Global Trends and Politics

The number will increase

Is the current wave of refugees merely the beginning? Nikolaus von Bomhard expects that climate change will uproot even more people. An interview with the German magazine "Der Spiegel".


SPIEGEL: Mr. von Bomhard, new refugees fleeing war and terrorism, or seeking a better economic future, arrive every day here in Munich. Is Germany able to handle this influx of refugees?

Von Bomhard: Yes – even if we assume that up to 1.5 million people will in fact arrive this year. Currently about 40% of them are granted asylum or are accepted as refugees, which would make around 600,000 people. We can handle that. On the other hand, that also means that we actually have to deport the other 60%.  We already took in more than 400,000 refugees during the nineties. And of course there are limits if the flow continues for years; both economically and with regard to the societal willingness to integrate.

Some economists consider this wave of refugees to be an impetus that will stimulate the economy.

Naturally there will be a short-term stimulus. On the other hand, we could achieve the same result by investing the money elsewhere. Either way, the money spent will not be a wasted investment. The more important point is that the influx will solve part of our demographic problem and can help secure our standard of living long-term; successful integration being the decisive factor in this respect.

Germany needs immigration. The alternative to immigration is a lower standard of living in the medium term. This is a truth that needs to be clearly stated, and our leaders have failed to do so in the past.
Nikolaus von Bomhard
Chairman of the Board of Management of Munich Re

What has to happen immediately for us to bring the refugee crisis under control?

Creating transparency is very important. On the one hand for the people arriving: they have to be told what prospects they can expect here – and what not. On the other hand, we have to make it clear to Germans what rights refugees and immigrants have: what they are entitled to and what not, and who can and cannot be deported. Right now, very few people are in a position to judge whether most of those now arriving in Munich will be sent back again, or whether they will all stay and eventually bring their families as well. We have to dispel the uncertainties that are resulting from this lack of information. This would also eliminate a potential breeding ground for certain radical movements, which are currently benefiting from this diffuse fear amongst the population.

Would an immigration law be helpful in this regard?

Definitely – because Germany needs immigration. The alternative to immigration is a lower standard of living in the medium term. This is a truth that needs to be clearly stated, and our leaders have failed to do so in the past.

And that is why we are facing these problems. What would an immigration law need to look like in order to solve them?

I am not an expert in the field. But generally, one would expect an immigration law to determine how many people are allowed to enter a country, and what professional qualifications and language skills they need to have. Candidates could then apply from their home countries, instead of having to try to get themselves smuggled into Europe first. Much of what is currently happening is more akin to chaos.

You argue that our political leaders have failed us. But how is industry helping to solve these problems?

Industry has been exceptionally receptive to date. Which is no wonder, since we currently have 600,000 jobs open: we need manpower. Industry wants to bear its share in dealing with our current challenges. But integrating and training refugees takes time and money.

Though of course they need a roof over their heads first. There are a lot of empty dwellings in Germany – just not in big cities like Munich, Hamburg or Berlin.

That is also a task for government. We are currently faced with a large number of refugees, many of whom will stay, and Germany's institutions are not equipped to deal with the situation: whether it be the lack of sufficient concepts to house the people, or the fact that the application process still has not been digitised. Even though this flow of refugees did not materialise overnight.

You have warned that the number of refugees will even increase significantly in the future, since people will be fleeing the effects of climate change. Is the current wave of refugees just the beginning?

I fear that this is just the tip of the iceberg, so to speak. There are already roughly 60 million refugees in transit worldwide. This figure will grow if we are unable to contain the increasing number of conflicts in so many countries, and if climate change continues to progress. Climate change has the potential to become a main driving factor behind future displacements.

Are we already seeing any appreciable migration due to climate change?

Extreme weather puts natural resources at risk; for example droughts in Africa cause hunger and migration. Other countries with low and densely populated coastlines, such as Bangladesh, are being threatened by rising sea levels. Climate change effects, such as more frequent water shortages, will be felt in Europe as well; I am thinking for example of southern France, Spain or Italy. Those areas will also see displacement.

As an insurer, Munich Re has a vested interest in warning about climate change – after all, the company makes its money insuring such risks as well. Are you not painting too bleak a picture?

No. The grave damage caused by natural disasters is real and measurable. Generally, things are turning out more or less as we had expected, and in some cases even worse. And to respond to your charge: we have been promoting risk prevention for years. We want to see risks decreasing, not getting more severe.

We think that that strategy is also more or less based on business considerations. Your annual report states that there is hardly a greater risk for the insurance industry than climate change. Is it possible that it may one day threaten the sector's very existence?

A moment ago you accused me of painting too bleak a picture of climate change, and now you are asking whether it could threaten the entire industry. Neither is correct. As insurers, we are not even close to reaching our limits in terms of capacity. For example, large parts of Asia are still severely underinsured against damages caused by climate change.

Now you are using marketing spin again – despite the fact that reinsurance premiums are currently under pressure. Can it be that people's need to buy insurance is not as great as you claim it is?

Demand for natural catastrophe insurance is increasing, though more slowly than the offers to cover such risks. That is why pricing is currently under pressure.

In any case, the influx of refugees has little to do with climate change right now. However, might the current crisis increase the world's chances of agreeing on ambitious targets at the UN climate summit this November in Paris?

A global climate agreement with binding carbon reduction targets will limit future migration to Europe much more effectively than new border fences, or more patrol boats in the Mediterranean. For this reason, Paris can and must send out a positive signal. Though the decisive factor in the end will be less the commitments on paper, and more the actions governments actually take. The underlying dilemma is the short-sightedness of our politicians, who are so unbelievably reluctant to plan or take action beyond a single legislative period. They have to finally start addressing the root causes of migration, of which climate change is one.

Is it still even possible to meet the two-degree target?

If everyone makes an extreme effort, we could still achieve it, though in the meantime we have very little room left to manoeuvre. The Kyoto Protocol expired in 2012. So, from that perspective, we have been sitting in a political vacuum for three years already. The longer it takes us to get properly on track towards decarbonisation, the more our level of prosperity will suffer, due to losses and adaptation costs.

Does the business sector need more pressure as well? Heavy industry is one of the largest emitters of carbon dioxide.

German industry has a very tangible desire to do the right thing. Companies have been investing massively in clean, new technologies. But there are limits to what they can bear, especially in energy-intensive sectors. Beyond that, a company can no longer remain competitive internationally. We would need global standards of competition in this respect, for example a single carbon dioxide price applicable to all market players.

Yet the current VW scandal – featuring manipulation of nitrogen oxide levels – shows that large companies will stop at nothing to undermine climate protection measures.

It is not my place to comment on what happened at VW. All I can say is that it is up to management to comply with minimum standards of business conduct. They are also responsible for creating a culture in which * Martin Hesse and Alexander Jung at Munich Re's headquarters in Munich. everyone is aware of the fundamental values that need to be upheld. If the culture is inappropriate, poor decisions will be made.

As a reinsurer, you are committed to fighting climate change, yet your clientèle includes some of the worst climate offenders, namely the oil, gas and coal industries. How can you reconcile that?

There is no simple answer to the question of how to deal with industries that produce a lot of carbon dioxide. For example, if we insure an oil platform in the Gulf of Mexico, and thereby prevent the afflicted from having to bear the cost of a potential leak, is that good or bad?

How do you answer?

When we insure such risks, we make sure that risk management standards are upheld. And if an accident does nevertheless happen, we make sure that everything is done to – staying with my example – seal the leak as quickly as possible and eliminate the damage, using funds that the company in question might not even have had available.

With a portfolio valued at €240bn, Munich Re is an investment powerhouse. How heavily are you invested in companies that earn their money with fossil fuels?

The percentage is vanishingly small in terms of shares, since we hold relatively few shares, and in bonds it is roughly one percent.

Why do you not forgo such investments altogether?

We are examining very carefully whether that would make sense for us. What we certainly will not do, however, is make a rash decision just for the PR. I also find it remarkable how sovereign wealth funds, who earn billions from oil and gas exploration, are now being hailed as green trailblazers because they say they are no longer financing the fossil fuel sector.

You are referring to Norway's state fund, which is supplied by oil and gas revenues but has announced its withdrawal from investment in coal. But if you as a reinsurer intend to make these companies change their ways, you would have to withdraw from such investments yourself.

We are not here to make anyone change their ways. That is neither our job nor our style. But we are addressing the issue, and have set up a working group to assess our investment criteria with a very critical eye.

Mark Carney, head of the Bank of England, has warned of a potential stock market upheaval because he considers the oil, gas and coal industries to be massively overvalued. Is he exaggerating?

I think that his statement was very helpful, since we of course have to ask ourselves what effects decarbonising the economy might have on the capital markets. However, we should not provide any hasty answers. Shooting from the hip is almost always a bad idea.

Mr. von Bomhard, thank you very much for this interview.

Der Spiegel, 44/2015