European flood industry loss up to US $7.7bn: RMS

Catastrophe risk modelling firm RMS has provided an estimate of the insurance and reinsurance industry loss from July’s devastating flooding across Europe, saying it could be as high as €6.5 billion (US $7.7bn).

Flooding in Germany, photo from Christoph Reichwein – AFP

RMS’s estimate is interesting, as the risk modeller has opted for a lower insured loss for Germany than even the country’s own insurance association believes it to be, suggesting RMS’ estimate may prove too low.

RMS said the overall industry loss across Europe from the floods is expected to be between €5 billion and €6.5 billion (US $6 billion and US $7.7 billion).

However, for Germany alone RMS estimates the loss will be between €3.5 billion and €4.5 billion.

This is some way below the estimates from Germany’s insurance association, the GDV, which said it expects the industry loss will be towards the top-end of its up to €5.5 billion estimate.

Meanwhile, BAFIN said that after polling insurers, it believes the loss for Germany will be around €5.7 billion, with more than €1 billion falling to the country’s reinsurance firms.

So RMS seems to be very low on Germany, which is surprising given how many estimates are already available there, including from its insurance association.

However, this is down to the different procedures used to reach a figure, as RMS’ estimate is based on a flood hazard footprint, so is modelled and not taking into account reporting from insurers.

RMS explained that this is brand-new flood footprint functionality that is available in its RMS Europe Inland Flood HD Models running on Risk Modeler.

RMS’ industry loss estimate includes insured property and business interruption loss to residential, commercial, industrial, automobile, and infrastructure lines and accounts for the potential of post-event loss amplification and extended business interruption.

However, RMS’ loss estimate also excludes losses observed in the Netherlands, which sits outside of the model domain, and losses in Switzerland, Bavaria and Saxony in Germany, and Austria, which were caused outside the time window of the heaviest rainfall.

Hence the delta between RMS’ estimate and the others, given it doesn’t even include the whole of Germany, making for very challenging comparisons.

Daniel Bernet, product manager, Europe Flood Models, RMS, commented, “In terms of loss, this event is expected to be comparable to the costliest European flood events in recent history, the Central and Eastern Europe floods of 2002 and 2013. However, unlike the 2002 and 2013 events during which overtopping and breaching of major rivers contributed substantially to overall damages, the 2021 event occurred in a different region and was characterized with much steeper and faster flood waves with higher flow velocities in smaller rivers and tributaries that caused substantial structural damage, and regretfully, an unusually high number of fatalities.”

Given what’s in and out of this estimate, we believe RMS’ figure points to a higher total loss for the insurance and reinsurance industry than most have reported so far.

Which perhaps means that investment bank Jefferies up to US $8.6 billion industry loss figure now looks more likely to be close to the eventual tally.