Reinsuring a climate in crisis: Deutsche Rück’s approach for resilience

“Reinsurance demand is growing due to the impact of climate change, including the rise in so-called secondary perils, such as hail, floods and wildfire,” said Caren Büning, executive board member of Deutsche Rück and company chief underwriting officer for Germany. 

“The term secondary perils is misleading, as there are increasingly severe losses from extreme weather events related to climate change,” she added. 

As a leader in the German market, the company is taking steps to address the growing frequency and intensity of natural disasters driven by climate change and increased exposure to risk.

“We need to ensure that our risk models reflect the current climate development, which is indeed challenging,” Büning noted.

“Data is key for that, and understanding these new data patterns and upgrading modelling capability are both essential to avoid a systemic underestimation,” she added.

Deutsche Rück’s in-house development of natural hazard models for Germany is a core strength and, according to Büning, the company has “great geoscientific expertise” that is vital in classifying natural hazard events and assessing loss potential.

“We employ mathematicians, meteorologists, geologists and geoscientists with decades of experience, all working together as a team.

“Deutsche Rück has a clear advantage here: our nat cat models for Germany are specifically tailored to regional, climatic and geological conditions, enhancing the accuracy and relevance of risk assessments.

“Deutsche Rück takes into account findings from current climate models to account for the growing risks associated with climate change and bases its models on an extensive dataset sourced from the regional market leaders in Germany, that of the German public insurers.

“An ongoing exchange of expertise and knowledge transfer within the group of German public insurers and scientific institutions, such as universities, allows the company to stay ahead of trends and emerging loss patterns,” she explained. 

This blend of expertise helps Deutsche Rück manage current risks and predict future challenges with a unique approach, she said.

“We will continue to strategically diversify our risks across various regions and lines of business.”

Innovative approaches

Climate change is one of the most significant forces reshaping the re/insurance landscape. 

This rising risk has led to more pressure on the insurance industry to provide coverage while keeping policies affordable and insurable.

“It is expected that the damage caused by climate change will at least double by 2050 without climate change adaptation and prevention,” Büning said.

However, she emphasised, prevention, climate change adaption and education were crucial, serving as the linchpin to ensuring that natural disaster losses and premiums do not get out of hand financially. 

Büning pointed out that insurance did not prevent any single nat cat event, it protected only the damages resulting from this. 

She highlighted the responsibility of the federal government, the states and the municipalities to promote and finance preventive measures. Public-private partnerships are crucial to manage increasing climate risks. 

In addition, insurers can encourage property owners to adopt preventive measures by offering lower premiums to those who implement climate-friendly or loss-reducing strategies. 

Deutsche Rück’s approach to managing these challenges is manifold, involving specialised models, research investments and collaborations with various stakeholders.

In addition to a strong focus on data-driven research, Deutsche Rück aims to offer structured reinsurance solutions to handle complex and uncertain risk combinations.

“Primary insurers are looking for innovative, tailor-made solutions in the face of this growing volatility,” Büning explained. 

In 2022, Deutsche Rück established a natural catastrophe loss pool together with and for German public insurers. Designed to offer comprehensive natural peril protection for German public insurers, the pool supplements traditional reinsurance cover. 

A careful balance

Büning attributes Deutsche Rück’s success to its ability to strike a careful balance between innovation and continuity, positioning the company for sustained growth and resilience. 

“We have a robust foundation, in terms of a strong corporate culture and long-standing business relationships built on respect and reliability.

“As one of Germany’s leading reinsurers, we have firmly established ourselves in Europe and, in recent years, expanded into key markets across the Middle East, Asia, Latin America, and North Africa.

“Leveraging this solid base, we will continue to strategically diversify our risks across various regions and lines of business.

“With the change at the top of our Germany division, from Werner Schwilling to our new market head Sebastian Hoos, whose strategic and innovative thinking made him an excellent choice, we are very well-positioned.

“I am convinced that we will meet all the challenges ahead with our proven dependability and expertise,” she concluded.

Caren Büning is an executive board member of Deutsche Rück and company chief underwriting officer for Germany. She can be contacted at: caren.buening@deutscherueck.de 

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