Global consultancy and accounting specialists PwC believe that storm Desmond, a European windstorm that struck the UK in recent days causing severe flooding in Cumbria and the northwest, could cause cost up to £500m, with insured losses of up to £325m (~$490m).
Mohammad Khan, general insurance leader at PwC UK, explained; “Our current estimate of the damage caused by Storm Desmond is £400m – £500m with the insurance industry paying out between £250m and £325m. This compares to an economic cost of £275m and insurer costs of £175m in the 2009 floods.”
At this level of insurance industry loss the impact on the reinsurance sector will be minimal, with primary insurers bearing a significant proportion of the insured losses. However there will be the potential for some of the claims burden to fall on reinsurance capital, which as ever leaves the potential for some ILS fund managers to have exposure, albeit likely minimal, through their collateralised reinsurance arrangements.
Khan said that the weather conditions could exacerbate the issue, increasing the losses; “Clearly these are initial estimates as there is still uncertainty as to the number of properties and businesses affected. If the storm continues, the damage – and therefore the costs – could be significantly worse. Any additional rainfall – even 1cm-2cm – could cause flash flooding in rain affected areas as the ground is already saturated with water. This could compound the damage that has already been caused by Storm Desmond.”
Domenico Del Re, catastrophe risk management leader at PwC UK, added; “Although we have had significant flood and storm events in the UK over the last decade, this is the first time the MET office has attributed these unprecedented levels of rainfall to changes in the climate.
“This has far reaching impacts on how the insurance industry assesses flood risk on a forward-looking basis. All flood events provide additional data and insight to be used in modelling, and the industry will need to assess if their current models capture any heightened risk.”
Del Re also explained the important role that the UK’s Flood Re reinsurance facility will play in ensuring that homeowners can continue to afford flood cover in affected areas.
“From April 2016, flood homeowners in flood affected areas will be able to experience more affordable premiums thanks to the launch of the Flood Re scheme which will enable every household insurer to provide flood insurance at an affordable price. The scheme is not available to all – in particular businesses, who are advised to take action and understand their exposure to flood and take remedial actions where possible,” he said.
As we wrote earlier today, PERILS AG has officially put the UK flooding in Cumbria under investigation, which suggests that the insurance and reinsurance industry losses from flooding alone could reach PERILS €200 million event threshold.
Add to that the wind damage in the UK and the impact could easily reach the levels PwC suggests. Of course there are also losses suffered in Ireland and other areas of northern Europe from this storm, so the total cost to the insurance industry could be higher.