what happened in engineering insurance in the past 12 months · market performance extracts rom...
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What happened in Engineering Insurance in the past 12 months
September 2015, IMIA Conference MexicoStephan Lämmle, Munich Re CIP
Image: used under license from shutterstock.com
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 2
Superlatives in Engineering ProjectsTallest Buildings
Name Kingdom Tower
Sky City BurjKhalifa
PinganInternational Finance
Center
Shanghai Tower
MakkahClockRoyal Tower
GoldinFinance
117
LotteWorld Tower
One World Trade Center
CTF TianjinTower
CTFChow Tai
FookCenter
Taipei 101 Shanghai World
Financial Center
International
Commerce Centre
PetronasTower
City Jeddah Chang Dubai Shenzhen Shanghai Mecca Tianjin Seoul New York City
Tianjin Guagzhou Taipei Shanghai Hong Kong Kuala Lumpur
Country Saudi Arabia
China UAE China China Saudi Arabia
China South Korea
USA China China Taiwan China China Malaysia
Built 2019Under
construction
On hold 2010 2016Under
construction
2014 2012 2016Under
construction
2015Under
construction
2014 2017 2017 2004 2008 2010 1998
Floors 167 202 163 115 121 120 117 123 104 97 111 101 101 118 88
Height 1007 m 838 m 828 m 660 m 632 m 601 m 597 m 556 m 541 m 530 m 530 m 509 m 492 m 484 m 452 m
Image: Stephan Lämmle, Munich Re Image: Stephan Lämmle, Munich Re Image: Stephan Lämmle, Munich Re Image: Stephan Lämmle, Munich Re
Engineering Insurance 2015 / Stephan Lämmle September 2015 3
Superlatives in Engineering Projects
Metro
Ʃ USD 100 bn*Image: DEA PICTURE LIBRARY/ Getty Images
* Top Metro Projects past 24 months
1. Doha = USD 30 bn
2. Moscow = USD 10 bn
3. Mecca = USD 9 bn
4. Sao Paulo = USD 8 bn
5. Riyad = USD 23 bn
6. Quito = USD 1.3 bn
7. Lima = USD 4.4 bn
8. Hanoi = USD 1.3 bn
9. Fortaleza = USD 0.9 bn
10. Delhi = USD 0.8 bn
11. Singapore = USD 7.5 bn
12. Kuala Lumpur = USD 6 bn
13. Ho Chi Min City = USD 1 bn
14. Los Angeles = USD 1 bn
15. Panama = USD 2 bn
16. Oman Rail
17. Mekkah Metro
18. t.b.ctd.
Engineering Insurance 2015 / Stephan Lämmle September 2015 4
Superlatives in Engineering Projects
Huge diameter very deep tunnels
Image: Hartmut Reiner/ Munich ReImage: picture alliance / Photoshot
Engineering Insurance 2015 / Stephan Lämmle September 2015 5
Development of GTS Power Output
0
50
100
150
200
250
300
350
400
450
500
39 45 48 64 70 77 82 85 93 96 98 2003 2011 2015
Engineering Insurance 2015 / Stephan Lämmle September 2015 6
Manufacturer / Type
HZ MW - SC
MW - CC
Year Introduced
Alstom (ex ABB) GT36-5
50 471 690 2015
GE9HA.01, 9F 7-series, 9FB.05
9HA.02
50
50
397
510
592
755
2015
?
SGT5-8000H (1.3), 20132015 (1.4)
50 405
?
2013
?
Mitsubishi 701J 50 470 680 2013
New Hot Spot Construction Sites
Record high with a total new installed capacity of more than 100 GW in 2014
Renewable energy investment saw its second highest amount in 2014, reaching $ 270 bn.
Investment mainly driven by solar ($ 150 bn) up 25% on 2013, and wind ($ 100 bn) up 11% on 2013.
Renewable Energy Investment continues
Engineering Insurance 2015 / Stephan Lämmle September 2015 7
New Hot Spot Construction Sites
“We are also blessed with a desert” California
Nevada
Arizona
Negev
Morocco
….
Experience in: Flooding? Lightning? Tornados? Earthquake
Sources: environment.nationalgeographic.com with Data courtesy World Wildlife Fund / Munich Re
Image: used under license from Shutterstock.com
Image: Munich Re
Engineering Insurance 2015 / Stephan Lämmle September 2015 8
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 9
New Trends & Technologies
Digitalization / BMI 5.0 Big Data Smart Grid Internet of Things E-Mobility Cyber Risks Drones & WebCams Pre-fabricatrion 3D-Printing Infrastructure Sensors (silicon film changing
color under stress, magnetic-field detectors, earthquake detectors)
Emotion Recognition Brainwave Control Driverless Driving Gigaliner …
How will these impact? Potential for Insurance
Early Detection Systems
Predictive Maintenance
Enhanced Loss Prevention
Online Monitoring / Claims Evidence
Condition based pricing
Infrastructure Redesign
New risks / new products
Engineering Insurance 2015 / Stephan Lämmle September 2015 10
Big Data
Wireless Sensor Network
Cloud ComputingArtificial Intelligence
Mobile Technology
Virtual RealityVisualization Technology
Embedded systems
3D Printing
Cyber-physical SystemsInternet of Things
INDUSTRY 4.021st Century
Image: used under license from Shutterstock.com
E-Truck
Making use of Renewable Energy in Transport
Gigaliner
Are our roads and traffic systems fit for this?
Future Transportation Methods
September 2015 11Engineering Insurance 2015 / Stephan Lämmle
Image: dpa Picture Alliance / Friso Gentsch
Image: Lexus
Magnetic Supraconductor Hoverboard
Have your companies got the solutions?
1. Economic slowdown/Slow recovery
2. Increasing competition
3. Damage to reputation/brand
4. Regulatory/legislative changes
5. Business interruption
6. Failure to innovate/meet customer needs
7. Third-party liability
8. Commodity price risk
9. Failure to attract or retain top talent
10. Cash flow/liquidity risk
The overall top 10 risks are: In Europe the top 10 risks in 2015 are:
Source: Commercial Risk Europe, #04, May 2015.
1. Damage to reputation/brand: +3 from 2013
2. Economic slowdown/slow recovery: -1 from 2013
3. Regulatory/legislative changes: -1 from 2013
4. Increasing competition: -1 from 2013
5. Failure to attract or retain top talent: = 2013
6. Failure to innovate/meet customer needs: = 2013
7. Business interruption: = 2013
8. Third party liability: +5 from 2013
9. Cyber risk (computer crime/hacking/viruses/malicious codes): +9 from 2013
10. Property damage: +7 from 2013
Engineering Insurance 2015 / Stephan Lämmle September 2015 12
Loss scenarios: Producing Industry
Software of production process is corrupted leading to wrong orflawed production output
Data for the production robots is wrong or missing leading towrong or flawed production output
Data for producing parts of other is lost or stolen leading toliquidated damages, liability claims, displeased customers etc.
Delivery process for raw materials/ parts is interrupted due to missing data leading to business disruption or interruption
Consequential reputational loss leading to customer loss and consequentially loss in future revenue and profit as well as increased costs
Prefabrication & 3D Printing are also existent in Engineering BusinessAssociated Risks are Serial Losses, Delay and Business Interruption, Liability Claims, Reputational Loss, Liquidated Damages, Loss of contracts …
Engineering Insurance 2015 / Stephan Lämmle September 2015 13
Loss scenarios: Energy and Utilities
Many control systems are vulnerable to attacks or manipulation,e.g. Control systems connected to external networks could allow
access leading to malicious attacks, business interruption,displeased customers etc.
Production could be stopped due to manipulation of controlsystems leading to outages, liabilities, liquidated damages, displeased customers etc.
Attack on smart meters could impact load planning leading to outages, displeased customers etc.
Attack on smart grid could impact possibility to supply energy leading to over-/ undercapacity, outages, lost revenues etc.
Consequential reputational loss leading to customer loss and consequentially loss in future revenue and profit as well as increased costs
Many control systems are vulnerable to attacks or manipulationProduction could be stopped and load planning be impacted leading to outages and/or over-/ undercapacity
Engineering Insurance 2015 / Stephan Lämmle September 2015 14
Industry Evolution
Source & Copyright ©: RIB
INDUSTRY 1.0
Steam power
18th Century
INDUSTRY 2.0
Electric power
19th Century
INDUSTRY 3.0
Electronics and IT
20th Century
Image: ???
New Procedures
Engineering Insurance 2015 / Stephan Lämmle September 2015 15
Construction Industry –From Traditional to Advanced
Traditional Construction Advanced Construction
INDUSTRY 4.0
Source & Copyright ©: RIBEngineering Insurance 2015 / Stephan Lämmle September 2015 16
Source & Copyright ©: RIBEngineering Insurance 2015 / Stephan Lämmle September 2015 17
Source & Copyright ©: RIB
Materials
Sand Bricks Cement Wood Steel
Conventional
Components
Roof Walls Kitchen Unit Bathroom Unit Windows Floor
Precast
A New Way of Construction - Prefabrication
Engineering Insurance 2015 / Stephan Lämmle September 2015 18
Chinese Construction Firm erects 57-storey skyscraper in 19 days
Company claims to be world‘s fastest builder after assembling Mini Sky City at a pace of three
floors a day
Industry Evolution – New Building Methods
Headline
September 2015 19Engineering Insurance 2015 / Stephan Lämmle
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 20
World Economic Forum – Global Risk Report 2014Failure of climate change mitigation / adaptation and greater incidence of extreme weather events are still under the top 5
Based on a survey ofover 700 leaders anddecision-makers on31 selected global risks
For the first time, surveyrespondents were askeddirectly to nominate theirrisks of highest concern
Likelihood
Impa
ct
Source: World Economic Forum
Climate Change
Engineering Insurance 2015 / Stephan Lämmle September 2015 21
IPCC 5th Assessment Report
Main findings of the 5th Assessment Report: Warming of the climate system is unequivocal Since the 1950s, many of the observed changes are unprecedented over
decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have
diminished, sea level has risen, concentrations of greenhouse gases haveincreased It is extremely likely that human influence has been the dominant cause for
observed warming since 1950s
Engineering Insurance 2015 / Stephan Lämmle September 2015 22
September 21, 1979
Minimum of Arctic Sea Ice CoverSource: NASA, Goddard Space Flight Center, 2013
http://svs.gsfc.nasa.gov/Gallery/ArcticSeaIceResources.html
The yellow line shows the average minimum extent from the period covering 1979-2010.Engineering Insurance 2015 / Stephan Lämmle
September 2015
Minimum of Arctic Sea Ice CoverSource: NASA, Goddard Space Flight Center, 2013
September 16, 2012
http://svs.gsfc.nasa.gov/Gallery/ArcticSeaIceResources.html
The yellow line shows the average minimum extent from the period covering 1979-2010.Engineering Insurance 2015 / Stephan Lämmle
September 2015
Engineering Insurance 2015 / Stephan Lämmle
September 2015
In the past 30 years, there has been a significant increase in natural catastrophe losses ...
Source: Munich Re Geo Risks Research, Economic Research
Natural catastrophes worldwide 1980-2012: Inflation-adjusted overall and insured losses
50
100
150
200
250
300
350
400
450
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
US$ bn
Overall losses (in values of 2012) Insured losses (in values of 2012)Trend line overall losses Trend line insured losses
Engineering Insurance 2015 / Stephan Lämmle September 2015 26
... which is hardly surprising, given the global rise in prosperity
Trendline of overall losses
Trendline of insured losses
Overall losses (at 2012 values)
Insured losses (at 2012 values)
Source: Munich Re Geo Risks Research, Economic Research, IMF
Global GDP, real and at purchasing power parity, index: 1980 = 100
US$ bn
Left axis
Right axis
Real GDP, index
0
50
100
150
200
250
300
350
50
100
150
200
250
300
350
400
450
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Natural catastrophes worldwide 1980-2012: Inflation-adjusted overall and insured losses; global GDP index
Engineering Insurance 2015 / Stephan Lämmle September 2015 27
Not only are the loss amounts rising – the number of natural catastrophes is increasing significantly too
Meteorological events (storms) Hydrological events(floods, mass movements)
Climatological events(Extreme temperatures, droughts, forest fires)
Geophysical events (earthquakes, tsunamis, volcanic eruptions)
Number
Source: Munich Re Geo Risks Research, Economic Research
200
400
600
800
1 000
1 200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Natural catastrophes worldwide 1980–2012
Engineering Insurance 2015 / Stephan Lämmle September 2015 28
Increasing insurance penetration (of particular relevance for the trend in insured losses)
Population growth
Rising standard of living
Concentration of population and assets in conurbations (“urbanisation”)
Settlement and industrialisation of heavily exposed regions
Regional increase in loss-relevant and extreme events
The factors driving the trends of the past willalso influence those of the future
1
2
3
4
5
6
Source: Munich Re Economic ResearchEngineering Insurance 2015 / Stephan Lämmle September 2015 29
Image: dpa Picture Alliance
… as these two examples illustrate
Direct economic losses: US$ 43bn (12.4% of GDP)
800 fatalities
65 of Thailand’s 77 provinces affected by the flood
Direct economic losses: about US$ 11bn
220,000 fatalities
The coastal regions of 13 countries on two continents were devastated
Source: Munich Re Geo Risks Research, Economic Research
Flood in Thailand in 2011 Tsunami in the Indian Ocean in 2004
Image: DAMIR SAGOLJ/Reuters/Corbis Image: dpa Picture Alliance/ Mike Nelson
Engineering Insurance 2015 / Stephan Lämmle September 2015 30
Only in Asia?
In 15 Years, Floods Will Be a Part of Everyday Life on the East Coast
Image: picture alliance / abaca / Dennis Van Tine
Engineering Insurance 2015 / Stephan Lämmle September 2015 31
Only in Asia and USA?
Hurricane Vince
9th October 2005
most north-eastern Hurricane ever recorded, near Madeira
Tropical Storm Delta
27th November 2005
over Canary Islands
Tropical Storm Grace
5th October 2009most north-eastern Tropical Storm ever recorded, next to the Azores
With warming sea surface temperatures, regions exposed to tropical cyclones spread towards Europe
Tracks of tropical cyclones, approaching Southwestern Europe
Image: National Oceanic and Atmospheric Administration (NOAA) Image: National Oceanic and Atmospheric Administration (NOAA)Copyright 2015 EMETSAT
Engineering Insurance 2015 / Stephan Lämmle September 2015 32
Is climate change only at the other side of the world?
Tornado in Bavaria, Germany
14.05.2015
Image: dpa Picture Alliance / Mario Lindner / Luftsportverein Aichach
Image: Süddeutsche Zeitung PhotoImage: dpa Picture Alliance / Karl-Josef Hildenbrand
Engineering Insurance 2015 / Stephan Lämmle September 2015 33
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 34
Statements from the markets
Taiwan: The local market situation is still very soft since there are nearly 20 insurers providing engineering insurance capacity in
Taiwan. The capacity available is not increasing, but more and more local insurers retain risks which they write as acceptable.
… In 2014 there is no major optimistic boost to the construction industry from government’s economic policy. Construction
businesses are not increased, which is also affecting the engineering insurance.
Netherlands: Based on this economic standstill over 2014, a further decrease in demand of engineering line covers - especially
in EAR/CAR - was expected. The figures show exactly that trend. We are back on the premium levels before 2010. …
The expected growth over 2014 did not materialize and is now expected to return in 2015
USA: As market conditions continue to harden, premium growth has continued to increase. With losses increasing at a slightly
higher rate in 2014, overall loss ratios are rising. Insurers need to continue to implement new ideas and strategies within the market
to create positive premium growth while improving underwriting and pricing guidelines to reduce losses and maintain profitable growth.
Austria: The share of Engineering Insurance in the Austrian property and casualty market changed from 4.22% in 2013 to 3.52% in
2014. … For 2015 the prognoses for the premium income in the line of business of Industrial Insurance in general is not too
good. The premium income within the Engineering Insurance is estimated to go down by 1.5%.
Mexico: The soft market remains. The premium increase is apparently due to new insured risks. … large infrastructure projects
depend on federal government investment and its income depends on oil prices, many of the new released projects have been
delayed. The reinsurance of many of the projects is placed in the origin countries of the contractors in charge thus decreasing
the ceded premium. The use of Coinsurance among Companies is helping to keep local premiums.
Country Reports Extracts
Engineering Insurance 2015 / Stephan Lämmle September 2015 37
Statements from the markets
Finland: The premiums have stayed at a slightly declining level during the period 2012-2014. Main reasons for this development
are the continuing economic uncertainty … The investments both in private and public sectors have been on a low level …The
softness of Finnish engineering insurance market has continued. Low rates and broad wordings dominate … However
Underwriters have growing concern about the consequences of savings in maintenance and replacement investments … The
softness of the market together with exceptional economic situation has led to a declining profitability.
Sweden: A major recovery of the overall premium for the last two years compared to 2012 can be noted. The reason is most likely
related to the continuing growth of the construction sector together with investments of some major infrastructure projects
within the country, however a reduction of major investments in the heavy industry sector and particularly in the energy and pulp-
and-paper sectors can be noted. …The competition in the Swedish market has been very hard for many years now and there are
no signs of changes …The tendency of not only low rates but also widening policy wordings is still ongoing. Engineering business
as such has during many years been profitable but we have now for the last 3-4 years noted that the profit is slowly reducing. The
fierce competition leading to reduced rates and wider wordings is most likely the reason for the continuing eroding figures even though
the result is still acceptable.
Brazil: The Government tenders for infrastructure projects …didn’t come and the insurance market felt directly their impact. …So,
these negative figures could be explained by the continuous soft market wave present in Brazil that is day to day softer. The rates
are extremely low … and, because of the tough competition, the market is more aggressive facing large loss ratios.
France: The French construction industry has been hit hard by the country’s economic recession, contracting in real terms for
seven consecutive years to 2014. Growth prospects are limited, owing to the weak property market, subdued public spending, and
a lack of investor confidence. Nevertheless, a recovery in investment in transport infrastructure will help to support the industry …
Global L/R deteriorated …mainly due to the lack of invest … The Competition on the Engineering lines business is strong. There
is always large capacities available
Country Reports Extracts
Engineering Insurance 2015 / Stephan Lämmle September 2015 38
Statements from the markets
Germany: In 2014, German engineering premium income grew … Claims in engineering insurance decreased. Thereby
engineering insurance had underwriting profits in 2014 as uninterrupted since 2003…Its is observed, that natural hazards are relevant
for claims in engineering, although currently these effects are not recorded by the GDV…As projected by GDV, German property &
casualty written premium will grow … in 2015, while the combined ratio will increase.
Australia: With record low interest rates, a federal election and a softening insurance market 2013 presented insurers with
significant profitability challenges. However with few major natural peril events the year was profitable and its insurer’s solvency
positions remained strong…The outlook for investment in Australia has softened primarily in the mining…Whilst business
investment has been waning the planned government spending on infrastructure will help to fill the void in 2014 and 2015…From
an insurance perspective, rates are extremely soft and coverage’s are the broadest at any point in time for the Construction and
Engineering classes of business. There is still abundant capacity for construction business in Australia, particularly coming from the
international insurers ... This is limiting any potential for the market cycle to improve, if anything it has set new benchmarks for
a soft market.
Turkey: For Engineering Insurance lines, total premium production has decreased …For the engineering lines; technical profit
has decreased … The decrease in the 1st quarter of 2015, can be explained with the slowdown of investments due to presidential
elections …this situation shows a considerable decrease on number of contracts for government projects, which effect
contractor’s all risks business.
Spain: We can conclude that it continues the decreasing trend of premiums observed in last years, being remarkable that this
reduction has been generalized in almost all lines (except electronic equipment and EAR)…In general, the effect of the economy
slowdown has produced a reduction of the engineering insurance premiums evolution, considering both the decrease of the
investments and the difficulties to obtain credit… The situation in 2015 for the engineering insurance is to expect better results.
The situation of economic growth allows some optimism in the engineering insurance sector.
Country Reports Extracts
Engineering Insurance 2015 / Stephan Lämmle September 2015 39
Statements from the markets
Some major markets are recovering and developing well
Still several large and mega projects being placed
Underwriters aware of makrket situation, increasing push for more underwriting discipline and
risk selection information
Several countries characterized by slow economy with lack of public and private investment
leading to reduced number of infrastructure projects
Fierce competition with decreasing rates and widening wordings
Reduced budgets for maintenance and replacement in the industries
Inreasing claims ratio
No change in sight
Summary of Country Reports Extracts
Engineering Insurance 2015 / Stephan Lämmle September 2015 40
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 39
Construction market is out of equilibrium …oil price has to improve or the contractors’
prices have to come down for the IRR to come back .“
David Welch, President EUMEA Bechtel
We cannot create a hardmarket
But we can definitely create a soft market
Insurance Senior VP & CUO, Canada
“Property excludes terrorism and terrorism excludes cyber.
What we need is cover for cyber terrorism.”
Broker
“We hear about a great many insurance managers talk about
being willing to reduce volume in order to underwrite profitably, but we
find that very few actually do so”Warren Buffet, CEO Berkshire Hathaway
A few quotes to the current market…
“I know there are no magically funded deep pockets and would be very satisfied if the market we are
working in were to end today”Broker
Engineering Insurance 2015 / Stephan Lämmle September 2015 40
A few statements regarding changes in the market Actual and prospective Mergers & Acquisitions & Run-Offs
AXIS (or EXOR SpA) & Partner RE Zurich & RSA Allied World & RSA (Asia) ACE & Chubb (28,3 bn) ACE Seguros & Itaú (Brazil) XL / Catlin Lloyd's consortium formed by Ascot
and Chaucer for renewable energy Lloyds consortium formed by Hardy
Tablot & Beazley Sompo bought major share in Scor Re Swiss Re enter China by purchasing
RSA Berkshire Hathaway enters Infrassure in run-off
Willis & Miller
Willis & Towers Watson ($18 bn)
THB imports energy team from Howden
Howden boosts Singapore office with staff from JLT
Hyperion Insurance Group (Howden) & RKH
Re-/Insurers Brokers
Engineering Insurance 2015 / Stephan Lämmle September 2015 41
A few statements regarding changes in the market New Leaders …
Source: Willis, Natural Resources Market Review, April 2015, S.11. Engineering Insurance 2015 / Stephan Lämmle September 2015 42
Exposure stable
Premium reducing
Rate deteriorating
L/R increases
Margin tighter
Exposure – Premium Development
Engineering Insurance 2015 / Stephan Lämmle September 2015 43
PML
PISI
All together - How shall this work ?
Premium income
Claims (gross)
exposure
Rates
Claims net
Engineering Insurance 2015 / Stephan Lämmle September 2015 44
Long-term pattern – today’s underwriting result only visible in several years
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Projects: average 5 years construction / testing & 2 years maintenance9 years claims pattern
Typical Development
Premium Claims
Risks from 2006 still impact on result in 2015Measures taken in 2012 only fully effective after 2023 Engineering Insurance 2015 / Stephan Lämmle September 2015 45
Today’s Result is not the Ultimate Result of Tomorrow A “Perceived Good” Loss Ratio in CY 1 Will Develop
Development Patterns for Engineering ProjectsTo
day
Tomorrow
Engineering Insurance 2015 / Stephan Lämmle September 2015 46
Image: used under license from Shutterstock.com
Image: used under license from Shutterstock.com
Image: used under license from Shutterstock.com
Image: used under license from Shutterstock.com Image: used under license from Shutterstock.com
Comparison Property vs. EngineeringEngineering requires a bundle of measures for improvement
September 2015 47Engineering Insurance 2015 / Stephan Lämmle
Property
Turnaround Time
Engineering
Risk Selection
Portfolio Composition
[2 years] [6-9 years]
USD 453 bnUSD 10.5 bn(4,7 bn Projects)2,3%
XL & Annual
Q/S & XL Short & Longterm
Frequency & Volatility
Limitations
No big blue ocean for pick & choose No non-prop
No quick wins / fast effect Cycle Duration
No simple “No-go Industry”Segmentation
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 48
Large LossesDisclaimer: Market estimates - unverified
Date of Loss Year Country Type of Plant Type of cover CauseCurrent Estimate PD/BI100% USD
2010Germany TPP EAR T242014UK TPP OPS Turbine LSB failure2014UK TPP OPS Scrubber fire mid ## Mio2014South Africa TPP OPS Boiler explosion2014South Africa TPP OPS Conveyor/silo collapse2013Germany TPP EAR Acid contamination of boiler low ### Mio
2014Germany TPP EAR Saltwater intrusion damaging boiler steelhigh ## Mio
2014Brazil TPP OPS Generator faultmid ## Mio
2015Saudi Arabia CCPP EAR/OPS Sandstorm entering gas turbineslow ### Mio
2015US Solar PV farm OPS Tornado damage to Solar panels mid ## Mio
2014 Algeria CCPP OPSLiberation of compressor stator row S1 vane tip – root cause under investigation mid ## Mio
2015Algeria CCPP OPSSubstantial vibration followed by excessive temperature and tripping. Cracks and pull-outs observed on foundations. mid ## Mio
2014US CCPP OPS Blades and bearings damaged mid ## Mio2014Nicaragua Wind farm OPS Power failure leading to overspeeding. low ## Mio
Power: Few NatCat – Mainly Man-Made … Material, Design, Operation
Date of Loss Year Country Type of cover CauseCurrent Estimate PD/BI100% USD
2012USA CAR & TBM Inundation from Storm Surge (HU Sandy) mid ## Mio2013USA CAR & TBM Damage to TBM main bearing and bearings high ## Mio2010USA CAR & TBM Partial collapse of starter tunnel mid ## Mio2007Brazil CAR & TBM Collapse of dia. 18,5 station tunnel mid ## Mio2005Taiwan CAR & TBM Collapse of a 40 m deep cross passage low ## Mio2004Singapore CAR Collapse of the cut and cover station box low ### Mio
Tunnels & TBM: NatCat & Design
Engineering Insurance 2015 / Stephan Lämmle September 2015 49
Legal action of US & UK engineering/construction companies
0102030405060708090
100
2010 2011 2012 2013Engineering/construction companies involved in international arbitration
Engineering/construction companies spending at least 1 mn USD on litigation p. year
*
Claims expenses going up
Legal action changes are impacting claims pattern
Increases in both damages paid and legal costs
Expenses increasing for Insured, Broker, (Re)Insurer, Third Parties
Disputes increase, more arbitration/litigation
Required time for adjustment going up
Reasons?
Contractual complexity (contract scope, extension of supply chain, number of contractors, lenders requirements)
Wordings containing intentional and unintentional ambiguities
Claims behavior of involved parties (economics, corporate governance, etc.)
%
* estimate
Source: Fulbright’s 9th Annual Litigation Trends Survey Report
Law & Jurisdiction – Litigation Behavior
“All three arbitrators, however, appeared to have some difficulty separating concepts of construction contract law from insurance law”
Quote, Legal Advisor following an arbitration case 2013
Engineering Insurance 2015 / Stephan Lämmle September 2015 50
1. Superlatives in Engineering
2. New Trends in Engineering
3. NatCat Developments
4. Market Performance
Extracts from IMIA National Reports
Changes in the Insurance Landscape
Major Claims in Power & Tunneling
5. Outlook
Engineering Insurance 2015 / Stephan Lämmle September 2015 51
The choices for positioning
Intelligent risk selection
Understanding the client's risk
Quick and flexible quoting
Proactive claims culture
Offering a "one stop shop"
Product innovation and flexibility
Leading without expertise
Simplistic, price-driven underwriting
Culture of entitlement
Poor service and claims response
Inability to lead
Insufficient capacity
"Boxing Clever"
Image: dpa Picture Alliance / HIP / Stapleton Historical CollectionImage: dpa Picture Alliance / Mary Evans Picture Library
"Sleepwalking to Disaster"
Source: Source: Commercial Risk Europe, #04, May 2015.Engineering Insurance 2015 / Stephan Lämmle September 2015 52
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Engineering Insurance 2015 / Stephan Lämmle September 2015 53
Stephan Lämmle, Munich Re CIP
Thank you very much for your attention
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