Allianz : After the storm

Events like the flood in July will likely occur more frequently as a result of climate change. Katherine Wenigmann, natural catastrophe (NatCat) risk expert at Allianz Re, believes that the situation will continue to worsen. "We know that a warmer atmosphere can hold more water vapor and that heavy precipitation events will occur more frequently," she says. With each degree Celsius of warming, the atmosphere can hold about 7 percent more moisture, which can result in an increase in rainfall rates. "According to the latest research, climate change can cause some low-pressure systems to stall and stay over a region, resulting in large amounts of precipitation over a relatively short period of time," she explains.

As was the case with the heavy rain caused by weather system Bernd. "Victims of flash floods caused due to heavy rains on streams often have higher flood losses than customers who live on major rivers. One reason is that flash floods come as such a surprise. It's also difficult to predict exactly where such a flash flood will occur," she says. "Analysis of historical events shows that about 50 percent of flood claims occur outside of a mapped river floodplain." This is true for both private and industrial customers. Allianz Global Corporate & Specialty (AGCS), the group's industrial insurer, has also observed losses outside mapped river floodplains. These losses are often higher. Thomas Heintz, property risk consultant at AGCS, recommends that companies prepare for such natural events with a flood contingency plan or a business continuity plan to reduce potential losses. "Current events show how important it is to think about business continuity too," he adds.

Businesses are generally better insured against natural hazards than private households - in Germany, for example, only around 46 percent of households are insured against floods and heavy rain. "Traditional property insurance for businesses usually includes protection against natural hazards," explains Jürgen Wiemann, Regional Head of Property at AGCS in Germany. "As an insurer, we have to expect an increasing exposure to flooding in the future, especially after heavy rain," he says. "We also expect this to have an impact on capacity allocation. Clients who convince us that they have suitable risk management concepts will have an advantage when buying insurance cover."

The July flood is often compared to the Elbe flood of 2002. Is the comparison justified? "Every flood is different and unique," clarifies Wenigmann. "The Elbe flood happened over several days and along a major river, so there was more time to prepare and better warnings. Because of this, fewer lives were lost due to the Elbe flood. Weather system Bernd, on the other hand, sadly took most residents by surprise."

The Allianz Group is currently assuming a gross claims burden of 1.1 billion euros for the July flood damage, across Germany, Belgium and the Netherlands. This includes claims by industrial customers of AGCS. The largest share of this amount, around 700 million euros gross, has been set aside by Allianz for its insured clients in Germany. AGCS expects claims payments of more than 100 million euros for affected companies in western Germany and Benelux.

In comparison, Allianz paid out 917 million euros for the Elbe flood in 2002. If price increases are taken into account, the value today is 1.76 billion euros. "So depending on which value you use for the 2002 flood, the value then or the current value, Ilse or Bernd is the biggest event so far in the entire history of Allianz," says Thorsten Fromhold, Head of Portfolio Management & Retrocession at Allianz Re.