Swiss Re launches first portfolio risk assessment tool for Australian riverine flood

Insurers looking to write more comprehensive flood cover for the east coast of Australia now have a way of more fully understanding the risks with the introduction by Swiss Re of Australia's first riverine and torrential rainfall model for the country's entire eastern seaboard.

"The model will help clients better underwrite flood insurance," says Dr. Jens Mehlhorn, Head of Swiss Re's global Cat Perils Flood Team. "We can apply the model to carry out a risk assessment for the client's entire incoming book.  We can also provide clients with guidance on what may be the impact if they were to expand their current flood cover to a more comprehensive type of cover."

Work on the model began over 18 months ago in the wake of losses from various torrential rainfall events in Australia and when discussions started in the market about the introduction of more comprehensive flood insurance protection.  As fate would have it, the model arrives at a time when riverine flooding is a major issue for Australia.

Importantly, the model has demonstrated that riverine flood poses a significant threat to most of Australia's eastern seaboard – not just recognised flood-prone areas such as Brisbane.  "Our model clearly shows that there is major potential for large losses not only across Queensland, but also in NSW and Victoria.  So it will be important for the Australian insurance industry that they do not just concentrate on known areas of risk", says Jens.

Jens, who is based in Zurich, says that the work done on flood risk mapping by the Insurance Council of Australia as well as that by Macquarie University's Risk Frontiers has been extremely valuable – but there are still large areas for which the flood risk has not been determined yet.  "In many countries where you have comprehensive riverine flood insurance widely available, you have all different sources of information – from governments or environmental agencies that finance these costly mapping projects.  To have comprehensive flood insurance you must have detailed risk mapping available."

In addition to detailed mapping, Jens says the other most important factor for providing comprehensive flood insurance is ensuring risk-adequate premiums are charged. "In the UK, there is currently a discussion underway about some highly-exposed flood risks which may not be insurable at an affordable premium and therefore what should be done. There are various views on how this should be managed and some are advocating involvement from government in the way of subsidies.   This leads to many questions for government including what necessary mitigation and adaptation measures may be required.  Swiss Re's Economics of Climate Adaptation model can assist governments identify what measures may make most sense for a particular community and what may be the likely costs."

About Swiss Re's Australian riverine flood model

  • covers mainly the East Coast (85% of Australian population)
  • based on detailed flood zones 
  • fully probabilistic model with 120'000 events
  • covers river floods and includes torrential rainfall from tropical cyclones
  • uses vulnerability curves from Risk Frontiers
  • successfully calibrated and benchmarked against 2011 January losses
  • allows for detailed modeling on geographic coordinates and postcode data
  • The flood risk areas used in the model are shown in Swiss Re's CatNet, which is freely available to Swiss Re clients.

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