Author: Mark Hubbard
Insurers in countries that haven't previously endured significant natural catastrophe (Nat Cat) challenges are monitoring what's happening in the US as they assess clients’ risk profiles more closely to consider how they might evolve in relation to future climate exposure.
Sweden’s insurance market hasn't experienced the same challenges as regions prone to Nat Cat. Currently, Swedish property owners’ terms and conditions generally aren't dependent upon geographical location. Whether owners live by the sea or in the mountains, their premiums tend to be similar.
Nevertheless, Storm Hans recently caused chaos, flooding and landslides. In the northwestern ski resort town Are, the Susabacken stream overflowed, damaging roads and houses1. In what insurers labelled “unique”, notifications were coming from Sundsvall in the north to southern Skåne, rather than being concentrated in one area2.
It's possible for one major event to be a catalyst for a change in market conditions. In 2005, cyclone Gudrun caused significant financial damage, most notably to the forestry industry: 75 million cubic metres of trees blew down in the south of the country3. This example of extreme weather was significant enough to change the market. Prior to 2005, the Swedish forestry market had been very competitive with substantial capital available. Following Gudrun, policy wordings became tighter, and premiums were considerably higher.
Claims data from a Gallagher affinity business partner shows that fire and escape of water account for roughly 90% of property claims in Sweden, and, on average, extreme weather is the cause of less than 1% of claims. However, the flooding in Gävleborg in 2021 highlights the volatility of extreme weather’s influence on the market and how one single event can dramatically impact annual results.
Gävleborg County accounted for 56% of the total claim costs and was heavily affected by severe rainfall, leading to extensive flooding and damage to residential and commercial properties and SEK 1.9 billion in insurance claims.
Insurers consequently took legal action against Gävle municipality, demanding SEK 1.2 billion in compensation. The Chairman of Gävle Municipal Board called for increased state responsibility to change or clarify boundaries - most importantly, clarifying who's financially responsible for flood damage.
Gästrike Vatten, the water company responsible for the sewage and drainage system in Gävle, also faced criticism. Waste water and storm water flowed through the same pipes, and many households were flooded with sewage. The water company said it was unreasonable to expect the pipes to handle so much water and said it had a legal responsibility to pay only SEK 250 million in damages.
The Swedish Association of Local Authorities and Regions has argued that state funding of SEK 420 for the Swedish Contingencies Agency is insufficient to effect the kind of change necessary. It's clear that regulations regarding heavy rainfall need to be reviewed and adapted to accommodate climate change.
If the frequency and severity of extreme weather events continue to increase in Sweden, it could make it difficult to obtain insurance in areas that are considered particularly exposed to flooding. Insurers are certainly aware of what's happening in other countries and have started to consider how clients’ risk profiles might change due to the increased risk of extreme weather.
To learn how Nat Cat events in different parts of the world are shaping the future of insurance, read the seven-part report, How Is the Increasing Risk of Extreme Weather Changing Insurance?
