Pandemic-driven rise in risk awareness to hit renewal rates, contract language and underwriting

The rise in risk awareness brought about by the pandemic has had a wide-reaching impact on the renewals season, according to Doris Höpke, member of the board of management at Munich Re.

Höpke told Baden-Baden Today that the pandemic was clearly having an impact on risk awareness.

“People are not only under pressure on the numbers because they have to shoulder a loss burden from pandemics. They are also under pressure on risk awareness as it reminds us of the fact that the risks we know of perhaps in an academic or abstract way—the kinds of risks that materialise with a very low frequency but can be of very high severity—can happen at any time in practice,” she said.

“This is true for pandemics, and for certain natural catastrophes and mega cyber events. We all know this in theory, and now we must be aware of this in practice.

“This does have an impact on underwriting discipline and pricing, and on rate development in the upcoming renewals.

“Munich Re is tightening up its pandemic exposure, and we are very strict there because there is still a lot of uncertainty,” she added.

Höpke said the reinsurer does not write event cancellation business including pandemic because “that’s impossible to do at this time”.

“There will have to be other solutions for pandemics,” she explained.

“We’ve been a very technical reinsurer for 150 years and we always start negotiations and finding solutions with our clients based on the best possible understanding of the risk.

“There’s no point in only looking at the market—of course we are also acting in the real market and we are subject to pressure, demands and expectations in the market.

“A real assessment and a true judgement of what is the right thing to do when it comes to terms and conditions must be based on a technical assessment and on a solid understanding of risk.”

Lessons from the pandemic remind the industry that it has to be as clear and precise as possible in its contract language, Höpke said.

“We have to bear in mind that our contract language may apply in situations that we cannot imagine may happen.

“We can only try to be as precise and clear, and perhaps as simple, as possible. It’s always a challenge to apply a wording to a situation that nobody believed would happen at the time the wording was drafted.”

“Our contract language may apply in situations that we cannot imagine may happen.” Doris Höpke, Munich Re


Given the challenges of 2020, Höpke said, Munich Re had been satisfied with the renewals it had conducted already during the year.

“We did have tailwinds, so to speak, that we were able to increase rates in particular loss-affected markets and accounts, also where the low interest rates are putting enormous pressure on rates, in particular in long tail business.

“This is definitely a development in the right direction, which we hope continues for the upcoming renewal, which is the most important renewal date for our entire non-life portfolio. We are very confident that we will see this continuation,” she explained.

The reinsurer’s results for this year were impacted by COVID-19 in particular by the cancellation of events, and to a certain degree in other lines of business, such as life. But Höpke was undaunted, adding: “This is the nature of our business—we run high exposures and they can materialise every now and then.”

On the potential implications of the UK High Court’s COVID-19 business interruption test case ruling in Europe, she said: “One has to take a differentiated view on how you read the ruling on the Financial Conduct Authority cases.

“One has to keep in mind that the pre-selection of cases includes only those that are considered to be in a grey area. So pre-selection of cases of course has an impact on what the likely outcome will be.

“Having this in mind, one could take a very differentiated view about whether the ruling was more in favour of the insured than the insurers. The majority of the individual findings and interpretations are rather in favour of the insured, but there are also some statements that for us as reinsurers are very supportive.

“For example, the confirmation that an event is something that is ring-fenced with respect to time and geography. This is something that very much confirms our reading of many policies when the term ‘event’ needs to be applied to a certain set of facts.”

“One has to look at each case and wording and every set of circumstances on its own merits.”

Praise for the team

Höpke emphasised that there is not an “instrument” quite like the one used to bring the test case in the UK in many other markets.

“In Germany, it’s not possible that an association or regulator can bring a set of cases in front of a court, this can only be done in individual cases. This is what is happening in other jurisdictions, be it by arbitration, or federal or state courts.

“It will take some time and every case will have to be assessed on its own merits because there are so many different wordings in the market.”

“There may be some cross-conclusions from one ruling to another but generally speaking, one has to look at each case and wording and every set of circumstances on its own merits and come to individual assessments, because every case is slightly different,” she said.

Höpke took the time to highlight the efforts of the people within Munich Re in this most unusual of years.

She said that when talking about performance, it’s not only about numbers, it’s also about people.

“In this respect I’m very happy and proud of our organisation because we were able to cope with the very particular working conditions—better than I personally would have expected.

“This is not only due to technology and infrastructure, it is definitely due to the commitment, engagement, flexibility and pragmatism of people, and this was really impressive.

“We had the first important renewals in Asia on April 1, a very short time after lockdowns, and our teams in Asia were very successful in this renewal,” she said.

“We had important business development with clients during the year and this is very productive, and again this is due not only to technology, and that we have all learned how to use the virtual signature and pinboards online.

“It is really because people are committed and go the extra mile,” she concluded.

Main image: / joshimerbin