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Floods in the U.S.A. once again

January 13, 1997

Shortly after Christmas, the Northwestern United States experienced unusually heavy snowfall. Rising temperatures in subsequent days led to rapid melting of the snow. This was followed by rain in the affected region resulting in the rapid swelling of surface waters and vast areas of land have been affected by flood and landslides. California had already been affected by heavy floods in 1995 which caused damage in the record amount of USD 1.8 billion.

This figure includes damage to private and commercial buildings, as well as damage to infrastructural and agricultural facilities. Total damages of this current flood disaster are estimated at between USD 1.5 to 2 billion. Losses to the insurance industry, however, are expected to generate a much smaller figure. In general, homeowners policies that cover residential buildings and their contents always exclude coverage for flood-related damage. Coverage is available through a federal flood insurance program which, however, is not in the private sector. Uninsured homeowners may be eligible for disaster relief through federal and state programs.

Commercial risks, on the other hand, can purchase insurance against such perils by way of supplemental insurance. Among these commercial risks are industrial plants as well as regional administrative bodies which may purchase insurance against damage to schools, libraries, bridges, etc. The most severe losses are expected within the agricultural sector. Of all U.S. states, California plays the leading role in this field. Farmers may purchase insurance cover against flood damages by means of so-called MPCI Policies (Multi Peril Crop Insurance). Although the Hannover Re Group does participate in MPCI business in the U.S. via its subsidiary Insurance Corporation of Hannover in Los Angeles; the given exposure is minimal. Compared to the overall estimated loss in the billion Dollar range, total losses for Hannover Re resulting from the flood event in the Western United States are expected to arrive at a one-digit figure in the million Dollar range, only.