Floods could cost $7bn plus

Flooding comes as yet another blow for the reeling insurance industry

LONDON, England -- The flooding across central Europe has cost dozens of lives, made tens of thousands homeless and damaged historic buildings in the heart of several cities. (Full story)

And while European insurance companies could face resulting claims of close to 1 billion euros ($989 million), the losses from industries like tourism could be several times higher.

German Chancellor Gerhard Schroeder said the floods affecting southern and eastern Germany could cause billions of euros in damage. Austria could face economic losses amounting to of about 3 billion euros and the Czech Republic of about 2 billion, according to various media and official figures.

Ivo Menzinger, head of the flood group at the world's number two reinsurer Swiss Re, told Reuters that insurers' share of losses would amount to between a tenth and a fifth of the economic losses.

CNN NewsPass VIDEO The initial estimates for flood repairs comes to 6 billion euros (August 15) Play video Concern for Prague's historic sites (August 14) Play video Europe's historic old cities under threat of flooding(August 13) Play video   MORE STORIES • Floods fear for Dresden  • 'Darkest hours' for Austrians  • Lion, hippo and bear among flood victims    GALLERY Flooding around Europe in pictures    YOUR SAY • Are you hit by the floods? E-mail  your stories   RESOURCES • Prague: Five-day weather forecast

"This is a one-in-a-100 year event," Chris Rathbone, insurance analyst at Williams de Broe in London, told CNN. "Its difficult to estimate what the cost of something like this can be but estimates for the economic impact on Germany are about $1.9 billion."

For insurance companies this latest crisis is "unhelpful" following the huge claims from terror attacks of September 11 and slumping global stock markets, Rathbone said.

Insurance companies typically hold vast sums of money in stocks and bonds in the hope that rising stock valuations will enable them to offset claims. Rathbone said the reinsurance industry, which takes on and spreads the risk for insurers, could take up some of the burden of the current disaster.

Insurers may choose to increase premiums and the excess consumers pay for their insurance cover if the risks keep rising. Rathbone reckons that premiums could keep rising for the next two years at least.

But Rathbone said many people living close to the river cannot get insurance, because the risk to insurers is unacceptable.

Insurers are set to receive thousands of claims from householders in eastern Germany in particular, where cities such as Dresden have been badly affected.

Floods there are common and so homeowners are well insured for the hazard largely through policies created under the state-controlled schemes that existed in the former communist East Germany, reinsurer Munich Re said.

Munich Re, the world's largest reinsurer, said it had no estimates for the current floods but in 2001, an average year, it paid out 500 million euros for German flood claims.

The Austrian Insurance Association said not all insurance costs would be paid, even for those with policies that include flood risks, the sums were very low, such as 3,600 euros for a standard family house. The association expects insured losses of about 100 million euros.

Allianz, Europe's largest insurer by market capitalisation, expected the Austrian floods to cost it 20 million euros. It had no forecast yet for Germany, but saw no drastic impact on its business.