08 Unpredictable nature

Since the 1906 earthquake in San Francisco, Munich Re has been closely concerned with natural hazards. Since that time, methods have been developed and a pool of knowledge created that make natural hazard risks more calculable.

Pattern or chaos?

From time immemorial, man has sought explanations for catastrophes, warning signals and safety. Do catastrophes arise from nothing, as whims of nature? Are they inevitable destiny or are they incomprehensible, unpredictable events? How predictable can a natural catastrophe, a storm surge or an earthquake be? In 1703, philosopher Gottfried Wilhelm Leibniz wrote to mathematician Jacob Bernoulli that, "Nature has established patterns that produce recurrences of events - but these only apply in a majority of cases, not all". With this qualification, he provides the key to why there is such a thing as risk at all.

Today, Benoit Mandelbrot, the "Father of Fractals", finds order parameters in complex, chaotic systems. Simply expressed, fractals are parts or sections of a whole that, when magnified, look like the whole. Preliminary results have shown the power of his fractal mathematics. Some geoscientists are already applying such methods to study the processes of natural catastrophes like earthquakes, cyclones, floods and volcanic eruptions.

The night the dams broke

February 1962: Winter storm Vincinette was blowing over the German Bight. At a wind speed of 12, it pressed water from the North Sea into the mouth of the Elbe. At about 10 p.m. the gale reached its climax. Blowing at 150 km/h, it drove a 10 m high wave up the Elbe - toward Hamburg.

The water broke over the protective dykes. Within one half hour, 50 dams broke. The south of Hamburg was engulfed by the waves. In only a few minutes, the water level rose several metres, streets were transformed into raging rivers, houses collapsed. Around 315 people were killed in Hamburg alone and 15,000 made homeless. The loss amount for Munich Re, including losses from the windstorms of the previous days, were in the vicinity of DM 16m (€ 8m). It was one of the largest and most severe loss occurrence that the company had sustained from natural catastrophes since the earthquake and fire catastrophe in San Francisco in 1906.

This was followed by the windstorm Adolph Bermpohl (1967) and the gale in Lower Saxony (1972). The series climaxed in 1976 with the Capella gale - the severest windstorm that Europe had experienced in recent history. The gale was named after the ship "Capella" from Rostock, which sank off the Dutch coast with 11 on board. Capella caused economic losses in Europe amounting to about DM 3bn (€ 1.6bn).

More and more extreme values

Windstorms are the form of natural catastrophe that cause the greatest insured material damage. Their frequency and scope have also given rise to the greatest loss burden from natural catastrophes for Munich Re over the past decades. In non-European climates, windstorms are even more violent than in Europe: 300,000 people were killed in 1970 in the Gulf of Bengal. In 1972, Agnes caused economic losses of up to US$ 3bn in the USA.

There are ever-greater concentrations of economic values in coastal regions, right where windstorms hit hardest. In 1992 Hurricane Andrew generated the greatest insured loss to date in Florida, where many hotels and important buildings were located directly on the beach (some US$ 15bn). "Only a few hundred metres further inland, the losses would have been far less severe," said Dr. Gerhard Berz. Dr. Berz was the founder and GeoRisks Research at Munich Re and headed the unit for many years. He traces the problem to "home-made" global warming. There is scarcely any doubt today that the growing numbers and intensities of windstorms, severe weather events and floods throughout the world are attributable to the rapid increase in air and ocean temperatures.

In 1978, Dr. Berz' research group presented the "World Map of Natural Hazards", which has proven to be the "a real hit" and is still today a unique source of information for scientists, engineers and the insurance world. It has meanwhile also become available as an interactive CD-ROM. In addition to this, the research group conducts detailed studies on hazard scenarios in individual countries, and more specifically, on possible claims burdens for individual insurance companies and markets. To this end, the team - headed by Prof. Peter Höppe since 2005 - has developed complex software with which the major natural catastrophes can be modelled.

A rising loss trend calls for risk partnership

Over the past decade, the numbers of major natural catastrophes have tripled compared with the 1960s. Economic losses have increased by a factor of seven and insured losses by a factor of no less than 15 - a truly dramatic rise. In 1995, Munich Re spoke out in favour of more risk partnership between all the parties involved: insureds, insurers and reinsurers together with governments and authorities, suggesting that insurers and reinsurers could provide their expertise in searching for solutions.

Scientists cite the main reasons for the alarming increase of catastrophe losses as being population development and urbanisation, concentrations of values, settlement, the higher degree of exposure to the disasters of modern industrialised societies as well as climate and environmental change.

Accumulating knowledge — Sharing experience

Over the past 30 years, Munich Re has been documenting and analysing information on natural catastrophes from around the world. The nucleus of this work is a database of loss events, in which information on natural hazard losses from all over the world has been compiled and administered since the mid-1980s. NatCatSERVICE® is not only designed to document the scopes and intensities of individual natural hazard losses in different regions of the earth. It can also be used for regional and global exposure analyses and to study trends.

With NATHAN (NATural Hazards Assessment Network), Munich Re provides insurers in particular with sound, continuously updated information on natural hazards. In the online application, the user has the interactive "World Map of Natural Hazards", access to Munich Re NatCatSERVICE® and a large quantity of economic data on specific regions. In future, the Geo Risks experts at Munich Re will continue to maintain close dialogue with the research and insurance world to increase and share knowledge.