Bad weather for good things

Red or black? Anyone who relies on luck when it comes to guarding against weather risks could be in for a nasty shock this year. And anyone looking for insurance cover will have to pay dearly for it.

Their names make them sound like nice people – Harvey, Irma and Maria. But behind them lie deadly and costly weather events: hurricanes that have caused widescale suffering and extensive damage in the Americas. In Germany too, bad weather has ripped holes in public and private balance sheets in the past few years. Here, we’ve mainly been affected by storms, rain and floods. The challenge for companies lies in keeping spending on insurance cover within reasonable bounds each year.

Statistical analyses are not very encouraging for this year. In 2016, we experienced extreme weather conditions with heavy rainfall, causing serious damage in a very short space of time. The German Insurance Association (GDV) recorded 2016 as the year with the third highest flood claims since 1999. Expenditure on flood claims stood at about 940 million euros. The year before, it was just 100 million euros. Property insurers had to pay out a total of around 1.9 billion euros for natural perils in 2016.

But why should we spend so long on weather events from two years ago? It’s quite simple: last year, companies got off relatively lightly. The GDV recorded just over one billion euros for insured claims resulting from natural perils, far less than in 2016. However, there’s bad news for this year. Taking a long-term view, the association concludes that years with low and high claims are alternating more quickly. 2018 could, therefore, be a very uncomfortable year.

The second piece of bad news for companies looking for good insurance cover in this area is to do with rates: it’s becoming more expensive to cover natural perils risks abroad with international insurance programmes. The hurricanes with such friendly sounding names and an earthquake in Mexico have certainly left their mark on the balance sheets of insurers and reinsurers operating internationally. These events won’t leave German insurers unscathed either. This is because, with international insurance programmes, claims under local policies are reinsured by German insurers – and therefore impact on the local profit and loss account.