Hot and dry weather in France likely to hit insurers profits

by Artemis on June 13, 2011

France is currently in the middle of the worst drought the country has faced in the last 50 years according to the French weather agency Météo France. The dry period has surpassed the 1976 heat and drought period and experts say as bad as 2003 when thousands died in a heatwave in high summer.

The period from March to May in France was the driest in 50 years and the warmest since 1900 according to Météo France. Some rain and storms in the last week have provided some relief but the long range forecast is for the above average temperature trend to continue through the summer.

France isn’t the only country in Europe to be hit by drought conditions this year, just last week the eastern part of the UK declared an official drought due to lack of rainfall and Germany has also been suffering. In the UK the spring has been the driest since 1910 and the warmest since 1659 while in Germany the drought is said to have been the worst since records began pre-1900.

Agriculture is the industry that has suffered the most as the late spring is a key part of the growing season and one where rainfall is much needed. Moody’s said in a report that the drought is credit negative for French insurers as they are facing much higher levels of crop insurance claims than normal. Moody’s also notes that if the dryness continues into summer France will be facing much higher levels of subsidence than normal which will put additional pressure on French insurers.

The period of heat and dryness in summer 2003 was estimated to have cost the insurance industry around €1 billion. This year, as we’re only in June, has the potential to be much higher.

Of course, it’s not just crop insurance that protects businesses against the vagaries of the weather and it won’t just be agriculture that is affected. Other industries will have been impacted by the overly dry weather and the warmer than normal weather will increase costs for some other sectors such as energy producers. Weather risk techniques are not widely used in France, except for by major players such as energy company EDF, but perhaps the extremely dry period of weather in Europe will help to raise their profile.

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