Flood Risk and Insurance Modelling:
Modelling
Risk consists of three elements, hazard, vulnerability and exposure. If you think of these as the three sides of a triangle, the area of the triangle measures the risk (see figure 12).

Figure 12: the Risk Triangle. © Crichton 1999

This is similar in concept to the "Fire Triangle". In the fire triangle, the three sides are heat, fuel and oxygen. If any one side is missing, there is no fire. So it is with risk, if any one side of the risk triangle is missing, there is no risk. One of the differences between a fire and a flood from an insurance point of view is that there is a 1 in 340 year chance of a fire in a property, but in many parts of England the odds are three or four times higher.

To model the effects of a flood, it is necessary to calculate all three elements of risk. The calculation is only as accurate as the weakest component, and all the data and sophisticated mathematics in the world will not alter that fact. This is why initiatives such as the National Flood Claims Database are so important, for example, so that insurers and reinsurers can calculate vulnerability more accurately.

The earliest detailed flood model was made possible by the work carried out by Sir Wm Halcrow and Partners for the ABI in 1994 and 1995 on coastal flood hazards in England and Wales. Halcrow produced maps of the areas likely to flood due to the absence of adequate coastal flood protection, or protection which would fail in a 50 year storm. (Many insurers still use these maps today for underwriting purposes.)

River flood models took longer to develop, owing to the absence of accurate flood maps, or even accurate elevation data. This had to wait until sophisticated remote sensing methods and geomorphology techniques resulted in better maps. Around the same time, data from the National Flood Insurance Claims Database became available to give accurate figures for the relationship between depth of flood and damage costs.

Currently work is progressing well at Benfield Group Ltd with the hardest task of all, modelling the losses from business interruption.

The most advanced flood mapping and modelling in the UK is carried out by reinsurance brokers such as Benfield Group Ltd, because reinsurers are very interested in knowing how much a major flood event could cost. Reinsurers operate on a global basis, and very few countries have such a high market penetration for flood insurance, indeed, most countries have little or no privately available flood insurance at all.

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