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U.K. flood losses near $1 billion

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U.K. flood losses near $1 billion

LONDON--As parts of England experienced some of the country's worst flooding in recent years, the major catastrophe modeling firms have all revealed plans to either upgrade or develop new United Kingdom flood models.

Because the current U.K. flood models are newer and, therefore, less developed than other hazard models, the upgrades are expected to give insurers and reinsurers--and ultimately buyers--greater certainty in pricing flood risk, experts said.

Last week, parts of the United Kingdom experienced severe flooding that left several people dead and caused damage running into hundreds of millions of pounds. The Assn. of British insurers estimated that the flooding would cause £1 billion ($2.0 billion) in insured losses. Earlier, catastrophe modeling firm Risk Management Solutions Inc. of Newark, Calif., estimated that losses could exceed £500 million ($997.9 million).

Modeling firms already were revamping existing U.K. flood models or developing new ones before the severe weather struck.

AIR Worldwide Corp., based in Boston, said it was developing a Great Britain river flood model to be available on a consulting basis by the fall and integrated into its software by next May.

RMS, meanwhile, is upgrading its U.K. flood model to be available next year.

And Oakland, Calif.-based EQECAT Inc. is enhancing its U.K. sea-surge model, and is looking into developing a U.K. river flood model.

The plans of all three firms were revealed at last month's "Catastrophe Modeling from a European Perspective" conference in London, hosted by the International Underwriting Assn. of London and the Washington-based Reinsurance Assn. of America.

The changes to models were announced against a backdrop of predictions of increased future rainfall for the United Kingdom.

More rain expected

Various computer climate models predict increasing U.K. rainfall, which means events such as the recent heavy rains "are expected to become more common," said Milan Simic, managing director at AIR in London.

Last month saw several spates of heavy rain and flooding in the Midlands and northern England.

Four people died and hundreds were left stranded June 25 due to torrential downpours in northeast England. On June 14 and 15, heavy rains struck wide areas of the United Kingdom, but primarily in the west Midlands and Yorkshire. At least 600 properties were flooded, displacing 200 people and killing one.

June is usually one of the drier months in the United Kingdom, but last month will go down as one of the wettest--if not the wettest--on record in the United Kingdom, with recorded rainfall at about 140% above the average, said AIR's Mr. Simic.

Northeast England, where the worst flooding occurred, received more than 250% above its average rainfall, he added.

However, Mr. Simic stressed that a trend of increased flooding has not yet been observed nationally. "In other words, the complexities of the water cycle are such that the excess rainfall is not ending up in main rivers, so we cannot say with any certainty that the potential increase in rainfall will result in more severe or more frequent losses," he said.

Across Europe, however, there have been a string of major insured losses due to floods, according to data presented at the recent conference.

According to figures from AIR, there were $2 billion in insured losses from floods in Central and Eastern Europe in 1997. That was followed by $1 billion from U.K. floods in 1998, another $2 billion from U.K. floods in 2000, $3 billion from Central and Eastern European floods in 2002, and a further $2 billion from Central European floods in 2005.

Claire Souch, director of model management at RMS in London, pointed out in her presentation that flood coverage and insurance penetration are "extremely variable" across Europe. In the United Kingdom, flooding is part of standard coverage, which is unusual, she said.

Development a major factor

And while Ms. Souch noted changing rainfall patterns in Europe--particularly winter rainfall--could impact flooding, the large insured losses have more to do with higher property values and development in flood-prone areas.

In the United Kingdom, for example, 3 million new homes are expected to be built by 2016, many of which will be in flood plains, she said.

While the modeling of river-based flooding is "fundamental," flood models also need to account for the "growing propensity" for off-plain flooding, noted James Webb, product manager at EQECAT.

"As the built and natural environments develop, we see a general increase in the risk of flooding away from major rivers," he said.