After the severe flooding in central Europe between late May and early June, it is crucial for insurers and reinsurers to understand and manage this complex risk, which can be achieved using the latest generation of high-definition (HD) catastrophe risk models, according to Moody’s RMS.
Moody’s RMS Event Response estimates that insured losses in Germany from the Central Europe floods will likely range from €2 billion to €3 billion (US$2.1 billion to US$3.2 billion).
This event underscores the importance of addressing flood risk and the need for a thorough understanding. Moody’s advises that comprehensive modelling, which provides a holistic view of flood risk, is essential, as historical data alone is insufficient.
The firm recommends that reinsurers use the latest HD models to gain a granular understanding of potential flood risks. This enables the design of reinsurance contracts that accurately cover these risks.
By understanding flood risk in fine detail, reinsurers can better manage their portfolios, spreading risk across different regions or countries to reduce the impact of any single event on their earnings.
Primary insurers also benefit from HD flood modelling, which helps them understand their risk profile across the exceedance probability (EP) curve. This aids in deciding which risks to retain and which to transfer through reinsurance or other options like insurance-linked securities (ILS).
Accurate flood modelling relies on detailed data. The more granular the data insurers collect, the better they understand the risks they cover. HD flood models incorporate the latest flood defence data and can adapt to bespoke flood defence measures for specific assets.
Moody’s concludes, “The multi-billion-euro losses experienced in Germany will again raise flood risk up the insurance agenda and across the value chain. Using advanced HD risk models, firms can confidently participate, write more business, protect more homes and commercial clients, minimise uncertainty, and increase capital efficiency.”
