“We need to understand the connections”
As a leading expert on climate risks and natural hazards at Munich Re, Eberhard Faust studies risk-relevant changes in extreme weather and other natural hazards. His academic background in geoecology/environmental sciences helps him in his work. But he has a further string to his bow: Faust also studied Protestant theology, a discipline that includes elements of the Classics and Ancient History. What at first sight appears a surprising combination of subjects has proved a help in practice.
However, there is a second link between science and theology, one that was perhaps more important for Faust’s development as an environmental scientist. “During my studies in the humanities and theology, I came to realise the basic principle of the relationality of all existence, in other words that all things are related to one another. Nothing happens in isolation. I believe that this is intrinsically true of our society, and even of the world we live in. It is certainly intrinsically true of religion. But at the same time, it is at the heart of science. It is a concept that has also been expressed by well-known scientists, such as the recently deceased physicist, Hans-Peter Dürr.”
The risk researcher
“Everything is interrelated” essentially means that mono-causal explanations are less than helpful. In most cases, processes are deeply interwoven with a variety of other processes. The earth's complex climate system is a good example, but the description applies equally for the impact of natural climate variability or anthropogenic climate change on social systems. Faust says that, in many cases, these can only be understood by allowing for a “multifaceted concept comprising different stressors”, or by finding multidimensional explanations. And it is no coincidence that this is the general approach taken in the recently published Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC AR5), co-authored by many different experts, one of whom was Eberhard Faust. He cites the example of farmers in the dry subtropics, who increasingly have to cope with drought, and compete with other users for scarce water resources. For such people, climate change is just one more stress factor that exacerbates others. These include biophysical factors, such as soil erosion, or socioeconomic stressors like the absence of institutions, insurance options, inadequate economic diversification and widespread poverty.
Climate change is simply the final link in an already critical chain. But Faust is no prophet of doom and gloom. “If society is properly prepared, it will be able to cope with these challenges more effectively,” he says. For example, the chapter of the IPCC Assessment Report entitled “Key economic sectors and services”, which Faust co-authored, outlines the role that the development of the insurance market can play in low- and middle-income countries. Having insurance systems in place can provide a boost for agricultural development and reduce the financing shortfall that occurs after major natural catastrophes. At the same time, newly developed markets like these help increase the potential for diversification within the globally intertwined insurance industry.
Serving the client
One of the key messages to come out of the IPCC AR5 is that more frequent or more severe weather events in some regions will increase losses and loss variability, while in the process throwing up new challenges for insurance systems. It will become more difficult to offer affordable insurance and at the same time to raise more risk-based capital. One example of such changes is river flooding. Events of this kind are expected to increase in both frequency and severity in many regions of the globe over the coming decades. A study conducted by scientific facilities in Germany in cooperation with the German Insurance Association found a substantial increase in projected annually aggregated insured flood losses under continued climate change in the coming decades.
Such findings help insurers prepare to meet the anticipated challenges. They also support the demand for politicians and public authorities to engage in sensible planning in relation to land use and flood control. Alongside the medium- to long-term effects from climate change, natural climate oscillations tend more to modify the risks over the short term. A crucial element in this context is the El Niño phenomenon in the Pacific, whose impact is strongest in the tropics and subtropics. Throughout Eastern Asia, on the other hand, typhoon activity is subject to a multi-decadal oscillation, which is reflected in losses. Findings like these help the insurance industry improve its risk management strategy. Faust is only too familiar with the risk management requirements of insurers, since he has worked on different stages of this process.
Some years ago, he designed and programmed from scratch a risk model for European winter storms. When asked whether, in retrospect, he would have preferred to stay in academia, Faust answers without a moment's hesitation. “I made a conscious decision to work in practice and in a field that faces specific challenges from various risks of change, including climate variability and climate change. My job is to learn from scientific findings to improve risk management in the context of insurance. What are the changes like, and what impact will they have? Which new and not yet sufficiently considered hazards are on the horizon? How can insurance systems in the face of such challenges be robustly developed and stabilised at a high performance level in the future? We are looking for the right solutions for risk transfer, even under difficult conditions. We are also meeting some complex challenges. Just like in life itself.”
While Eberhard Faust the environmental scientist has a defined role in addressing the changing hazard and risk levels driven by natural climate variability and anthropogenic climate change among other factors, it is Eberhard Faust the humanist who is best able to place climate change within a wide horizon. “I am convinced that everything is related – and that our task is to as much as possible comprehend and look after the system of which we are a part so that it is capable of sustainable performance. This also includes the mechanisms of risk transfer as important means of adaptation.”