access impacted areas property loss.
to assess damages, advance funds
and analyze and facilitate customer According to the State of California Department of Insurance, insured losses
needs (e.g. finding temporary storage from the 2018 mudslides which especially hit the Santa Barbara area hard
locations or modifying existing resulted in 358 commercial property claims, totaling $129.2mn. Taking all
undamaged structures – as in the claims into account – commercial and personal property – the grand total
case of the help AGCS provided to a was $589.5mn .
winery in 2018 when it paid to modify Damages from mudslides can be as costly as damages from fires. Some tips to
an existing structure to accommodate mitigate mudslide dangers include:
a destroyed tasting room and enlisted
winery employees to help clean-up so •M
onitor local warnings to know if you are in a mudslide-prone area; common
the business could reopen). sense is key
• Be aware of your surroundings and the possibility of mudslides
“While our capabilities as an insurer are
•B
e mindful of the potential for large pieces of landscape, including trees,
overmatched by the nature and size of
logs, boulders and other debris fields, as well as “floating” destroyed houses,
weather patterns and resulting
buildings, vehicles, etc. to fall or move in your vicinity.
consequences,” said Brian Klepchick,
Global Head of MidCorp Property, “we
12wildfires
WILDFIRE FACTS AND
Photo: CFPI
FIGURES – 2017-2018*
• In 2018 there were 58,083 wildfires
in the US, compared to 71,499 in the
same period in 2017
• The 10-year average (since 2008)
of annual US wildfires is 69,020, up
from the 5-year average of 63,717
in 2013
• Mendocino Complex Fire in
Northern California in July 2018
was the largest fire in state history
(459,123 acres)
CFPI trucks patrol a property’s perimeter as precautionary measures
against encroaching fires • Carr Fire a week before was
the eighth most destructive in
CFPI – FIRE SERVICES FOR INSURERS California‘s history
• Both fires claimed 8,900 homes,
In 2017 and 2018, AGCS engaged Consumer Fire Products, Inc. (CFPI) – a 329 businesses, 800 autos/
brigade of trained fire professionals dedicated to wildfire property protection – to commercial vehicles resulting in
evaluate exposed locations for certain customers whose businesses were faced over 10,000 claims
with an immediate fire threat to analyze the situation and prioritize resources.
CFPI offers innovative fire protection services when wildfire threatens. • Camp Fire in November 2018 was
the deadliest, most destructive fire
CFPI trucks are equipped with state-of-the-art equipment, including an on record in California killing 88
environmentally-safe foam system which, when applied to combustible people and destroying around 530
material, creates a thermal barrier to protect property in imminent danger commercial buildings
of fire. CFPI coordinates closely with local incident command and can travel
within active fire zones. • Hill and Woolsey fires occurred on
the same day as the Camp Fire,
CFPI monitors exposures and takes precautionary measures, such as but further south, destroying over
clearing brush, relocating flammable materials away from combustible 100,000 acres combined
construction, and, in extreme cases of danger, spraying buildings/foliage with
biodegradable, fire-retardant foam. • About 10 million acres were burned
in 2017 in the US, compared with 5.4
The solution is offered where properties are most vulnerable and as brigades million in 2016
are available. Underwriters use the information gained during these monitoring
operations for ongoing predictive and early response opportunities. • In both 2018 and 2017 average
acres burned in California were
higher than the 10-year average.
HARDENING DEFENSES
* Insurance Information Institute (III), Facts and
statistics: Wildfires, 2019
Irene Rhodes, Founder and CEO of CFPI, united her backgrounds in
engineering and firefighting to create a system that automatically sprays a
90
biodegradable protective foam onto structures when a wildfire is nearby.
Rhodes has 30 years of experience responding to wildfires and says the 2017
and 2018 seasons were unprecedented.
“These were back-to-back 200 year events. Drought, warmer trends, 100%
ember fire combustion rates, and 1% humidity were all contributing factors,” percent of wildfires
Rhodes says. “There was just so much fuel from the quick growth in the spring caused by people
— enough fuel to burn 40,000 to 50,000 acres in under 6 hours — that’s a
lot of flash fuel.” Rhodes noted the fires were more terrain- than wind-driven,
feeding off dry vegetation.
“We took risk prevention and mitigation to the next level by hardening clients’
OUR EXPERTs
defenses and preserving property in partnership with policyholders”, added Brian Klepchick
Scott Steinmetz, Global Head of Allianz Risk Consulting MidCorp, “We’re brian.klepchick@agcs.allianz.com
looking into how this form of an innovative, in-event mitigation service on
Scott Steinmetz
such a large scale can be tailored to meet the needs of customers exposed to
scott.steinmetz@agcs.allianz.com
various natural perils.”
13“SILENT“ CYBER RISKS
MAKING A NOISE
ABOUT “SILENT” CYB
Hackers snag a transit system’s controls causing a train derailment. Malware snakes through
a GPS-linked navigation system, steering a ship into a bridge. Cyber risks can easily cause
physical damages or claims. So-called “silent” cyber exposures in traditional property and
casualty (P/C) insurance policies create uncertainty for clients, brokers and insurers alike.
Allianz is one of the first insurers to rethink established modes of underwriting in order to
clarify cyber risks.
It was just a pre-taste of what a real coverage1. Meanwhile, Maersk reported
global “cyber hurricane scenario” a $300mn loss from NotPetya.
could look like – and still the impact was
$3bn
disastrous for many companies globally. According to US claims analyst, PCS,
nearly 90% of the total industry loss of
In 2017, large cyber-attacks like Petya/ Petya/NotPetya was attributed to so-
NotPetya and WannaCry caused called “silent cyber exposures”, which
estimated “silent“ significant losses for businesses – are potential cyber-related losses
cyber insurance losses
insured losses for the former are stemming from traditional property
to date from NotPetya
estimated to be $3.3bn. Global and liability policies not specifically
conglomerates like Merck and Maersk designed to cover cyber risks. Cyber
suffered severe disruption of their loss events can impact multiple lines of
systems and businesses during that business beyond specialist cyber cover
attack. Pharmaceutical giant, Merck, by such as property, business interruption
far the most severely hit, is reportedly (BI), errors and omissions (E&O) or
receiving about $2bn in cyber insurance kidnap and ransom (K&R).
1
Artemis, Merck & silent cyber impacts drove Petya industry loss: PCS, November 7, 2018
14“SILENT“ CYBER RISKS
Photo: iStock
THE 1 MINUTE DIALOGUE
u So-called “silent“ cyber exposures
in traditional P/C policies create
uncertainty for clients, brokers and
insurers
u The nature of cyber risk is ever-
evolving with hacker attacks
becoming more sophisticated,
targeted and far-reaching
u Most traditional policies were
designed when cyber wasn’t a major
risk and don’t explicitly mention or
even consider cyber risk
u AGCS has been named the Center
of Competence for Cyber ensuring
a consistent underwriting approach
for cyber risks for Allianz Group,
worldwide
include a hacker creating significant
BER
disruption by opening the floodgates
at a hydroelectric dam, likely causing
significant downstream flood
damage 4 and potentially triggering
property policies.
“Most traditional policies were
designed when cyber hadn’t yet
emerged as a major risk and don’t
even explicitly mention or consider
cyber risk,” Donavan explains.
Such “silent,” or “non-affirmative,” cyber
exposures lead to inadequate
A hacker potentially could open the floodgates at a hydroelectric dam, likely causing flooding and
triggering property policies downstream
protection of customers with a lack of
certainty and transparency for all
parties involved – customers, brokers
“The 2017 WannaCry and NotPetya “The nature of cyber risk is evolving and Insurers – who are faced with
attacks highlighted the risks and rapidly and constantly, with hacker coverage uncertainty.
potential damage across all business attacks becoming more sophisticated,
areas causing significant concern targeted and far-reaching,” Donavan New Allianz Underwriting
around cyber risks in traditional says. Strategy for Cyber
P/C policies,” says Emy Donavan,
Global Head of Cyber and Tech PI, Companies increasingly are exposed to Group-wide, Allianz is reviewing
AGCS. “large-scale, multi-vector mega attacks cyber risks in P/C policies and has
using advanced attack tools”, often developed a new underwriting
Cyber goes mainstream outpacing the maturity level of corporate strategy to address “silent” cyber
IT security systems2. Besides cyber-crime, exposures, ensuring that all P/C
In the past few years, cyber risks have often it is technical failure, IT glitches or policies will be updated and clarified
gone mainstream. For the first time in human failure which cause massive in regard to cyber risks. It has
the eight-year survey, cyber incidents is system outages or data losses. nominated AGCS to establish a
the top global risk in the Allianz Risk Center of Competence for Cyber for
Barometer 2019, tied with BI. Cyber “Silent” cyber scenarios could include the entire company.
incidents can trigger not only extensive a hacker attack on a transit system
financial or disruptive losses but, causing a train derailment or a “We will make it clear how cyber risks
potentially, physical damage, BI, malware-infected, GPS-linked are covered in traditional policies and
product recall, bodily injury or even navigation system incorrectly guiding for which scenarios a dedicated cyber
life-threatening consequences. a ship3. Another silent risk might insurance solution is needed,” Donavan
2
Check Point, Achieving fifth generation cyber security: A survey research report of IT and security professionals, March 2018
3
Willis Towers Watson, Silent cyber outlook: Is silent cyber risk creeping up on insurers?, September 11, 2017 15
4
Guidewire, Aon and Guidewire launch cyber scenario for a US dam attack, October 25, 2018“SILENT“ CYBER RISKS
says. The new strategy also responds to many cases, cyber event definitions will The topic is also increasingly on brokers’
growing concern from regulators and be added to existing wordings (e.g. agendas. Aon’s reinsurance division has
rating agencies about cyber exposures property offers a dedicated cyber BI announced a “silent” cyber facility, while
in insurers’ portfolios. extension). catastrophe modeling firm, AIR
Worldwide, collaborated with
What changes? “A comprehensive solution for all reinsurance broker, Capsicum Re, to
products – while extremely challenging identify which non-cyber lines of business
For policyholders, the set-up depends – is best for everyone involved,” explains are exposed to cyber-related losses.
on the line of business, as well as the Stanislawski. “This keeps specific cyber Willis Towers Watson’s 2018 Silent Cyber
market and regulatory environment. If expertise in the lines of business where Outlook Survey highlights growing
unclarified, cyber exposures with clear they’ve traditionally been underwritten concerns about “silent” cyber exposures.
definitions of when cyber risks are and and also benefits customers by
are not covered in traditional policies providing certainty about the products “I would expect 2019 to be definitely
will be specified in policy wordings. they’ve bought.” noisier around ‘silent’ cyber
exposures,” Donavan says. “The
“There is no one-size-fits-all approach,” What doesn’t change? industry has to get a grip on these
says Marek Stanislawski, Deputy challenges in one way or another and
Global Head of Cyber, AGCS. Under updated wordings in Allianz P/C we are expected to provide attractive
policies, physical damage and bodily solutions around cyber – as today’s
AGCS policyholders will choose among injury arising from cyber events will key business risk.”
several options to tailor cyber risk generally continue to be covered. Cyber-
coverage to their individual needs and related “pure financial losses” without
risk profiles – ranging from “now- physical damage or injury, however, will
affirmative” coverage in a traditional be covered in affirmative cyber KEY BENEFITS OF ALLIANZ’S
P/C policy to an endorsement insurance solutions only (see box). NEW CYBER RISK STRATEGY
embedded into a traditional policy to a
• Full transparency, clarity and
specialist cyber insurance policy. In While the global market is beginning to
certainty of cyber risk coverage for
address “silent” cyber exposures, Allianz
customers and brokers
is a “first-mover” insurer and is engaged
in market information and education. • Increased speed of claims
settlement in the event of a loss, as
The new strategy helps Allianz better policies provide coverage certainty
measure its cyber exposure and for cyber scenarios
effectively respond to regulators and • Updated policies designed for the
rating agencies. With these efforts, Allianz new generation of cyber risks
aims to be able to better manage the
cyber aggregation risk in its P/C portfolios • Custom solutions for cyber risk
to deal with large-scale cyber loss coverage: From embedded cyber
AFFIRMATIVE COVERAGE cover in traditional P/C products to
scenarios that could potentially affect
Two scenarios multiple policyholders at the same time. standalone cyber insurance
AFFIRMATIVE COVERAGE IN • Elimination of “unknown“ overlaps
Regulators and REINSURERS RESPOND in various coverages and gaps
TRADITIONAL POLICY: Financial supervision increasingly warns
A hacker attack on industrial for policyholders
of significant “silent” cyber risk in
software causes an explosion at insurers’ portfolios. The German • Dedicated cyber expertise in the new
a factory; physical damage and supervisory authority, Bafin, has Center of Competence for Cyber
subsequent BI loss would be covered announced that it will be more attentive
in a standard Allianz P/C policy. • Clear portfolio monitoring and
to insurance “silent” cyber exposures in exposure management for
2019. The UK’s Prudential Regulatory Allianz, allowing effective use of
AFFIRMATIVE COVERAGE THROUGH Authority urged insurers and brokers in underwriting capacity and optimal
CYBER POLICY OR ENDORSEMENT: 2017 to address cyber risks, so the move capital management.
Malware leads to a disruption of is on by regulators globally to raise
production or service delivery and loss awareness.
of revenues for a company without OUR EXPERTS
physical damage; such ”pure financial Reinsurers have increasingly put
silent cyber on the agenda, as well. Emy Donavan
losses” may require a dedicated cyber
Munich Re Board Member, Doris emy.donavan@agcs.allianz.com
insurance policy, or a cyber-specific
endorsement to traditional policies. Hoepke, says: “Insurers have to Marek Stanislawski
address silent cyber exposures in marek.stanislawski1@allianz.com
their traditional policies.”5
5
Baden-Baden Reinsurance Conference in 2018
16“SILENT“ CYBER RISKS
CYBER INSURANCE TAKE-UP TRENDS:
The Allianz Risk Barometer 2019 – the eighth annual survey of over 2,400 risk management and insurance experts from
more than 80 countries which identifies the top risks for businesses – included questions about take-up trends in cyber
insurance. Global Risk Dialogue asked Marek Stanislawski, Deputy Global Head of Cyber, AGCS, to comment on
the results.
STANISLAWSKI: “While a quarter of respondents detected Was a cyber incident Answers %
a cyber incident last year, more than half did not, calling experienced in the
into question the degree of confidence we can place in YES 24%
last year?
detection and prevention systems, as there is a possibility that NO 57%
a cyber-attack was sophisticated and evasive enough that it
managed to run undetected. Companies need to constantly DON’T KNOW/
587 respondents
monitor, update and modernize their IT security measures. NOT SURE 19%
Unfortunately, as with any effort to stay ahead of this risk, it’s a
never-ending and circuitous process.”
STANISLAWSKI: “The fact that more than half of Was cyber insurance Answers %
respondents purchased cyber insurance last year goes purchased in the last
hand-in-hand with their perception of cyber as a serious risk. YES 54%
year?
The rise in take-up of this insurance product is expected to NO 46%
continue, as more and more companies become convinced of 527 respondents
the gravity and severity of cyber as a risk.”
STANISLAWSKI: “We take very seriously the message that
61% of respondents point to the insufficiency of available Cyber insurance Answers %
capacity. While traditional business lines provide world- coverage limits are
AGREE 39%
leading capacity, our Alternative Risk Transfer service can currently sufficient.
assist large corporations in structuring a tailored risk transfer DISAGREE 61%
506 respondents
solution which can overcome the insufficient capacity in
traditional markets.”
STANISLAWSKI: “It’s interesting that almost as many
respondents feel that cyber insurance coverage is priced Cyber insurance Answers %
in line with expectations as those who don’t. This seeming coverage is
agree 49%
discrepancy can be attributed to the fact that the market adequately priced.
DISAGREE 51%
is softening, despite all the exposures and uncertain 501 respondents
accumulation risk, and underwriters can’t always price
according to the technical risk. Cyber policies often include
coverage for other types of loss such as business income loss
or ransom payments and, hence, are generally underpriced
to fully cover all the various sources of insured loss because
of competition. Pricing will harden as more losses occur and
the industry perfects its modeling and analytics.”
STANISLAWSKI: “Although a vast majority of respondents There is no need for Answers %
(over 90%) agree to the need of having cyber insurance, only cyber insurance.
a little over half of them have equipped themselves with agree 9%
the product. The reason for this might be due to anything 481 respondents DISAGREE 91%
from internal budgeting constraints to uncertainty about the
scope of cover to purchasing cyber extensions on existing
policies rather than stand-alone products.“
Source: Allianz Risk Barometer 2019
17FILM/TV PRODUCTION RISKS
Lights! Camera!
Insurance!
Little magic would appear on the silver screen if it was not for the
security that insurance provides to filmmakers.
No insurer would cover James Bond Why insurance is necessary was clearly
given the extreme punishment he demonstrated during the filming for
inflicts upon his body – not to mention Spectre (2015), the 24th film in the James
the property damage he causes – in Bond series. The then 37-year-old actor
service to Her Majesty, The Queen. suffered a meniscus tear during a stunt
Daniel Craig is a different matter. The and underwent arthroscopic surgery.
latest actor to play the suave superspy, This resulted in a significant delay.
Craig, like other incarnations of 007
before him, must be insured before “With daily shooting costing up to half a
setting foot anywhere near a set. million dollars a day for a blockbuster,
18FILM/TV PRODUCTION RISKS
Photo: iStock
THE 1 MINUTE DIALOGUE
u With the high cost of film/
TV production, any delay can
significantly impact a studio’s budget
and cause losses to mount
u Entertainment insurance covers cost
and extra expense resulting from
potential delays due to injuries to
actors or props/sets/equipment
damage and equipment breakage
u The entertainment business has
grown internationally – especially in
China and Europe – and the industry
is technologically more advanced as
time goes on
u Hollywood still commands the
most insurance premiums with an
estimated $400mn annually
Activity in front of and behind the cameras translates to a lot of risk exposures for studios
losses can quickly mount if filming is the death-defying stunts and high-
delayed,” says Michael Furtschegger, octane pyrotechnics of the
Head of Entertainment International blockbusters.”
at AGCS.
Love the dramas
Between the dangerous stunts, the
kaleidoscope of explosions and human
error, a lot can go wrong on a set (see
$45mn
Annual insurance premiums
As a filmgoer, Furtschegger prefers infographic). Most studios and from the Chinese film industry
thrillers and blockbusters like the Mission independents will not start a film - and growing
Impossible series. However, when it comes unless it’s insured against potential
to underwriting, he loves comedies, delays from injury or incapacitation of
dramas and especially romances. actors, damage to props, sets and
“They are easier to cover,” he explains costumes, and equipment breakages.
with a laugh. “They tend to be without AGCS also covers extra expenses such
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