Both Germany and China have experienced their most costly insured natural disaster loss events in history in July, with both largely related to the impacts of devastating flooding, according to insurance and reinsurance broker Aon.
Germany is expected to face around US $20 billion in economic losses, while across Europe the July flood event is estimated to have cost more than $25 billion.
Of this, Germany is estimated to be facing $5.3 to $6.5 billion of insurance and reinsurance market losses from the flooding, while the rest of Europe is anticipated to be facing at least another US $1.2 billion of insured losses as well.
Giving a total that could be anywhere from US $6.5 billion to $7.7 billion, or perhaps even higher.
Recently, German reinsurance firm Hannover Re provided an up to EUR 7.5 billion estimate for the insured costs of the floods, which now seems like it will be in the correct range.
Aon’s Impact Forecasting unit noted that the floods will be Germany’s most costly insured natural disaster event on record, and that it is likely to end up being the costliest weather event and second-costliest natural disaster event in Europe in the past 40 years.
As a result, the impacts and losses from the European flooding has a strong chance of moving reinsurance pricing at the January renewals, especially as the largest players are likely to take a significant share, while at the same time telling their shareholders they are trying to cover the costs of climate risks.
This really leaves little room for reinsurers but to increase their pricing in response to such significant events.
China was also hit by historic flooding in July, which is also expected to drive a record insured natural disaster loss for the industry.
The Chinese floods, which affected Henan province the most, are also anticipated to result in an economic loss of around US $25 billion.
However, where as the European floods may see close to 25% of the economic costs covered by insurance, still a significant protection gap, in China it is likely to be a much smaller percentage and far more significant protection chasm.
Insurers are expected to be on the hook for up to $1.7 billion of losses after the flooding, which may require some reinsurance support, but that would only be 6% or so of covered losses, with a massive ~94% protection gap evident.
Once again, this drives home the need for continued expansion of China’s insurance and reinsurance market, as well as the need for access to efficient catastrophe risk capital for carriers operating there.
Steve Bowen, managing director and head of Catastrophe Insight on the Impact Forecasting team at Aon, commented, “One of the hallmarks of climate change involves extreme events becoming more extreme. The recent release of the IPCC’s Sixth Assessment Report confirms this to be true and notes an accelerating trend of these types of extremes as seen in observed events.
“The recent historic rainfall and flooding in Europe and Asia while juxtaposed against the most intense drought conditions recorded in North America in decades highlights the fragility of the climate system and the need to invest in actionable strategic solutions that lower physical and non-physical risks. Improving and stabilizing these risks is essential, but also achievable.”