Floats or sinks? Scientists gave advice to insurance companies

There are different types of risk in the world – from small risks that come true relatively often (e.g. traffic accidents) to big risks that come true relatively rarely (e.g. natural disasters). Since one catastrophic claim can at once bring larger expenses than several years of small losses combined, it is important for insurance companies to know where and what is the probability that these kinds of events could take place.

Floods are a good example of these kinds of events where there can be extensive losses. In order to assess realistically the probability of flood striking insurable objects, Estonian Insurance Association ordered a waterways flooding frequency map for Estonian inland waterways from Tallinn University (TU). If so far, maps showing flooding risks have covered only a fraction of Estonian territory and their use in practice was tricky, then this map describes the flooding risk of all the water bodies in Estonia during different time periods, from one year to a thousand years.

The map is an input on the basis of which all insurance companies operating in Estonia are going to assess flooding risks and according to the results calculate insurance premiums. Essentially this enables insurance companies to hedge insurance risks by calculating every objects insurance premium according to real dangers. (For example, if insurable residential is located in an area, which is flooded once in 25 years with a layer of water as thick as 20 cm then insurance premiums are calculated according to the evaluation of how much damage can be caused to this particular object by such an event).

The map was compiled by Tallinn University´s Institute of Ecology´s senior research fellow Hannes Tõnisson´s development group that deals with analysing the effects of extreme events (floods, coastal erosion, a prognosis of retreating speed of waterfronts, and mitigating measures) and the methodology was tested/applied throughout the territory of Estonia. The methodology is also applicable in neighbouring countries and already, conducting similar activities in Latvia and Lithuania has been discussed!

More information on this subject: Katrin Männik, TU Open University, phone: +372 521 2339.

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