06 The changing face of risk

In former times, people were afraid of influenza or the steam engine, whereas nowadays they are worried about natural disasters and terrorism. Risk and the awareness of risk have undergone a major transformation in the past 125 years.

Risk in 1880

On the eve of the new century, Bavaria is shifting from an agricultural to an industrial society, although agriculture continues to be a mainstay of the economy. Society's requirements are geared to the people's daily needs. What families strive for is work, a roof over their heads and food on their tables. Various insurances (fire, hail, glass, accident and marine) exist to secure these elementary needs and are soon to be followed by health and life insurance.

These are the established classes with which Munich Re starts transacting business. But its visionary founding father Carl Thieme knows that major economic and social changes are about to take place. The steam engine rings in the age of industry. It brings both progress and risk. Boiler explosions and bursting flywheels cause completely new and unprecedented material damage and bodily injury in factories and their surroundings. Risks become increasingly multi-dimensional. Man, machinery and society are affected by losses in many different ways. A novel mixture of risks arises involving property, liability, health and life insurance at both the personal and industrial level.

Economic growth — Growing risks

Back in the olden days, we considered things dangerous that we now take for granted. In 1835, when the "Adler" (Eagle), Germany's first locomotive, raced from Nuremberg to Fürth at the break-neck speed of 30 km/h (19 mph), people feared that they would get dizzy just from watching. They thought that those who were foolhardy enough to take a ride on it were risking their lives, and were convinced that our brains could not tolerate such high speeds. Nowadays, this sounds comical to us, but in reality we have simply learned to live with evolving new technologies. As technology progresses, the need for safety rises.

The purpose of technology is to eliminate risks, but in fact it entails new risks of its own. Take the Titanic, for example. Its steel hull was an innovation. The oceanliner was considered unsinkable. No one was aware that, due to its high sulphur content, steel is as brittle as an eggshell in cold water. So, instead of an iceberg, a far smaller knock would probably have sufficed to make the ship sink.

The material values created during the phases of worldwide economic growth in the 20th century were higher than ever before. Construction, machinery, export and electronic equipment insurances flourished. In parallel, there was a huge increase in values in the personal sector. The people's wish to secure their existence was supplanted by a desire to secure their prosperity. Today, we are confronted with a complex network of systems that bear correspondingly high risks. And since these systems strongly interact with each other on a global basis, we find them unfathomable, be they factories, the stock market or a computer network. We are accustomed to thinking in terms of linear processes, therefore we find it difficult to grasp structures where many different things happen simultaneously. The challenge lies in acquiring skills that help us understand the complex risk structures of our time, think in networks and assess risks.

Opportunity : Risk

The urge to control risks can be traced back to ancient Egypt, where various grave paintings depict the astragalus, a kind of dice made of sheep's knucklebones. It was used in gambling and already back then attempts were made to calculate the probability of rolling a certain number on the dice. You may dismiss this reference as it relates only to gambling, but the point is that the aim was to determine the odds of losing or rather the chance of winning, which shows that risk and opportunity go hand in hand.

This is the subject of an exhibition entitled CHANCE : RISIKO that Munich Re will stage at Haus der Kunst during its anniversary year. From 1 July until 1 November, we will demonstrate how risk, paired with our wealth of topics and knowledge, drives development. After all, our daily dealings with the burning questions of the future allow us to identify risks and simultaneously seize the opportunities deriving from them.