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Europe's forgotten winter storms: are we better prepared this season?

I don't suppose many people are aware that the second day of Christmas this year will mark the 20th anniversary of one of Europe's most violent storms. On 26 December 1999, winter storm Lothar wreaked havoc across northwestern France, southern Germany and Switzerland. Hot on its heels, storm Martin followed a day later, tearing into Southern France and Northern Spain.

Perhaps this two-decade old event is something the insurance industry is more interested in than the public at large. Unless of course you talk to the people impacted by these storms – those who lost loved ones, had the roofs over their heads blown off or derived a living from the million acres of forest that were razed by the ferocious winds.

The terrible twins

Tragically, 140 people lost their lives during the two winter storms and the subsequent cleanup, particularly in forested areas of France, Germany and Switzerland. During their rampage, Lothar and Martin also snapped 200 million cubic metres of woodland like twigs. Lothar resulted in economic losses of EUR 16 billion, with EUR 8.6 billion – just over half the total figure – being paid out by insurers. More than 200 electricity pylons were toppled, leaving more than three million households without electricity for days. In total, more than three million claims were lodged with insurance companies in France. Some insurers didn't even have the capacity to pay out settlements for the damage.

In my view, the problem is that until such catastrophes become anchored in societies' collective consciousness rather than just confined to the memories of individual communities, there's unlikely to be any broad-based effort to strengthen resilience across whole societies. Those communities and individuals actually scarred by such events will be keenly interested in efforts to prepare for, and mitigate, similar disasters in the future. But even in these cases, most of us find it tough enough to plan for what's definitely going to happen, let alone making provisions for what might be lurking over the horizon.

What if?

Both from an insurance and a societal perspective, the fundamental question posed by all this is: what would happen if events like storms Lothar and Martin were to strike again? Given burgeoning infrastructure and property development in the intervening years, the evidence suggests that the damage caused would be even greater. So, are we better prepared now in terms of our physical defences and insurance coverage than we were in the past? Are we more resilient than we used to be?

One way of examining these questions is to take a long-term historical view. Our Swiss Re Institute experts did just that. To assess insurance losses from future severe windstorms in Europe, they examined storms resembling Lothar and Martin that happened back in the 19th century dubbed Lothar's Big Brother of 1876 and Daria's Big Sister of 1884. This approach is helping the insurance industry not only gain valuable insights into the storms at the end of the 20th century but also providing clues about the potential impact of similar storms in the future.

The sobering conclusion drawn by our experts is that if European storms as ferocious as those of the late 19th century were to strike again, insured property losses alone could top EUR 25 billion. To remind you, this would be more than double the total economic losses recorded in 1999.  

Good news and bad news

The good news is that this estimated statistic shows that insurance penetration is very high in all the affected countries – France, Benelux, Germany and Switzerland. It also underlines the increasing importance individuals attach to adequate insurance coverage. And we should also add that weather forecasting has continuously improved over the last decades, which means people nowadays have more time to prepare for an approaching storm. This, again, translates into strengthened resilience.

In addition, the scientific evidence is so far inconclusive on whether climate change significantly affects winter storm risk in Europe. Rather, recent storm activity is consistent with natural variability. And yet, after twenty years without any storms as severe as Lothar and Martin, it's tempting even for the insurance industry to underestimate the potential risk posed by winter storms. Long term history should teach us to be vigilant: storms of even greater magnitude than Lothar and Martin are well possible. The next big one could be just around the corner.

Coupled with these concerns is the less favourable news that the estimated numbers neither reflect the impact of post-event loss amplification nor what one could call the "known unknowns." In other words, what would be the impact if the 19th century storms were to follow a different track and hit the big cities and heavily populated areas? Both these factors would multiply losses considerably.

What's the insurance industry doing?

So, what has the insurance industry been doing to confront these and other resilience challenges? On one hand, there's only so much re/insurers can do to alter the "optimism bias" that many of us have – in other words, the innate idea that we will not be affected by rare events like storms Lothar and Martin. But on other fronts, our industry has been making considerable strides to help strengthen societal and individual resilience to shocks such as natural catastrophes.

For example, we're increasingly applying advanced data analytics to tackle risks ahead of time in order to narrow the protection gap. This capability helps us track societies' ability to bounce back after setbacks and pinpoint new opportunities for insurance to advance resilience across the board.

Thorough risk research and knowledge are at the heart of our resilience-building effort. This is why the Swiss Re Institute recently launched a new Resilience Index. This tool shows us that if we know our weak spots and do something to fix them, we stand a much better chance of dealing with the "known unknowns" that the Lothar and Martin storms so dramatically highlighted. For instance, the index highlights that increased insurance coverage has led to a notable improvement in property catastrophe resilience in the advanced European markets.

Insurance is there. We should use it.

All that said, there is still a substantial protection gap that remains to be bridged. Consider this: During 2018, half the economic losses caused by smaller natural disasters were not covered by insurance. The irony is that insurers have more than enough capital in reserve to absorb such losses. But too many of us and too many small businesses often don't consider insurance as a way to offset risk either because of the cited optimism bias or because they aren't aware of their options in the first place.

As we commemorate the ferocious winter storms that hit Europe in December 1999, we're reminded that natural disasters like these can strike again any time – and just how much is at stake. With more people and property in harm's way, our communities today are confronted with a rising level of risk from natural hazards, extreme weather and climate change. Making them more resilient is therefore as important as ever. We owe it to them to take on this challenge together.



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