Floods in the South of Germany in June 2024: Highly Complex Business Interruption Losses

  • Date09 July, 2024
  • Author Laura Lagana
  • Location EMEA

At the beginning of June 2024, unusually high precipitation occurred in large parts of southern Germany. This resulted in flooding and in property damage to residential and commercial properties over a large area.

Initial estimates provided by the German insurance industry body GDV place the total value of insured damage in the range between 2 to 3 billion euros.

The areas in the south of Germany which experienced the highest rainfall are circled on the map below. The shading of the map shows the level of manufacturing output.  Businesses that were impacted by the flooding are therefore most likely to be in the manufacturing sector.

German floods June 2024

Supply Chain Disruptions and Contingent BI Cover

Because of the widespread damage and the high reliance on strong supply chains in the manufacturing industry, businesses are exposed to risks on multiple fronts:

Firstly, through own property damage, for example to machinery, which can lead to a loss of production. Secondly, through problems with obtaining materials or components, because suppliers have suffered damage to their stock or their facilities. And thirdly, through reduced demand from customers who need to scale down their own activities.

All three scenarios can be covered by appropriate Business Interruption (BI) insurance: In addition to “core” BI cover from damage to the Insured’s own property, extensions are available to cover BI losses from damage at supplier or customer sites.

These BI extensions, however, are often limited in scope either by having a comparably short indemnity period or a monetary sub-limit. It is also important to note that losses that are not caused by physical damage usually fall outside of the BI cover.

High Complexity of Business Interruption (BI) Claims

We anticipate that Bi claims from the June 2024 floods are potentially showing the simultaneous impact of all three interruption features outlined above.

At first glance, it might be difficult to separate and identify the individual drivers of the financial loss suffered by a business. However, a global view of the financial loss is not sufficient due to the different cover limits for contingent BI extensions. Additional investigations are necessary to convert the total financial loss into an insured BI loss that can be allocated to the distinct components of the BI insurance cover.

The forensic accountants at MDD have decades of experience in the field of Business Interruption along with the skills to analyse the impact of the individual aspects of the loss. This analysis allows for calculations according to the policy cover in place and ensures that the coverage of the policy is correctly applied.

Particularly when multiple insurers or reinsurers in different markets have an interest in a claim, it is important to avoid potential future complications by appointing a forensic accounting firm with an international background and reputation.

MDD offers a team of German speaking accountants who have a strong background of working for the London market and for the German market directly. This unique proposition combines local insight and language skills with an understanding of the needs of the international insurance market.