According to Morningstar DBRS, insured losses from the extreme weather phenomenon (commonly known by its Spanish acronym DANA (Depresión Aislada en Niveles Altos) that caused severe flooding in the eastern region of Spain in October, are expected to exceed €4 billion.
As of writing, the severe flooding and heavy storms that battered the eastern region of Spain in areas such as Valencia and Alicante, starting on October 29, has led to 223 fatalities, while more than 20 people remain missing. This stands as one of the deadliest climate catastrophes in Spain’s history and one of the deadliest to strike Europe this century.
“Furthermore, we anticipate that the economic and insured losses generated by this event will be the largest in Spain’s history, with a significant number of vehicles, residential properties, businesses, and agricultural sites affected,” Morningstar DBRS said in a recent report.
Moreover, the firm explained that extraordinary risks in Spain, which includes certain natural disasters and acts of terrorism, are insured through a unique system managed by the state-owned Consorcio de Compensación de Seguros (CCS).
A majority of the claims will be covered by (CCS), Morningstar DBRS said. However, premiums are likely to increase to allow the CCS to replenish its reserves, the firm added.
“The CCS functions as a state-backed insurer that steps in when policyholders face losses from extraordinary events. These events include natural catastrophes such as floods, earthquakes, tsunamis, volcanic eruptions, and hurricanes,” Morningstar DBRS said.
Adding: “The CCS operates by levying a small surcharge on all insurance policies in Spain that cover damage to property, vehicles, or people. This surcharge, integrated into the premiums of standard insurance policies, is collected by insurance companies and then transferred to the CCS. This funding mechanism ensures that the CCS has the necessary financial resources to compensate affected policyholders swiftly and effectively.”
Mario De Cicco, Vice President, Global Insurance & Pension Ratings at Morningstar DBRS, commented: “While insurance companies might still be facing higher claims related to climate risks not directly covered by the CCS (including hail and heavy rains), the impact on the Spanish insurance sector’s stability would have been significantly higher in the absence of the insurance scheme managed by the CCS.
“The CCS also helps improve the availability and affordability of catastrophe insurance in the Spanish market as well as reduce price volatility”.
Earlier this month, the CCS released a note which revealed that it had received 138,317 claims requests to date from the event, of which 60% were related to motor vehicles, 32% related to residential properties, 6% related to small businesses, and 2% related to industrial sites.
From what we understand, the CCS has mobilised around 800 experts to assess the damages, and the firm has already started paying out some of the claims too.
Reinsurance broker Gallagher Re recently said that it expects public and private insured losses from the floods to cost between €1.5 billion and €2.5 billion ($1.6 billion and $2.7 billion).
S&P Global Ratings recently stated that the deadly flash floods will have “limited effects” on private insurers and reinsurers.
The post Insured losses from Spain flooding expected to exceed €4bn: Morningstar DBRS appeared first on ReinsuranceNe.ws.
