European insurers well-positioned to take on flood losses

While the total impact of major flooding in central Europe is unclear as the situation develops, ratings firm A.M. Best says it expects economic losses to “far exceed” insured losses.

In its early analysis of the floods, the firm said that losses will likely “remain largely” with primary insurers, while German and Austrian companies operating in the Czech Republic will likely pay the most claims.

“A large portion of the losses will be borne by the large Continental European reinsurers,” it added. “In contrast to the United States, the catastrophe bond market is not well developed for European perils.”

Most claims are likely to be from property damage and vehicle claims, the briefing also suggests. Business interruption losses are also expected, as central Europe is home to some manufacturing plants, but A.M. Best said it isn’t anticipating any major supply chain disruptions.

The flooding is the worst in central Europe since 2002. Those events resulted in 17 billion euros of economic damages and estimated insured losses of 3.4 billion euros, according to A.M. Best.

“However, in the past decade, flood protection has improved and insurers have introduced higher deductibles or withdrawn cover in loss-prone areas,” the firm said.

“Compared to the floods of 2002, to date fewer major economic centres and municipal towns have been flooded. Rural areas have tended to be the most severely impacted, and underinsurance is common in the affected towns,” it also noted. “In Eastern Europe, many residential property owners are uninsured.”

The company also said it is expecting rate rises and higher deductibles for flood coverage in the region, and potentially for non-flood parts of retail and commercial policies.

“Central European governments are likely to come under increasing pressure to protect citizens against further floods,” the firm also noted.

“In addition to increasing spending on flood prevention infrastructure, governments may explore the creation of flood insurance pools or make flood insurance compulsory in flood-prone territories.”