Europe must unite to better manage flood risk
Politicians across Europe should work together to better prepare and manage the aftermath of catastrophic losses stemming from flooding, believes Ludger Arnoldussen, member of the Board of Management at Munich Re.
He says that the frequency of flood events in Germany and central Europe has increased by a factor of two since 1980. But he believes that such events need not necessarily result in higher losses if better flood protection and flood control measures were implemented.
“It is therefore important to sharpen risk awareness,” Arnoldussen said. “Rivers need room so that flood waves can disperse without causing serious damage. And the flood risk needs to be considered in the designation of land for industrial or residential areas. Politicians should not only set up emergency funds after catastrophes but should act with greater foresight, engaging in prudent supra-regional flood control, which should ideally be coordinated across national borders.”
He notes that the frequency of losses has also increased on other perils, suggesting climate change could be one influencing factor. In Germany, the number of loss-causing thunderstorm events (strong winds, hail, flash floods), for example, has quadrupled from around five per year in the early 1980s to the current level of about 20 per year.
The hailstorm event in July this year in Baden-Württemberg, Northrhine-Westfalia and Lower Saxony was the most costly hail event in German history. “Our detailed analyses of increases in the losses caused by such convective events in the US indicate that they are driven by changes in the prevailing meteorological conditions, particularly by increased air humidity,” said Arnoldussen. “This suggests that climate change may be one of the factors driving the rising frequency of such events.”
He said that Munich Re believes risk awareness concerning claims stemming from natural hazards is rising in Europe – something that could see governments increasingly turn to the private sector for help managing these risks.
“We are observing an increasing interest in market-wide insurance solutions for large natural catastrophes,” he said. “Catastrophe pools already exist in several countries, such as Turkey; new market-wide solutions are currently being discussed in the Netherlands and in Switzerland.
“The Green Paper on the topic published by the European Commission this April will further increase risk awareness. It also highlights that insurance solutions can provide relief for currently tight government budgets.”
Turning to the wider dynamics in the European market, he says all markets – and not only in Europe – are still feeling the effects of the financial crisis, with the countries in southern Europe hardest hit. The low-interest-rate environment also remains a challenge for insurance companies.
He says that the European market is changing to a lesser extent than other markets with many traditional practices and relationships still present in the market. Solvency II may start to change this as it standardises some practices in the market.
“Western Europe is closer to the UK and US with regard to market structure, participants, accounting standards and regulatory requirements, while central and eastern Europe is still seeing varying levels of development and progress in these areas,” he said.
“Each market is unique and has its own features and complexities, but also certain topics such as Solvency II are inevitably leading to a convergence of market characteristics. Regardless of the market in question, eventually all insurers within Europe will need to comply with the same regulatory capital requirements under Solvency II. While Solvency II will not completely level the playing field, it will reduce some of the ‘traditional aspects’ of certain European countries.”
