Just as this issue of Global Reinsurance was going to press, the heavens opened above central Europe causing widespread flooding in several countries. Dr Claire Souch assessed the damage and exposure as at 20 August.

The floods affecting central Europe in August 2002 are the result of heavy rain over the previous two weeks, particularly during the course of Saturday, 10 August and Sunday, 11 August, as a low pressure system moved east through Italy and surrounding countries. Rainfall totals in the 72 hours to 06:00 on Tuesday, 16 August ranged from 76mm (3ins) in Prague, 118mm (4.6ins) in Vienna to 170mm (7ins) in Dresden. Such intense rainfall triggered flooding along the Vltava River in the Czech Republic, which flows in to the Elbe in Germany, and along the River Danube through Austria, Slovakia and Hungary.

In Austria, an estimated 10,000 houses were damaged by the storm, and total economic damage is currently estimated at between €2bn and €5bn. The worst-hit regions were the Kamptal in Lower Austria and the Mühlviertel in Upper Austria. Towns such as Krems and Ybbs were particularly badly hit as defences were not sufficient to hold back waters from the Danube.

At the same time, in Prague peak water levels on the Vltava river were recorded on the evening of Wednesday, 14 August. Peak water flow was recorded at over 5,000m3/s, 100 times higher than the normal summertime flow of around 50m3/s. Thousands of residents were evacuated from several low-lying districts. In the historic old city, groundwater seepage through drains and sewerage systems flooded basements and streets, but river water levels remained just below the reinforced flood barriers. The building type in the centre of Prague, as with many of the old cities along these rivers, is high-density, with a large number of basements hosting businesses, hotels and restaurants and bars. The district of Karlin, just to the northeast of the old town, was inundated from the river, and to date three houses have collapsed in the area. Fears of further collapse have prevented evacuees from returning to this district despite water levels dropping. Most central hotels and businesses had to close, and are facing massive clean-up operations.

The flood crest then moved northwards through the Czech Republic, where an estimated 1,000 houses have been damaged or destroyed. Current damage estimates are between €2bn and €3bn, of which less than 20% is expected to be insured. Several towns towards the border with Germany are reported to have suffered damage to over 80% of their houses. The flood wave moved quickly along the River Elbe in Germany, peaking in Dresden on Saturday, 17 August at 9.3m, the highest ever recorded. The river level is normally at 2m at this time of year, and the highest previously recorded was 8.77m in 1845. Suburbs along the river were inundated and basements and streets in the historic city centre flooded. Many of the buildings, including all major hotels, were reported to have closed. Flood defences generally held in the centre at least, but further north there were reports of many dyke bursts as the flood crest moved through the Saxony-Anhalt capital of Magdeburg during the night of Monday, 19 August. The area around the towns of Bitterfeld and Dessau, between Dresden and Magdeburg and where the River Mulde meets the Elbe, has been particularly badly affected by flooding - up to 50% of the towns in the region were submerged. Large areas of agricultural land have been similarly affected, and losses are expected to be high. The latest estimate of damage to the German economy is between €10bn and €15bn.

Along the Danube, in Slovakia, a state of emergency was declared in the capital Bratislava in preparation for peak water levels on 17 August, but defences were not breached and only the suburb of Devin was evacuated. In Hungary, Budapest's flood defences held up, and remained unbreached. The protection of flood plains, from development upstream of Budapest, has reduced the threat to the city, along with 10m high defences in the city itself. Water levels peaked at 8.49m (28.3ft), just breaking the previous record in the city and 1.51m (5ft) short of topping its flood defences on Monday, 19 August. Some towns outside Budapest have suffered from flooding, but the situation has not been as severe as in eastern Germany.

Coverage position
Throughout Europe, flood coverage is generally not included under standard household and commercial policies, but is offered as a supplemental coverage. Uptake is low, typically between 5% and 10%, and even where it is offered, values can be low, especially in Austria. The exception is in the former East German states, where a comprehensive insurance policy for private households is offered, including protection against flood damage. These policies were initially provided by the East German state-run monopoly Staatliche Versicherung and were acquired and continued by Allianz. Up to three million of these policies have been taken out, constituting over 30% of households in the former East German states. Therefore, floods in eastern Germany can affect insurer's books more than in other areas. Comprehensive commercial policies are not offered, however, and many of the affected hotels, restaurants, cafes and bars do not have flood coverage. As a result, much of the damage from the floods will have to be covered by the states rather than be recovered from insurers. In addition to the physical damage bills, business interruption is expected to make up a large part of the overall cost. To put the re/insurance market's exposure to these losses into an historical perspective, less than €1bn of the estimated €6bn damage caused by the River Oder floods in 1997 was insured loss, and most of the insured loss was in Germany and Austria.

By Dr Claire Souch
Dr Claire Souch is a senior risk analyst with modeling company Risk Management Solutions.