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Business

A Reinsurer's "Master of Disaster"

Paying out hundreds of millions in insurance claims after natural disasters each year, German reinsurer Munich Re relies on a scientist to help monitor climate and prepare the company for the future.

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Damage caused by hurricanes costs insurers billions each year

The "Master of Disaster" is not the name of a heavyweight wrestler: It's the unofficial title of Gerd Berz, who heads the geo-risk research department at German insuring giant Munich Re, the world's largest.

For 30 years, Berz's job has been to study meteorological and environmental climate changes for the world's largest reinsurer. His research helps Munich Re decide how to react in the marketplace.

While hurricanes, tropical storms and heat waves are known to the masses by charming names like "Isabel", "Queenie" or "Michaela", in the insurance industry they are simply referred to as "basic damage events."

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Such weather-related natural catastrophes have caused $333 billion (€271 billion) in damage in the past 10 years -- six times more than 50 years ago. And costs for insured damages have risen tenfold in the same time.

One reason for the increase in natural catastrophes is global warming, which has led to a rise in weather-related catastrophes, according to scientists. Global warming is thought to be caused by increased greenhouse emissions. According to a UN report on global warming, by the end of this century the mean global temperature will have risen by somewhere between 1.5 and 6 degrees centigrade.

"That means, we'll have temperatures on the earth that mankind has never experienced, combined with a strong increase in extreme temperatures," Berz told Deutsche Welle.

Mankind to blame?

But climate change isn't the only thing responsible for the increase in damages -- mankind has had a hand in the affair as well.

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A disaster today tends to hit more people because of overall greater population. The world population has more than doubled in the past fifty years and most people now live in cities -- which are not only more densely populated, but also more spread out, Berz said.

So when a "basic damage event" strikes, "the probability of it hitting a big town is getting greater and greater," he said. "In addition, many cities are particularly exposed -- think of the coastal areas. And this trend goes worldwide."

And because our society has become so reliant on infrastructure we are particularly vulnerable, Berz added.

"We are on a 24-hour drip of functioning infrastructure," Berz said. "A disturbance like a natural catastrophe, means necessities like gas, electricity or oil are disturbed, as well as traffic and communication. All these things are necessary for the economy to function, and individuals as well."

Big business

About one fifth of all weather-related damages are paid for by insurance. Some 6,000 primary insurers are then re-insured by Munich Re.

As a business, then, Munich Re says it has to take the current trend of global warming into account. One way to do this is to passing some of the risk on to the customer.

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"Premiums will have to be increased relatively," Berz said. "And we have to let our customers know that we, as reinsurer, also have to take more big catastrophes into account, and thus need greater cash reserves. That is our main problem."

Not only do the reinsurers take measures to gird their wallets, they also work on the prevention angle. In order to keep damages low, Munich Re is involved in initiatives in areas from infrastructure to city planning. The company would for instance try to influence decisions on things like building codes in earthquake areas, or land-use regulations in flood zones.

Local initiatives important

Risk-analyst Berz said local initiatives are key in these areas, which can be influenced by individual cities and countries. But local action is less relevant when it comes to a world-wide issue like the weather.

A global phenomenon requires global climate protection, Berz said.

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Traffic on highway in Atlanta, Georgia

If industrial nations cut their greenhouse emissions, then developing nations will be able to expand theirs without causing an overall further imbalance. "The industrial nations have done most of the development to this point, and have also gained the most from it," he said. "So in my opinion, we should have the responsibility of doing everything in our power not to increase development, but to stabilize it."

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