Met Office EU Windstorm Hazard Maps to help in risk analysis & pricing

The UK’s Exeter-based National Weather Service, the Met Office, has released its European Windstorm Hazard Maps, to help insurers, reinsurers and insurance-linked securities (ILS) managers to better analyse and therefore price risk at a local level.

Windstorm events account for some of the costliest insurance industry property losses across Europe, causing widespread and significant damage over recent decades, notes the Met Office.

Science team leader for insurance at the Met Office, Paul Maisey said; “We know the considerable damage caused by windstorm over recent decades. Storms like the great storm of 1987, Daria and Lothar have cost the insurance industry billions of pounds.”

In an effort to increase the understanding of windstorm risks across a wider scope of Europe, the Met Office has launched a set of European Windstorm Hazard Maps. That examines and reveals the maximum gust values for 35 European countries at 4.4 km resolution, and with a return period of up to 1 in 200, “a significant threshold for insurance under European Solvency II regulation,” explains the Met Office.

Highlighting the potential severity of windstorms across Europe and just how costly they can be to the insurance and reinsurance industry is windstorm Niklas, a late-season storm that struck northern Europe during early 2015.

Estimates from catastrophe modelling firm RMS predict insurance industry losses of up to €1.5 billion for the event, while reinsurance broker Aon Benfield’s Impact Forecasting unit estimated losses of up to €1.9 billion.

However, PERILS AG subsequently issued a lower insurance industry loss for windstorm Niklas, at €826 million, which despite taking it below the initial loss estimate is still a significant loss event.

“Windstorms are less localised than flood; but they can have a great impact across broad European regions and so have the potential to cause the greatest insurance loss of any peril in a winter season. High resolution hazard maps offer a step forward in managing that risk,” explains Maisey.

The Met Office explains that the Windstorm Hazard Maps highlight the location and severity of intense and damaging winds for numerous return periods, on a fine resolution grid, of up to 4.4 km.

The enhanced detail, broad reach and improved understanding of windstorm exposures across Europe will prove invaluable to underwriters in the insurance, reinsurance and entire European risk transfer landscape.

Being able to access and utilise a comprehensive understanding of European windstorm risks should enable re/insurers and ILS players to better analyse and price risk at a local level, something which the Met Office claims can greatly reduce the potential insurance industry losses from windstorms on the continent.

“But this is only possible with an understanding of local hazard. Using Euro Windstorm Hazard Maps, risk analysts, underwriters and actuaries can score risk at a local level to make optimal pricing and portfolio decisions,” says the Met Office.

It’s also important to note that not only could improved, comprehensive maps for EU windstorms enable more accurate and adequate pricing; leading to reduced insured property losses, but for regions where property catastrophe re/insurance penetration levels are low, even in Europe, it could also help facilitate a greater uptake in solutions to protect against the peril.

Serving to further alleviate the burden on governments and ultimately tax-payers once disaster strikes, and helping to narrow the economic to insured loss protection gap, which is a global phenomenon, and not just within the emerging, underdeveloped regions of the globe.

Recently the catastrophe bond market has not seen much issuance exposed to European windstorms, as traditional reinsurance pricing has become so competitive that securitisation has become less viable for the exposure.

Perhaps a more clear understanding of the risk could help to stimulate greater interest in cat bonds for European windstorms, if it can be shown that pricing indications need to rise?

Further details on the methodology and product information provided by the Met Office on the launch of its new hazard maps can be accessed here (in PDF format).