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  • Megacities extremely vulnerable to natural perils, technological risks, terrorism and environmental hazards

  • More risk awareness and greater transparency urgently needed with regard to hazard exposure

  • Munich Re presents its views at the UN's World Conference on Disaster Reduction

Megacities, i.e. conurbations with ten million or more inhabitants, are exposed not only to natural hazards but also and above all to technological risks, environmental hazards, and terrorist attacks. Such agglomerations are highly complex major risks, which present the inhabitants, politicians and the insurance industry with huge challenges. Munich Re therefore calls for more risk awareness and prevention from all concerned. Greater transparency in terms of loss potentials and liabilities is a further prerequisite for insurability because major losses cannot be ruled out even if prevention is optimised.

Stefan Heyd, whose responsibilities on Munich Re's Board of Management include corporate underwriting: "Megacities are exposed to all the classic risks, but their exposure and vulnerability are disproportionate. They create risks of new dimensions – megarisks. Conurbations in coastal areas could be threatened by tsunamis, for example, whilst Tokyo and Miami are instances of megacities in areas with major earthquake and hurricane exposures respectively. Future decisions on the sites to be chosen for development must take new findings into account. A concentrated effort must be made to improve risk prevention and control. The losses that may be caused by natural hazards, technological risks, terrorism and even epidemics must be identified and modelled in advance. This is the only way to ensure that the enormous range of megacity risks can be insured on a sustainable basis."

Megacities – Megarisks

Conurbations are exposed to a wide variety of hazards, the first of these being natural hazards, weather and climate risks. The heat island effect of large cities amplifies the impact of global climate change. Peter Höppe, new head of Munich Re's Geo Risks Research Department: "In the unusual European summer heatwave of 2003, for example, the number of people who died in cities was vastly disproportionate to the population as a whole, and this despite the generally greater availability of healthcare services in urban areas."

Second, conurbations are at risk particularly in connection with accidents in the industrial sector and road, rail or air traffic accidents. Epidemics are a further threat, not least because of the relatively crowded conditions of human life in conurbations.

Examples of major loss events in conurbations

In 1906 an earthquake reduced San Francisco to ash and rubble. 3,000 lives were lost in collapsed buildings and the subsequent fires. Measured in terms of business volume, this loss occurrence remains even today the greatest loss Munich Re has ever incurred from a single catastrophe, costing almost 15% of its premium volume at that time.

The largest technological accident in human history occurred in 1984 when a highly toxic gas leaked from an industrial plant in the Indian conurbation of Bhopal. As a consequence, 20,000 people have since died and untold numbers are still suffering from after-effects.

Further risks that are very difficult to assess in megacities are those deriving from the large and complex public utility networks. When explosive substances spread through the sewers in Guadalajara (Mexico) in 1994, whole streets were soon blown up. A further problem in megacities is air pollution due to ozone or dust and soot particles. A study has shown that in Bangkok 1,400 deaths are attributable each year to dust exposure. Since the attack on the WTC towers there has been a widespread awareness of the threat from terrorist attacks.

Natural hazard risk index and geocoding make risks more transparent

These examples demonstrate the need for modern tools of risk prevention and control. Owing to the increasing concentration of people and values in conurbations, it is necessary to identify the dangers to which the population is exposed and at the same time to analysis the effects on life, health and disability insurance. In the property insurance sector, enhanced risk awareness has had a very stimulating effect on demand, especially in connection with major risks. Particularly in this respect, therefore, it is necessary to strive for greater transparency regarding the hazards involved. To this end, Munich Re makes use of two future-oriented tools with a view to establishing or maintaining insurability: firstly, the natural hazard risk index for megacities developed by Munich Re (see attachment), which makes it possible to assess the potential extent of loss in a megacity as a whole and to compare megacities in this respect; secondly, geocoding, which allows a pin-pointed record of insured risks and loss accumulations.

Munich Re at the UN's World Conference on Disaster Reduction

The earthquake that directly hit the Japanese megacity of Kobe on 17 January 1995 with a magnitude of 7 on the Richter Scale claimed the lives of far more than 6,000 people. With economic losses of over US$ 100bn, it is still the most expensive natural catastrophe ever. At US$ 3bn, the burden on the insurance industry was much lower.

Ten years after this occurrence, from 18 to 22 January 2005, Kobe will host the World Conference on Disaster Reduction initiated by the United Nations. Munich Re speakers will present their knowledge of the scientific and technological aspects of the various risks connected with megacities and analyse the respective insurance issues.

New publication on megacities

Munich Re's new publication entitled "Megacities – Megarisks: Trends and challenges for insurance and risk management" is now available online at www.munichre.com. In this brochure, Munich Re authors take an in-depth look at the risks from the insurance perspective and discuss insurance solutions with a view, for example, to the expected increase in demand for insurance coverage.

Note for editorial departments:
In case of enquiries, please contact Florian Wöst on +49 (89) 38 91-94 01, who will put you in touch with Prof. Peter Höppe and Dr. Anselm Smolka when questions of a specifically scientific nature are involved.

Munich, 11 January 2005

Münchener Rückversicherungs-Gesellschaft
signed Heyd           signed Küppers

Disclaimer
This media information contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.