Guy Carpenter, EQECAT Announce Probabilistic German Flood Risk Model

Guy Carpenter and EQECAT announced their intention to jointly develop the “DACH Flood” software, which they described as “an accumulation tool that will allow users to assess their exposure to flood in Europe using a fully probabilistic modeling approach.”

The model will initially concentrate on the German-speaking areas of Europe. It is being developed in response to the increasing value of insured losses due to recent floods in the region. More precisely, the bulletin noted that “European flood risks have recently become a matter of growing concern for the insurance industry. Record losses in events such as the Odra 1997 and August 2002 Central European floods have clearly demonstrated the requirement for software tools to better manage growing flood exposure in Europe. Guy Carpenter and EQECAT have responded to this need with a joint initiative to develop the ‘DACH Flood’ model.”

The first phase of the model is due for completion in spring 2005 and will cover river flooding in Germany. Subsequent extensions of the model will include Austria and Switzerland. Further extensions to a pan-European model are also being considered.

Jan Stormann, Managing Director of Guy Carpenter in Munich, commented: “I am excited about our collaboration with EQECAT on this extremely important development for the German insurance industry. The development of a probabilistic model is badly needed in the German market for control of underwriting and accumulation risk.”

He also noted the potential international impact of the development, indicating that the “the reinsurance capacity available for flood coverage in Europe depends on the availability of a fully probabilistic European flood model. DACH Flood is a major step forward not only in Germany but also for the international reinsurance market.”

EQECAT President Richard Clinton noted that the “project combines the strong insurance/reinsurance expertise of Guy Carpenter with EQECAT’s technology leadership to create a new product for the insurance industry that will change the way companies manage flood exposure. This innovative model will enable insurers and reinsurers to manage flood risk with the same level of confidence as other major perils.”