INTERVIEW RMS: Ciara and Dennis spotlight Europe’s widening protection gap

Windstorm Ciara reported final losses in the range of €1.1 billion to €1.8 billion ($1.95 billion), with Germany accounting for half of the total losses., according to catastrophe risk modelling company RMS.

“The majority of damage was caused by wind in contrast to windstorm Dennis which was a weaker but wetter storm, bringing heavy precipitation to the UK and causing extensive flood damage,” Michele Lai, product manager for the RMS Europe Climate Models, told Intelligent Insurer.

Despite the damage caused, Lai said storms like Ciara and Dennis are not rare or as severe when compared to past events. “The last similar storm in terms of total loss was Windstorm Friederike in 2018 which means the return periods of these storms are likely to be under five years. This is by far less severe than past seasons such as 1990 or 1999.”

The storms act as a reminder for insurers to assess the risks prevalent in Europe, but Lai noted that Europe does provide insurers with some sense of stability in that its property exposure is not expanding at the same speed as other parts of the world.

While the severity of natural catastrophe events has not increased, the number of events has. “There is an increasing trend in the number of events in Europe which can be partly attributed to climate change. The main challenge, though, remains the exposure growth in flood plains, which creates higher concentration of exposed assets,” said Lai. And, while Europe has a high level of insurance penetration, Lai noted that the protection gap is widening.

The storms have also increased insurers' attention on the impact of clustered claims. When a storm occurs, the likelihood of a secondary low-pressure system forming just after is increased, this windstorm clustering leads to clustered insurance claims. “Clustering needs to be assessed carefully in risk management, as this has an important impact on reinsurance products such as Aggregate XL or CatXL with reinstatements,” said Lai.

She added that in the case of Ciara and Dennis these clustered claims mainly come from flood damage. The clustering of events for the past several months has caused soil saturation prior to Dennis, which therefore increased the storms severity.

RMS has developed a number of data products in a bid to mitigate the damage from floods and help underwriters with better risk selection. “We offer high-resolution pan-European flood maps as well as a probabilistic modelling solution that covers more than 98 percent of total gross written premiums in Europe,” concluded Lai.