German reinsurance company Munich Re has been collecting and analysing data on natural catastrophes for over forty years, building up a unique knowledge base.
In order to investigate such risks in times of increasing data volumes with the best expertise and with a high degree of creativity, it is very important to constantly exchange information with talented individuals who have a high level of technical knowledge, mathematical-statistical qualifications and an affinity for big data analysis.
For this reason, the reinsurer has organised a datathon to meet young people from the university and start-up scene, who should test new approaches and strategies without bias. The event took place at Munich Re’s Innovation Hub in Munich.
A datathon brings together computer scientists, data experts and scientists from different disciplines and simulates new approaches concerning the analysis of data over a weekend. The best solutions are awarded a prize at the end.
At this datathon I met the Chief Climate and Geo Scientist Ernst Rauch. Rauch is one of the many scientists who work at Munich Re. The graduate geophysicist has been working at Munich Re since 1988 in the fields of risk assessment and climate research.
“Risk assessment is a classic field of activity for a reinsurer, but it is subject to ever-increasing changes,” Rauch explained to me. One example of this was climate change, an extremely complex field. However we can only insure what we understand,” says Rauch. “And to understand means: we need fundamentally correct answers for our customers and for our own business. That’s why we’ve been dealing with climate change for 40 years.”
He explains that his area of responsibility, which was originally focused on earthquake risks, had been extended to include climate change as early as the early 1990s and that the Corporate Climate Centre, which he has been running since its establishment in 2008, had recently been expanded to include business development with customers in the “public sector”.
At Munich Re, natural scientists and analysts have been working together hand-in-hand for this. One of their goals is to comprehensively understand how climate change affects damage patterns in individual regions.
This is how Munich Re responds to change
From a Microsoft perspective, I was, of course, particularly interested in learning about the extent to which digitization is also changing the business activities of Munich Re.
Rauch confirmed my question as to whether digitisation was an equally big change for the insurance industry with a clear “Yes” and he added: “This can be seen very clearly in the scope of duties concerning climate change. In addition to the risks arising from changing weather patterns, it also focuses on renewable energies and new technologies.”
“In a broader sense, the large spectrum of insurance solutions for innovative technologies to avoid greenhouse gas emissions, including technical and financial solutions to adapt to the already unavoidable consequences.”
The scientist reports that Munich Re evaluates, for example, IoT data in the field of Predictive Maintenance and examines how high the default risk is. Only with an understanding of this could one offer insurance products that covered a residual risk, even without being able to calculate on the basis of historical losses. It was similar in many other technological developments:
“Disruptive technologies such as wind turbines in the 1990s or the IoT now also take power supply and industry to a new level of complexity,” explains Rauch. “Here we need a holistic answer to the question of how the risks that we as insurers have in our books develop.”
Cooperation with science experts is the key to success.
This insight into the business activities of Munich Re explains why such a large number of scientists from different disciplines work for the reinsurer. “Only with their knowledge were we able to gain a better understanding of climate change and better analyse the risks of change,” explains Rauch.
The prerequisite for this profound understanding is sophisticated analytics, says Rauch. In close cooperation with geoscientists and data analysts, statistical simulation models were developed that can simulate weather risks with many parameters. This requires a very high degree of know-how, Rauch confirms.
Rauch’s enthusiasm for his profession shows: there is much more exciting work for scientists in the insurance industry than people can see from the outside. For him, the Datathon was a logical step in order to present the activities of an insurance company in the proper light. His summary: “The core part of insurance is to understand things at the forefront of science and technology.”
I learned the following: Parts of Munich Re’s climate-risk analysis have the character of a scientific research company focused on practical applications with an associated Data Analysis Department. “And that’s why a datathon is perfect for this”.