EUROPEAN FLOODING

After the deluge: what lessons have insurers learned after the recent floods?

In the wake of serious flooding in Germany earlier this year, the insurance industry has been faced with steep bills and thousands of claims. A Re/insurance Lounge panel discussed what has occurred after the events.


Beginning on July 12, 2021, the North Rhine-Westphalia and Rhineland-Palatinate areas of Germany suffered horrific flooding that, over the course of a week, killed nearly 200 people and displaced thousands from their homes. The damage was so bad that the state premier Armin Laschet declared in the days afterwards that up to €30 billion ($35 billion) may be needed to help rebuild.

To talk about the disaster and the work done by the insurance industry in this area, the Re/insurance Lounge, Intelligent Insurer’s on-demand platform for interviews and panel discussions with industry leaders, hosted a four-person panel discussion on the subject.

Taking part in the discussion were Daniel Stander, special adviser to the United Nations; Christian Badorff, senior analyst at Moody’s; Andrew Bart, president for loss adjusting international at Crawford; and Charles Blanchet, vice-president of solutions at ICEYE.

Damage done

The estimated losses across Germany have been considerable, and Blanchet and Bart were both able to quote easily, but cautiously, the potential financial costs. Even so, they were quick to emphasise that the disaster was ongoing and still developing.

“Bearing in mind that statistics move all the time as more data becomes available, the estimated insured losses, as of quite recently, are circa €5.5 billion,” said Bart.

“Typically, we know that with the passage of time this will increase. There’s 600 kilometres of railway track impacted, more than 40,000 vehicles damaged, and a ballpark 40,000 claims. But the reality is that even now, access is limited.”

Blanchet quoted similar figures, saying that Moody’s had carried out 90,000 square kilometres of analogue analysis within 48 hours. By his estimates, 70,000 buildings had been impacted by the flood.

The flooding was principally a human disaster, said Bart.

“The estimated insured losses, as of quite recently, are circa €5.5 billion.”
Andrew Bart, Crawford

“The important thing to take stock of is that while this is an economic disaster—and it’s certainly a disaster from an insurance perspective—most of all, it’s a humanitarian disaster in which 200 people have died.

“We saw in Europe, as this event unfolded, that it wasn’t just over a couple of days. It was the latest in a series of events when there was extraordinary rain in Europe leading into that period,” he added.

Given the severity of the flooding and the payout costs, there is a risk that the capacity of a reinsurer to provide coverage in this area in the future could be compromised, or that pricing would be adversely impacted.

Badorff was sceptical of this idea, saying he did not see the flooding as an event that would reduce capacity or have much impact on pricing.

“One thing that we insurers keep complaining about in many instances is a lack of risk perception on the part of some primary insurers, and this event will obviously have had that a bit.

“But in terms of primary insurance, I believe that things are still insurable and we are not at the point where they won’t be,” he said.

Rate increases

There would be knock-on effects from the flooding, said Badorff, and rates would increase for those in the affected areas.

“Obviously, this will require increases that will be interlinked with product design going forward, such as compulsory versus non-compulsory homeowners’ insurance,” he said.

“But let’s not forget that prices have been increasing quite a bit in Germany—over the last couple of years, by almost 50 percent.”

Calculating flooding risk is always tricky, particularly after a disaster of this magnitude. As the world’s climate continues to change and extreme weather-related events become more common, many of the current models will have to be adapted and adjusted.

Following the disaster, Blanchet said, some of the complaints he has heard from clients and prospective clients have been about the post-event modelling, that it was “slow, inconsistent, and inaccurate”.

Stander picked up on that subject. “With an event of this size and with this geographic spread and its magnitude, in terms of being able to get on the ground is very hard,” he said.

“How are we going to get truth data—observed empirical data about where the flood is at the doorstep of any individual property? How can we get that without relying on models?”

The German local authorities and central government were, in September, still clearing and fixing the damage caused by the floods. The interviewees, while speaking about the responses of insurers and reinsurers, did not forget that this was a human tragedy first and foremost.

“I can sit here and get excited about shaving some percentage points off the cost of a property line of business. But, honestly, what gets me most excited is helping people get back on their feet.

“If we go faster, and if we do this right, we might be able to save some lives,” Blanchet concluded.

To view the full Re/insurance Lounge session click here


Images, from top: Shutterstock / bear_productions, M. Volk


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