Thu. Jan 27th, 2022

Reinsurance giant Munich Re is expecting a sustained rise in Europe’s relatively low levels of property disaster insurance – and in the cost of cover – following last summer’s catastrophic floods on the continent.

The floods, which hit West Germany the hardest, killing more than 200 people and was Europe’s most expensive natural disaster on record, with losses of € 46 billion ($ 54 billion). But only € 11 billion of this is covered by insurance, unlike the US where the bulk of natural disaster losses are typically insured.

Ernst Rauch, head of Munich Re’s climate solutions unit, told the Financial Times that demand for disaster insurance in Europe is growing as concerns about the dangers of climate change increase.

“People now realize that they live in risky areas, which they did not think historically,” he said, adding that less than 50 percent of German property is currently insured against floods. “We expect the demand for flood insurance to increase in the medium term as a result of this event.”

His prediction came when Munich Re published its annual estimate of global losses due to natural disasters, which it set at $ 280 billion in 2021. Of this, $ 120 billion was covered by insurers – the second highest figure on record, behind only the 2017 figure of $ 146 billion. Last year’s most expensive disaster was Hurricane Ida, which destroyed $ 65 billion worth of property, mainly in the southeastern United States.

Rauch said there is a clear link between climate change and increasingly costly disasters, forcing insurance companies and the reinsurers helping them manage their risks to review their threat assessments for vulnerable areas. This meant that the cost of disaster insurance was likely to rise, he added.

According to industry data on reinsurance contracts renewed this month, prices are on track. A report by Gallagher Re found that reinsurers sharply increased their prices to cover property risks in flood-stricken areas of Germany, in some cases by more than 50 percent.

Globally, real estate disaster reinsurance premiums have risen by 9 percent – the most since 2009 – according to a report by insurance broker Howden, who cited concerns about the worsening climate effects as a major factor.

Andreas van Embden, an analyst at Peel Hunt, said property risk in Europe remains “very underpriced”, and that price increases still have a way to go. Some reinsurers have tried to reduce their exposure to that market after the German floods, he noted, as concerns about the increasing risk of such historically rare events increased.

“Since 2017, reinsurance companies have not really made money on property reinsurance,” he added. “Every year they are burned somewhere around the world.”

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