Central Europe floods likely to drive insured losses of $2.8-$3.9bn: Moody’s RMS

Damages from severe flooding across Czech Republic, Austria, Poland, Slovakia, Hungary, Germany, and Italy between September 11th-19th is expected to result in insurance industry losses of between $2.8 billion (€2.5bn) and $3.9 billion (€3.5bn), according to catastrophe risk modeller, Moody’s RMS Event Response.

The majority of the losses are expected to come from Czech Republic, Austria, and Poland, which all experienced widespread and devastating flooding as a result of heavy and persistent rainfall.

Impacts were felt as far as Romania, as a Vb weather system, low-pressure systems with trajectories from the Mediterranean across central Europe, brought warm, moist air masses to Central Europe.

Moody’s RMS Event Response’s loss estimate is based on an analysis of the flooding using Moody’s RMS™ Europe Inland Flood HD Models, and reflects insured property damage, spoiled contents, and business interruption across residential, commercial, industrial, and agricultural property, and automobile lines.

The estimate range also considers post-event loss amplification (PLA), recent inflationary trends, exposure growth, and increases in insurance take-up. However, it does not include insured losses to non-modeled exposures such as transport and utility infrastructure lines of business, or crops.

Flood, a so-called secondary peril, is increasingly contributing to annual insured losses from natural catastrophes, and events so far in 2024 will further pressure primary insurers, who are now retaining more of these types of losses than in the past after reinsurers moved away from frequency events and aggregate covers after years of heavy losses.

The estimate from Moody’s RMS follows an initial insured loss estimate from Verisk’s Extreme Event Solutions division, which pegged insured losses in just Czechia, Poland, and Austria at between $2.2 billion (€2bn) and $3.4 billion (€3bn).

“This September’s flooding has been a reminder of the long history of severe and widespread summer flooding that can affect many countries simultaneously over central and eastern Europe,” said Steffi Uhlemann-Elmer, Director, Model Product Management, Moody’s.

“This event was unique in several ways. Firstly, the low-pressure system named ‘Storm Boris’ was long-lived and brought heavy rainfall and flash flooding to a large area from eastern Romania to northern Italy. After its destructive rainfall over Austria, the Czech Republic, and Poland, Boris was continuously supplied by moist air masses, and took a westward track, bringing extreme rainfall to Italy’s Emilia Romagna region. In recent history, only the August 2002 flood event has impacted a wider area.

“Secondly, the weather pattern and associated severe rainfall and flooding were forecast over a week in advance. Warning chains and catastrophe response plans to coordinate efforts across states, regions, and communities had been activated, and preventive measures such as the release of water from reservoirs before the event had been taken.

“Thirdly, investments in flood defenses have paid off. Given the long history of flood events across the region, substantial investments were made over time to replace and redesign existing defenses, and to add new risk mitigation structures such as dams, dykes, and flood retention areas.

“These measures made a substantial difference in the loss outcome for this event compared in particular to the 1997 and 2002 events. Most notably, the event did not lead to serious inundation of build-up areas along the major Rivers’ Elbe, Danube, and Oder, as the flood wave that accumulated from the mountainous regions was either capped through retention or safely propagated through cities with heightened flood defenses.

“Yet, communities and states are facing a large bill to repair or rebuild infrastructure and bail out uninsured households. Although flood insurance penetration has generally increased over the last two decades, take-up of home insurance that includes flood coverage is still very low in regions such as Italy, Poland, and others, or where coverage is limited such as Austria.

“Most of the overall estimated insured losses will be retained by insurers, but some reinsurance recovery is to be expected. Overall, 2024 marks another costly year with several flood events on the balance sheet of insurers. Proactively managing severe weather risk and understanding correlation not only across countries but also across perils becomes ever more important.”

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