German flood model will lead to more accurate pricing and risk info says AIR

Flood is the second highest cause of economic and insured natural catastrophe losses in Europe, beaten only by winter storms. The UK historically suffers the highest proportion of insured flood losses in Europe, but Germany, even with a much lower penetration of insurance, still accounts for around 35% of the total losses per annum. According to AIR the average annual insured loss today from inland floods in Germany is estimated at around €300m, a figure that will only grow as more homes and businesses are constructed in flood-prone locations.hideIndeed flooding is a regular occurrence in Germany. Not limited to the coast or low-lying river valleys it is widespread due to off-floodplain flash flooding. But for commercial and industrial properties penetration of flood insurance in the country stands at a lowly 40%, according to AIR figures. This compares to a near 100% in the UK, where cover is a traditional purchase. AIR believes that this figure may well rise as a result of its new model as risk managers will now be able to get more precise data on their flood risk. Although large corporates typically do not license AIR’s models and so do not tend to run risk analyses themselves, brokers will now be able to supply more information in Germany. Risk managers can also approach the modelling firm directly and ask it to run an individual analysis of their property risk footprint. As well as brokers, the new tool will typically be used by reinsurers and primary insurers to map the risk transfer industry’s flood exposure and allow them to make better decisions and price risk more accurately, said Mr Simic. This may also result in more cover becoming available. “This tool gives more ammunition for all the risk transfer chain to have a more meaningful discussion. It gives people the ability to zoom in on their risks and get a detailed analysis,” explained Mr Simic. “This could lead to the provision and adoption of more insurance, as insurance companies and risk managers will have a proper tool to look at their risk.” According to AIR, whilst there are other German flood models in the market none are as detailed or as scientifically grounded as its new offering. To meet the challenge of capturing both large-scale and small-scale precipitation patterns, AIR has adopted the innovative approach of coupling a state-of-the-art Global Climate Model (GCM) with a detailed Numerical Weather Prediction (NWP) model. GCMs allow scientists to model climate at planetary level. But, as they are designed to look at the macro picture rather than the micro level, these models work at hundreds of kilometres’ resolution and so alone do not produce accurate results for rainfall. Given that the resolution was inadequate AIR innovatively decided to couple GCMs with NWP models—the sort used by weather forecasters. Coupling the global planetary mechanisms with the local high-resolution models the company said it is able to get the kind of detailed and consistent information needed to accurately model rainfall. AIR believes that no other flood model uses these combined tools. The company wanted to develop a solution that would work not just for Germany but also, in the long term, for all countries across mainland Europe. And so its new tool is based on information that can predict pan-European rainfall patterns. “We now have a precipitation event set that spans the whole of Europe and for ten thousand years. We need the information over that time span in order to create a rich simulation. That is not ten thousand future years, but ten thousand possible simulations of the next year as people buy insurance and reinsurance for the next year not the long term,” said Mr Simic. This will allow AIR to expand its European footprint and lead to further European flood models in the coming years. It currently offers a UK model alongside the German tool. Once the hardcore weather data had been collated the modelling firm overlaid that information on nuances of flood risk in Germany. It took into account the water basins and river catchment areas in the country, which are focused around the Rhine, Elbe, Oder and Danube rivers. The model covers a river network extending more than 160,000 kilometres, and off-floodplain flooding that is modelled according to the specifics of more than 35,000 small drainage areas in Germany. The off-floodplain model accounts for elevation, runoff, drainage backups and facility aging at each modelled location. The NWP model provides all the necessary input—liquid and frozen precipitation, surface wind, surface temperature and solar radiation—to account for the impact of snowmelt and soil moisture conditions, both important contributors to flood risk. It can also account for site-specific flood defence systems often deployed by large industrial facilities. Based on engineering analyses, findings from published research, damage surveys conducted by AIR and insurance loss data, AIR engineers have developed flood-specific damage functions, or relationships between flood depth and the amount of damage caused to a given building, for 34 different construction classes and 50 occupancy classes in Germany. “German industry invests a lot of resources in flood mitigation and so we needed to take this into account. In our system you can toggle whether or not a building has flood protection and account for the sophistication of that defence,” explained Mr Simic.

German flood model will lead to more accurate pricing and risk info says AIR

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