Flood defences keep windstorm Xaver insured losses down

Investment in flood defences across Northern Europe have proved their worth and will likely keep insured losses from European windstorm Xaver significantly lower than they would have been a decade or two earlier, according to experts.

European windstorm Xaver, which struck Northern Europe last week from the 5th December, brought with it the highest storm surge seen in European countries for around 60 years, but this time the flood defences have shown their worth and will have prevented the reinsurance industry from shouldering a potentially massive loss.

Mohammad Khan, an insurance partner at PwC commented on the potential insurance industry loss in the UK, one of the countries worst affected by the surge; “The impact on some communities has clearly been severe. For the UK insurance industry, although it is too soon to accurately estimate the full costs of the floods, early indications are that it will be in the tens of millions of pounds rather than the high hundreds of millions, potentially reaching £100m. However this estimate will develop in the coming days.”

That is significantly lower than it might have been, had the flood defences not been in place and so much investment put into protecting surge exposed coastal communities in the UK. In fact, the majority of claims do not appear to be from property damage, despite the nature of flood.

Khan explained; “The largest claims appear to be coming from businesses, due to their business interruption insurance in addition to their property damage claims. Although an unexpected event, due to the unusually benign weather insurers writing personal and commercial property lines should still be making a profit this year, even allowing for this coastal flood and the storms that affected the UK in October.”

Khan does not expect the storm to have a significant impact on premiums except for in the areas which were flooded; “Businesses in the recently flood affected areas will probably see their insurance premiums and/or policy excesses rise on renewal, especially as they are not currently part of the new Flood Re agreement. Household and commercial property premiums for properties not affected by the floods will continue to see premium rates fall as competition continues to intensify in this sector.”

Risk modeller AIR Worldwide also expects the more robust flood defences will have kept insured losses significantly lower than they could have been.

“Hurricane-force winds caused widespread power outages and travel disruptions throughout the region, but the greatest threat from Xaver resulted from its massive surge,” commented Dr. Nicolai Thum, senior research associate, AIR Worldwide. “Storm surge in the United Kingdom and the Netherlands was the highest seen since the deadly North Sea floods of 1953. However, flood defenses in both countries have been significantly strengthened since then, which helped to limit damage. Storm surge was also significant near Hamburg, which saw significant flooding in 1962 from a similar storm, but coastal defenses around the German city held and damage was limited.”

In an update on storm Xaver, AIR Worldwide said that the UK Environment Agency reported that as many as 800,000 properties may have been protected by more than 2,800 km of flood defences along the UK coastline. 1,400 properties were reported as flooded, but it is clear that this would have been a much larger catastrophe event for UK homeowner and commercial insurers and their reinsurers had the coastal and tidal river flood defences not been so robust.

Dr. Thum commented on the impact in Hamburg; “In Germany, 6-meter high waves battered Hamburg, the second highest surge level since 1825, the first year for which recorded measurements are available. Tidal floods that hit Hamburg were similar to those that drenched the city in 1962, causing the worst flooding in living memory. Hamburg’s harbor area and historic ‘Fischmarkt’ were submerged by Xaver’s storm surge. However, improved coastal defenses along the North Sea limited Xaver’s impact.”

In the Netherlands as well the flood defences effectively held back the highest water levels since 1953, with only limited flood damage reported across the country.

Dr. Thum explained that Xaver was more of a flood event than a wind event; “Based on initial assessments, Xaver’s wind impact is expected to be less than that of Christian, as wind speeds were generally lower in regions affected by both storms. Winds toppled trees and caused widespread roof damage throughout the affected region, but significant structural damage is expected to be limited.”

Risk modelling firm RMS said in its latest update on Xaver; “Windstorm Xaver brought strong winds and significant surge to parts of northern Europe. However, wind damage appears to have been minimal and most sea defenses have held, with coastal flooding less severe than forecast.”

RMS also noted that Hamburg flooding was much less severe than expected; “In the port city of Hamburg, the surge height reached 6.09 m (20 ft) above sea level by 06:30 on Friday 6 December – but defenses have prevented severe flooding, with part of the port and the fish market reported to have been affected. Officials have said this surge height equaled the surge height that caused massive loss of life in 1962.”

None of the major risk modelling firms have published an estimate of insured losses for European windstorm Xaver yet. We will update you when they do.

In the UK, where flood insurance is typically included in most residential properties and commercial business premises policies, the flood defences have likely prevented the global reinsurance industry from taking a large loss from Xaver. That loss, had it happened, might even have impacted some catastrophe bonds as a number would have been exposed to a very large flood loss in the UK caused by a European windstorm.

Dom del Re, catastrophe insurance expert at PwC commented that while flood defences held up this time, there is no guarantee they will do so in future; “Unfortunately, due to climate change, we are more likely to see coastal floods like this and therefore the impact on the insurance industry will be ongoing. The only 100% certain impact of climate change on extreme events is that sea levels will rise and make storm surges like this more severe. The average sea level rise by 2100 is expected to be around 50cm, which does not seem much, but may be critical to overtopping the flood defences already in place. Insurers will need to factor this in as they plan their response to changing risks and opportunities.”

The example of windstorm Xaver’s storm surge should provide a reminder that risk mitigation efforts like flood defences are increasingly important and will help to keep shock losses to a minimum. It also shows that storm surge catastrophe bonds have a role to play, as a surge another metre higher may have resulted in a devastating loss for the economies of affected countries and the insurers operating there.

Read our other Xaver coverage (most recent first):

– ILS fund managers expect no cat bond impact from windstorm Xaver

– European windstorm Xaver; updates from risk modellers

– PERILS to assess European windstorm Xaver industry loss potential

– European windstorm Xaver brings another reminder of winters threat