Tag Archives: Europe

Three Principles for Exposing the Hidden Risks (and Opportunities) Within Your European Flood Portfolio

Building a profitable European flood portfolio is like walking a tightrope—a tricky balancing act. It is of course important to minimize your risk of significant losses. But while big losses certainly haunt the market—just remember the €1.7 billion claimed in the UK as a result of last December’s floods—being too cautious or overpricing will lead you to miss out on attractive opportunities.

 Striking the right balance is no easy task. Flooding is a complex affair, with many factors to consider (such as the likelihood of three consecutive rainstorms causing major inland flooding in the UK in one month). Insurers are understandably wary. But with the right approach—which involves challenging outmoded assumptions, using high quality data, and remembering that floods spill over national borders—the balance can be struck.

The three principles outlined below should always be borne in mind when looking to grow a profitable European flood business.

1. Challenge your assumptions

It’s always difficult to go against the grain and question long-held assumptions. But as Mark Twain said, “It ain’t what you don’t know that gets you into trouble; it’s what you know that just ain’t so.”

For instance, it seems logical to focus on business well away from rivers or flood plains. But the fact is that up to 50 percent of the average annual loss from flooding across Europe is from pluvial (non-river) flooding such as groundwater and flash floods. “Safe bet” properties can easily attract flood losses, quickly turning supposedly “safe” and profitable portfolios into riskier propositions.

And avoiding rivers can also mean missing out on profitable business opportunities. The European Union invests €40 billion annually on flood defenses, mitigation, and compensation against flood events. Effective flood defenses such as these can transform an area from being flood-prone to largely flood-free.

2. Build your business on the latest detailed, comprehensive and high-quality data

So Mark Twain wasn’t completely right—what you don’t know can also get you into trouble. It’s essential to incorporate detailed, up-to-date flood defense data (covering location, structure and effectiveness) into your exposure analysis. Assessing the impact these defenses have on water flow for a specific area or property provides confidence when evaluating risk, and helps price desirable business more competitively.

That said, getting hold of this data can be an arduous task. Doing it yourself means relying on a range of local and national databases. A lot of data is old and inaccurate, and some doesn’t get published at all. European data in particular is patchy compared to that available in the US. This is why 70 percent of RMS’ data in our Europe flood map and models is proprietary—developed using in-house expertise, research, and historical event information.

But just having the data isn’t enough—you need to use that data properly. And that means modeling across a whole range of scenarios. The recent experience of Northern England—where record-breaking levels of rainfall breached newly-installed defenses—showed that when residents believe defenses have made their area largely flood-free, the resulting false sense of security can have catastrophic effects. People can prove less likely to implement contingency measures or invest in flood resiliency for their own properties. The result? Higher claim costs.

3. Floods don’t respect national borders

Did you know that more than 150 rivers in Europe cross national boundaries? In fact, flooding along the Danube affected six countries in 2013—from Germany all the way along to Serbia!

The lesson is simple: even if you only write business for a single European country, don’t rely on country-specific maps from national institutions to calculate your exposure to flood risk. This also applies when writing business in more countries—even if the data is good, without seeing the flood risk along an entire river you can’t be sure whether your portfolio is taking the lion’s share of the risk.

By thinking about the spatial correlation of flood risk across Europe you can avoid large accumulations of risk and diversify your portfolio without substantially increasing capital requirements or reinsurance costs. An accumulation of risk along a stretch of river in one country can be offset by attracting business in a lower risk area along the same river in a different country.

Balancing risk and reward to build a profitable European flood business is always a tricky affair. But these three principles provide a base from which to build a business that not only minimizes risk, but maximizes profit too.

Disasters Without Borders

On November 24 and 25, 2015 the first Scientific Symposium was held in London to discuss science for policy and operations for the new “Disaster Risk Management Knowledge Centre.” The Centre was launched by the European Commission in September this year to help member states respond to emergencies and to prevent and reduce the impact of disasters. The Centre will offer EU countries technical and scientific advice, provide an online repository of relevant research results, and create a network of crisis management laboratories. RMS was the only catastrophe modeler invited to present to the meeting.

Jointly organized by the UK Met Office and the European Commission, the symposium exposed some of the tensions between what countries can do on their own and where they require a supranational European institution. The British government contingents were particularly keen to show their leadership. The UK Cabinet Office co-ordinates inputs across government departments and agencies to manage a national risk register, identifying the likelihood and potential impact of a wide range of threats facing the country: from an Icelandic volcanic eruption to a storm surge flood to a terrorist incident. The office of the Chief Government Scientist then leads the response to the latest disaster, reporting directly to the Prime Minister.

These were not responsibilities the UK would ever consider transferring to a new European institution, because they go right to the heart of the function of a government—to protect the people and the national interest. However no single country can provide total management of events that run across borders, in particular when it is the country upstream that is controlling what heads your way, as with water storage dams. For this a Europe wide agency will be vital. The Centre will be most useful for the smaller European countries, unable to sustain research across the full range of hazards, or monitor activity around the clock. However do not expect the larger countries to share all their disaster intelligence.

Where does RMS fit into this picture? As described at the London symposium, probabilistic models will increasingly be key to making sense of potential disaster impacts and for ensuring organizations don’t become fixated on planning against a single historical scenario. RMS has more experience of probabilistic modeling than any other European science or government agency, in particular in areas such as the modeling of floods and flood defenses or for multi-hazard problems.

Two ideas with the potential for RMS leadership got picked up at the symposium. For an intervention such as a new flood defense, the results of the probabilistic model become used to define the “benefits”—the future losses that will not happen. A versatile model is required in which the user can explore the influence of a particular flood defense or even see the potential influence of climate change. Second we can expect to see a move towards the risk auditing of countries and cities, to show their progress in reducing disaster casualties and disaster impacts, in particular as part of their Sendai commitments. We know that risk cannot be defined based only on a few years of disaster data—the outcomes are far too volatile. Progress will need to be defined from consistent modeling. Catastrophe modeling will become a critical tool to facilitate “risk-based government”:  from measuring financial resilience to targeting investment in the most impactful risk reduction.

What to expect this 2014-2015 Europe Winter Windstorm Season

When it rains in Sulawesi it blows a gale in Surrey, some 12,000 miles away? While these occurrences may sound distinct and uncorrelated, the wet weather in Indonesia is likely to have played some role in the persistent stormy weather experienced across northern Europe last winter.

Weather events are clearly connected in different parts of the world. The events of last winter are discussed in RMS’ 2013-2014 Winter Storms in Europe report, which provides an in-depth analysis of the main 2013-2014 winter storm events and why it is difficult to predict European windstorm hazard due to many factors, including the influence of distant climate anomalies from across the globe.

Can we predict seasonal windstorm activity during the 2014-2015 Europe winter windstorm season?

As we enter the 2014-2015 Europe winter windstorm season, (re)insurers are wondering what to expect.

Many consider current weather forecasting tools beyond a week to be as useful as the unique “weather forecasting stone” that I came across on a recent vacation.

I am not so cynical; while weather forecasting models may have missed storms in the past and the outputs of long-range forecasts still contain uncertainty, they have progressed significantly in recent years.

In addition, our understanding of climatic drivers that strongly influence our weather, such as the North Atlantic Oscillation (NAO), El Niño Southern Oscillation (ENSO), and the Quasi-Biennial Oscillation (QBO) is constantly improving. As we learn more about these phenomena, forecasts will improve, as will our ability to identify trends and likely outcomes.

What can we expect this season?

The Indian dipole is an oscillation in sea surface temperatures between the East and West Indian Ocean. It has trended positively since the beginning of the year to a neutral phase and is forecast to remain neutral into 2015. Indonesia is historically wet during a negative phase, so we are unlikely to observe the same pattern that was characteristic of winter 2013-2014.

Current forecasts indicate that we will observe a weak central El Niño this winter. Historically speaking this has led to colder winter temperatures over northern Europe, with a blocking system drawing cooler temperatures from the north and northeast.

The influence of ENSO on the jet stream is less well-defined but potentially indicates that storms will be steered along a more southerly track. Lastly, the QBO is currently in a strong easterly phase, which tends to weaken the polar vortex as well as westerlies over the Atlantic.

Big losses can occur during low-activity seasons

Climatic features like NAO, ENSO, and QBO are indicators of potential trends in activity. While they provide some insight, (re)insurers are unlikely to use them to inform their underwriting strategy.

And, knowing that a season may have low overall winter storm activity does not remove the risk of having a significant windstorm event. For example, Windstorm Klaus occurred during a period of low winter storm activity in 2009 and devastated large parts of southern Europe, causing $3.4 billion in insured losses.

Given this uncertainty around what could occur, catastrophe models remain the best tool available for the (re)insurance industry to evaluate risk and prepare for potential impacts. While they don’t aim to forecast exactly what will happen this winter, they help us understand potential worst-case scenarios, and inform appropriate strategies to manage the exposure.

Is Europe Due for Severe Hailstorms this Summer?

Summer has just started, but weather has already been warm over Europe. Many countries have experienced very high temperatures over the first weeks of June, and there is a chance the 2014 summer will be warmer than normal. A warm atmosphere can bring very high convection potential and potentially lead to a busy severe convective storm season. While seasonal forecasts are uncertain, severe hail events already experienced in June already point to a potential increase in hail risk this year.

The first noticeable hailstorm of the season hit Germany, France, and Belgium between June 7 and 9. Over that period, southern air masses were very warm and clashed with much cooler air from the north. This frontal system brought heavy local wind, rain, and hail, especially over the north of France, Belgium, and northwest region Germany, where large cities like Essen, Düsseldorf, or Köln experienced property damages and six casualties.

RMS scientists Dr. Navin Peiris and Panagiotis Rentzos led a reconnaissance survey in the region a few days after the event and noted that even if there was some evidence of direct hail damage to roofing, most of the substantial damages and transport disruption around Düsseldorf came from tree falls due to very strong wind gusts.

Tree Fallen in Hailstorm

July 12, 2014 will be the 30th anniversary of the most expensive hailstorm in the history of Germany, which generated losses around US$2 billion 1984—half of which was insured. The hailstorm developed amid a streak of late afternoon thunderstorms after a day of intense solar heating. A mass of moist sea air flowed into southern Germany overnight and the combination of moisture and rising air triggered a rapidly intensifying thunderstorm system over the Swiss Mittelland that propagated eastward. Hail fell within a 250-kilometer (150-mile) long and 5–15 kilometer (3–9 mile) wide swath from Lake Constance to eastern Bavaria near the Austrian border. At around 8 p.m. local time, the hailstorm passed over Munich, damaging approximately 70,000 houses, 200,000 cars, 150 aircraft, and most agricultural crops within the storm’s path. More than 400 people were injured. Over half of the insured losses were attributed to damaged cars.

July also marks the first anniversary of the 2013 German hailstorm, which caused insured losses of US$3.4 billion, the second highest from a single natural catastrophe in 2013. Like the June 2014 events, the storm hit after a prolonged period of above-average temperatures in central Europe. The first hail event hit northern Germany on July 27, and the second dropped hailstones with a diameter of up to 8 cm (3.1 in) over south Germany the next day.

Interestingly, all these major events occurred in regions with very high potential of hail damage, which can be described in catastrophe models such as the RMS HailCalc model in terms of kinetic energy to help better manage hail risk. In June, RMS presented the first results of a reconstruction of this hailstorm on at the 1st European Hail Workshop. The paper illustrates how a fast estimation of insured hail losses could be obtained following an event in the future. Developing methods of estimating insured loss totals and return periods immediately after an event are an ongoing area of research in the insurance industry, as illustrated in the RMS paper and others at the workshop.

Hailstorm Image Map

 

Lessons Learned from Winter Windstorm Season in Europe

The 2013–2014 winter windstorm season in Europe will be remembered for being particularly active, bringing persistent unsettled weather to the region, and with it some exceptional meteorological features. The insurance industry will have much to learn from this winter.

Past extreme windstorms, such as Daria, Herta, Vivian, and Wiebke in 1990, each caused significant losses in Europe. In contrast, the individual storms of 2013–2014 caused relatively low levels of loss. While not extreme on a single-event basis, the accumulated activity and loss across the season was notable, primarily due to the specific characteristics of the jet stream.

A stronger-than-usual jet stream off the U.S. Eastern Seaboard was caused by very cold polar air over Canada and warmer-than-normal sea-surface temperatures in the sub-tropical West Atlantic and Caribbean Sea. Subsequently, this jet stream significantly weakened over the East Atlantic.

Therefore, the majority of systems were mature and wet when they reached Europe. These storms, while associated with steep pressure gradients, brought only moderate peak gust wind speeds onshore, mainly to the U.K. and Ireland. In contrast, the storms that hit Europe in 1990 were mostly still in their development phase under a strong jet stream as they passed over the continent.

The 2013––2014 storms were also very wet, and many parts of the U.K. experienced record-breaking rainfall resulting in significant inland flooding. Again, individual storms were not uniquely severe, but the impact was cumulative, especially as the soil progressively saturated.

Not all events this winter season weakened before impact. Windstorms Christian and Xaver were exceptions, only becoming mature storms after crossing the British Isles into the North Sea and were more damaging.

Christian impacted Germany, Denmark, and Sweden with strong winds. RMS engineers visited the region and observed that the majority of building damage was dominated by the usual tile uplift along the edges of the buildings. Fallen trees were observed, but in most cases, there was sufficient clearance to prevent them from causing building damage.

Xaver brought a significant storm surge to northern Europe, although coastal defenses mostly withstood the storm. Xaver, as well as some of this year’s other events, demonstrated the importance of understanding tides when assessing surge hazard as many events coincided with some of the highest tides of the year. The size of a storm-induced surge is much smaller than the local tidal range; consequently, if these events had occurred a few days earlier or later, the astronomical tide would have been reduced, significantly reducing the high water level.

Windstorm3

Wind, flood, and coastal surge are three components of this variable peril that can make the difference between unsettled and extreme weather. This highlights the importance of modeling the complete life cycle of windstorms, the background climate, and antecedent conditions to fully understand the potential hazard.

This season has also raised questions about the variability of windstorm activity in Europe, how much we understand this variability, and what we can do to better understand it in the future. While this winter season was active, we have been in a lull of storm activity for about 20 years.

Given the uncertainty that surrounds our ability to predict the future of this damaging peril, perhaps for now we are best positioned to learn lessons from the past. This past winter provided a unique opportunity, compared to the more extreme events that have dominated the recent historical record.

RMS has prepared a detailed report on the 2013–2014 Europe windstorm season, which analyzes the events that occurred and their insurance and modeling considerations. To access the full report, visit RMS publications.

Understanding the Potential Impact of the Next Catastrophic European Flood

Over the past year, Europe has intermittently but consistently suffered from significant flooding.

Most recently, the Balkans experienced widespread devastation in May due to some of the region’s heaviest precipitation on record. Three months worth of rain fell in just three days. The subsequent flooding was so severe that entire towns were submerged. While it is too soon to estimate the full impact, the economic and humanitarian costs will be high.

This event follows one of the stormiest and wettest winters on record for the U.K. Remote locations bore the worst of it, and for now, the U.K. government and insurance industry appear to have largely escaped a sizeable bill, at least on the scale of previous flood events.

The events come just one year after the costliest natural catastrophe of 2013 for the insurance industry, when flooding inundated Central and Eastern Europe in late May and early June. The event caused around $20 billion (€12 billion) in economic losses, of which it is estimated that approximately 20 percent was insured.

As with the more recent Balkans and U.K. events, the May 2013 flooding followed a period of extreme rainfall; consequently, groundwater and soil moisture levels were saturated. As more rain fell in late May and early June, the precipitation had nowhere to go except to flow through catchments into the river network as runoff. The Danube, Elbe, and other rivers overflowed, resulting in significant flooding across Germany and the Czech Republic, and, to lesser extents, Austria, Switzerland, Poland, Slovakia, Hungary, Croatia, and Serbia.

Each of these events highlighted the importance of understanding the impact of precipitation, whether from a short, intense period of rainfall, prolonged wet conditions, or a combination of these characteristics. In each case, to evaluate flood risk, it is vital to understand how antecedent wetness conditions influences subsequent flooding.

In 2002, Central Europe was similarly inundated by severe flooding, producing economic losses of over $28 billion (€17 billion). Both events were triggered by similar meteorological phenomena, Genoa type-lows. However, the antecedent conditions in 2002 were comparatively dry compared to those in 2013, and the precipitation that triggered the eventual flooding was more severe in 2002 compared to 2013.

Both events had significant impacts, but what would happen if we combined the worst features of both to create a “perfect storm” type of flood event?

Combining the antecedent wetness of spring 2013 with the extreme precipitation of the August 2002 event, RMS researchers estimated how severe this “perfect flood” could be. Results of this study show a substantial increase in peak flow (more than 50 percent on average) for both the Elbe and Danube rivers.

Elbe River flood hazard map for a "perfect flood event," Riesa, Germany

Elbe River flood hazard map for a “perfect flood event,” Riesa, Germany

In certain locations, this scenario would be characterized by a flood extent (shown above for the area surrounding Riesa, Germany) of about 2.5 times that observed in 2002. But given the remarkable non-linearity between hazard and damage, RMS research estimates that the increased losses could aggregate to a total economic loss of approximately four times the 2002 losses. While this is a theoretical scenario, it is also an entirely realistic one.

The events that have occurred since May 2013 are a stark reminder that flood is a peril from which much can be lost.

After the 2002 flooding, flood defenses were improved in some locations, such as Prague, resulting in less severe flooding. However, because both the flood hazard itself and the physical environment change over time, Europe’s flood risk must be continually and holistically assessed to ensure that we are prepared for when, not if, a similar event occurs again.

How Does Southern Europe Weather the Storm?

The 2013-14 European winter storm season has been pretty active so far. Early in the season, Windstorm Christian raced across northern Europe, followed by Xaver in early December, and then storms Dirk, Erich, Felix and Anne hit the U.K., Ireland, and northwest France over the Christmas and New Year period.

To date the season has been a great demonstration of how northern Europe is a common target for winter storms. However, this week sees the 5th anniversary of Windstorm Klaus, reminding us that storms can also impact southern Europe, affecting regions not acclimatized to extreme winds and causing severe damage.

What happened when Klaus hit and what have we learned from it?

Can such a storm occur again in the near future and more importantly, can we predict it, or at least estimate how bad it could be?

Windstorm Klaus sprung to life on January 23, 2009 in the central Atlantic, directly in line with southern France. The climate backdrop to this storm was pretty uncharacteristic. The large-scale Icelandic low-pressure system and the Azores high-pressure system were farther south than usual. Also, the North Atlantic Oscillation (NAO) was entering a negative phase.

A positive phase of the NAO creates favorable conditions for strong storms to pass over northern Europe, as Lothar and Anatol did in 1999. But a neutral or negative phase of the NAO can lead to storms that affect southern Europe and this is exactly what happened with Windstorm Klaus.

By midnight on January 24, as Klaus approached land, it had a central pressure of 963 hPa, comparable to Windstorm Lothar. Winds reached severe gale force in the southwest of France, peaking with gusts above 140 km/h at coastal locations near Bordeaux, accompanied by violent seas with wave heights of several meters. Local infrastructure was severely disrupted by fallen trees and electricity pylons.

Over 1.7 million households were without power immediately after the storm and over 60% of maritime pines in the Forêt des Landes were destroyed. Once the damage had been appraised, Klaus was estimated to have caused insured losses of €2.5billion (US$3.4 billion).

Shortly after the event, RMS scientists Dr. Navin Peiris and Dr. Christos Mitas conducted a reconnaissance survey, which helped to enhance our understanding of building vulnerability in this region. They observed frequent non-structural wind damage, such as the uplifting of roof tiles and collapsed chimneys, but also direct wind damages from tree fall, due to the high density of trees in close proximity to properties.

Source: RMS 2009 reconnaissance

Closer examination of the roof damage revealed little evidence of proper fixation, particularly along roof edges, leaving them more vulnerable to wind damage. Another observation was the use of canal-type tiles, which are prone to uplift from the build up of air pressure, caused by strong winds. Also, damage was more frequent in residential properties, compared to commercial or industrial buildings that are generally engineered in line with building codes.

This survey, combined with an assessment of claims data, provided us with an enhanced understanding of regional vulnerability differences. For example, we observed a significantly lower fragility of buildings in the Perpignan area compared to the southwest of France.

Ratio of the modeled and observed losses by postcode using non-regionalized vulnerability functions. Variation supports need for distinct vulnerability regions.

Ratio of the modeled and observed losses by postcode using non-regionalized vulnerability functions. Variation supports need for distinct vulnerability regions.

This information is vital for us to continually develop and inform our models, in order to represent the risk accurately. Due to the inherent uncertainty in the climatic phenomena driving windstorms, it is not possible to forecast exactly when the next strong storm will hit southern Europe. Catastrophe models provide a range of possible events, which can help the insurance industry prepare for the next big event.

The RMS Europe Windstorm Model contains storms comparable to Klaus, including some that impart larger wind intensities and damages. The below image compares two examples of stochastic storms with the actual Klaus wind footprint to illustrate storms that could potentially cause insured losses similar to or higher than Klaus.

Klaus and Stochastics

Currently we are in a close to neutral phase of the NAO, so does that mean a Klaus type storm could occur this winter? No one can answer that question for certain, but a model at least enables us to explore the possible worst-case scenarios and be prepared.