Onnen Siems, Managing Director of actuarial consultancy firm Meyerthole Siems Kohlruss (MSK), has noted that insured losses from the flooding in various regions in Germany will be less than €1 billion “if the flood dykes hold”.
Siems observed in a report on the matter that the situation is still tense, stating that some of the dykes are softened, though water levels are slowly falling.
He added that “it has not yet been decided” if the dykes will break.
Elsewhere in the report, Siems highlighted that in Lower Saxony, only around 30% of houses are insured against natural hazards.
“One reason for this could be the subjective perception of risk. As the risk of a storm surge is not usually covered by insurance, natural hazards insurance may appear less attractive to many people in Lower Saxony. Although the risk of flooding, which is the issue in this case, is usually covered by natural hazard insurance, it is often not seen as an acute threat,” Siems explained.
Dr Stephanie Fiedler, who advises MSK on meteorological issues, noted, “Past floods with widespread effects in Europe occurred in 2002 and 2013, but these events were caused by large amounts of rain in the summer months and affected different regions.
MSK added that the floods at that time caused huge insurance losses in Germany, which were significantly higher than is currently the case (provided the dykes do not break). Adjusted for inflation, the damage amounted to €3 billion in 2013 and as much as €6 billion in 2002.
As per Dr Fiedler, floods like the current one are caused by extreme weather. She explained that in winter, flood events are favoured by relatively warm temperatures. Higher temperatures lead to more water vapour in the atmosphere, which reaches Europe with low-pressure systems from the Atlantic and falls here in the form of rain instead of snow.
Fiedler continued, “The rain leads directly to rising water levels, unlike snow, which initially stores the water at low temperatures and only allows it to flow into the region when the thaw arrives.”
According to MSK, the Intergovernmental Panel on Climate Change has stated that extreme rainfall events such as the current extreme weather will become more frequent and more intense as global warming increases.
Andreas Kelb, Strategy Consultant at MSK, noted that how the insurer’s deductible is calculated for the current floods depends on several factors.
“In the accumulation XLs (excess of loss), the question always arises as to which individual losses can be summarised for the purpose of claiming under the reinsurance contract. First of all, these must be from a single cause and be related in terms of location and time,” Kelb said.
For the temporal component, 72 hours apply in the standard clauses for the risks of storm and hail, and 168 hours, i.e. one week, for damage caused by floods.
Kelb concluded, “The primary insurer can define the 168-hour period appropriately in terms of maximum reinsurance relief. Recently, the 168-hour clause has often been replaced by 504 hours, i.e. three weeks. ZOLTAN, the storm that occurred shortly before Christmas Eve, is definitely to be categorised as an independent event and therefore billed separately.”
