Spain braces for astronomical flood bill
The cost of the floods that devastated southeastern Spain promises to be astronomical, although it is still complicated to quantify because of the extent of the damage, a challenge for the state and insurers.
The torrents of water and mud that hit mainly the Valencia region left buildings pulverised, thousands of cars piled up on the roads, bridges and railways to be rebuilt and many businesses in ruins, especially in the agricultural sector.
In light of the ‘images’ of ‘total desolation’, ‘we are going to face the most important weather-related loss we have ever suffered in Spain,’ says Mirenchu del Valle, president of the Federation of Insurance Companies, Unespa.
‘It is still too early to launch estimates,’ but ’as we see more and more images, we know that in economic terms it will surely have a very high cost,’ Celedonio Villamayor, director of the body in charge of paying compensation in the event of a natural disaster, the CCS, told public television station TVE.
The July 2021 floods that affected Germany, Belgium, France, Austria and the Netherlands, which killed more than 200 people, cost 43 billion dollars, according to reinsurer Swiss Re.
‘Incalculable consequences‘
Whatever the final cost, the floods will weigh on the finances of the state and the region of Valencia, the hardest hit by the torrential rains, which left at least 218 people dead.
The regional government has already announced emergency aid of 250 million euros (270 million dollars), tax breaks and compensation for businesses.
Together with the central state, it will finance the costs of clean-up operations and reconstruction work.
Spanish Prime Minister Pedro Sanchez on Tuesday announced a first package of 10.6 billion euros (11.55 billion dollars) to help people affected and rebuild areas devastated by the floods.
At the end of a meeting with stakeholders on the ground on Monday afternoon, the Transport Ministry estimated the ‘investments needed’ to restore the transport network at 2.6 billion euros ($2.83 billion), a ‘provisional’ assessment, it said.
But the lion's share of the bill will fall on the insurance industry, which will have to compensate companies and individuals.
According to an initial estimate by the Valencia Chamber of Commerce, 4,500 street-level businesses could have been affected. Dozens of shopping centres and industrial areas were also affected, while hauliers in the region lost numerous lorries.
For the countryside, the damage is also enormous, especially in the citrus fruit sector, of which the Valencia region is one of the main exporters. According to the regional agricultural association La Unión, 50,000 hectares of crops are said to have been affected.
The cost to the sector could reach 150 million euros (163 million dollars), according to an initial estimate by Agroseguro, which manages agricultural insurance.
The losses are ‘catastrophic’ and the ‘consequences incalculable’, the Asaja union said.
400 experts on the ground
The Minister for the Economy, Carlos Cuerpo, announced that ‘400 experts’ were assessing the damage on the ground. He also reported that 46,000 applications for compensation had been received, an unprecedented level.
In the event of a natural catastrophe, insurers in Spain have a common guarantee fund, financed by a part of conventional insurance policies.
This fund is administered by the CCS, attached to the Ministry of Economy, the body that will cover most of the compensation.
Will the CCS be able to cover all the damages? Will it have to increase the amount of the insurance policies?
It ‘has sufficient reserves’ to do so, according to the insurance industry source.
A message similar to that of the president of Unespa: the system is ‘perfectly equipped to deal with this type of situation’.
