August 2023 saw horrific flooding in Slovenia as a month´s worth of rain fell in just 24 hours. It was Slovenia´s worst ever natural disaster and resulted in ruinous consequences for the people and for the economy. We ask: How can politics help in such a crisis? And what specific role should the insurance industry play to help corporate companies strengthen their resilience against such extreme weather events in the future?
The August floods were an unprecedented natural disaster causing many to lose their lives, their homes and more. The damage caused to Slovenia’s infrastructure, agricultural land, and business assets was immense and caused significant financial losses for business and the public sector alike. Vast parts of the country were affected: 183 out of 212 municipalities suffered losses. Or in other words, of Slovenia’s approximately 20,000 square kilometres, about 17,000 were affected by the floods. In total, this natural disaster has caused an eyewatering 9.9 billion EUR worth of damage.
Is anyone to blame and what’s being done about it?
From a risk management perspective, initial analysis shows that the main reasons for such significant losses were due to lack of essential riverbed maintenance; installing an inappropriate infrastructure such as building the wrong type of river bridges; and mistakes made by previous governments who decided in the past to allow building on 100-year flood zones.
To address these issues, the Slovenian government has implemented several measures. These include contingency plans, and faster and better coordination between the various authorities involved in the post-flood management process, as well as using the Post Disaster Needs Assessment (PDNA) method to recover the physical damages, the economic losses, and the identification of human recovery needs based on information obtained from the affected population. In addition, several new legislative measures were quickly put in place, including a law to speed up the post-flood recovery process at state level, and to allow for the provision of compensation to those who suffered losses.
Time is of the essence
Currently, one of the government’s main concerns is the potential for November’s rainy season to worsen the current situation. Their focus is on ensuring that all riverbeds are cleared of debris; all ongoing landslides are cleared and under control; and that critical infrastructure (gas, hot water, telecommunications, roads, etc.) is fully operational before the rainy season starts. Everyone is hoping November’s rainfall won’t be too heavy, so that all the improvements and measures being implemented will help Slovenia weather the forthcoming winter.
Beyond the immediate weather-related concerns, the Slovenian government, aided by international support and funding, continues to work towards the full recovery and long-term resilience of the flood-affected areas. This includes continuously monitoring the recover process, actively maintaining flood prevention systems, and implementing mitigation measures to reduce future flood risks. Despite all these efforts, the total estimated time for flood rehabilitation in Slovenia is substantial. Initial estimates predict it will take five to 10 years to fully recover. This is due to the extent of the damage and the complexity of the recovery process. It involves not only repairing and rebuilding infrastructure, but also addressing environmental issues such as removing contaminated sediments and restoring ecosystems.
What is more, there is also a financial expectation. The Slovenian government is therefore working on the introduction of an intervention law to implement a new tax and solidarity contribution which will help to quicken the restoration process. This law will define that each citizen will contribute 0.3% of their annual income tax, and that all corporate entities will contribute 0.8% of their pre-tax profits, to help with the country’s financial recovery.
Beyond Slovenia: Global supply chain disruption
The Slovenian floods have not just affected Slovenians. They have also had an indirect global impact. Slovenia has many companies involved in the global supply chain, producers of automotive parts, for example. Two such major Slovenian companies are KLS Ljubno and TAB Mežica.
KLS Ljubno is a key supplier of gear rings to most of the European automotive industry. They supply 80% of all European manufacturers and have a share of 17% of the global market for these automotive parts. The knock-on effect of their shutdown because of the floods meant Volkswagen was forced to reduce their production hours in Wolfsburg, and even had to stop production in Portugal for several weeks. Similarly, TAB Mežica, as one of the main suppliers of batteries to Volkswagen, Volvo, and Daimler, also caused supply chain disruptions. And the problem doesn’t look like it will be resolved any time soon. Both KLS Ljubno and TAB Mežica don’t expect to be able to resume full production until the end of 2023.
How is the EU prepared for the impact of climate change
Devastating natural disasters like the one in Slovenia are unfortunately no longer exceptions. Worldwide natural disasters are becoming more prevalent and unfortunately, we must assume that due to climate change and various other influencing factors they will not decrease any time soon.
So, is the EU prepared for the future impact of climate change? To a certain extent yes, they are:
In 2002 the European Union set up the Solidarity Fund in response to the devastating floods in Central Europe that summer. This fund provides financial support to its member states or candidate countries in the event of a major natural disaster. Since 2020, the Solidarity Fund has also covered major public health emergencies such as the COVID 19 pandemic. Slovenia is to be provided with 400 million EUR from the Solidarity Fund to support reconstruction.
EU disaster relief:
The EU reserve for emergencies currently amounts to a maximum of 1.2 billion EUR per year. In view of numerous natural disasters, the EU Commission warns of bottlenecks – so it plans to increase the fund by 2.5 billion EUR for the years 2024 to 2027 (approval of the member states still pending).
In addition, further resources are available from the Cohesion Fund which wasestablished in 1994. The Cohesion Fund provides financial support for environmental projects and trans-European transport network projects (“connecting Europe”) in those member states whose gross national income per capita is less than 90% of the EU average. Even before the floods, Slovenia had been promised funding of 3.3 billion EUR. The EU Commission now wants to show maximum flexibility and redistribute the use of the approved funds as best as possible to aid the country’s reconstruction.
Furthermore, a recently established fund from which resources can be drawn is the Next Generation EU reconstruction fund (Economic Stimulus Package 2021 – 2027; volume 750 billion EUR in 2018 prices) which was launched in response to the COVID 19 pandemic and is a major EU initiative to promote economic recovery and accelerate green and digital transformation in member states. Its main mission is to reignite economic growth and facilitate the European Union’s transition to a more sustainable and technologically advanced future. To achieve this, member states are encouraged to invest at least 37% of the funds into green transformation and at least 20% into digital transformation. In addition, the fund requires that all spending be assessed for environmental sustainability (goal of climate neutrality by 2050). Slovenia has been allocated 2.7 billion EUR from this stimulus fund, and financial resources from it are to be used for the reconstruction of the flood disaster.
These funds are of substantial benefit to any country, but are they enough?
Balancing necessary relief efforts with long-term transformation goals
One of the main challenges in using the EU’s Next Generation Fund, as well as the Cohesion Fund, for post-flood reconstruction is finding the right balance between necessary relief and long-term transformation goals. While it is crucial to provide rapid and comprehensive support to the affected regions, it is equally important not to undermine the resources earmarked for green and digital transformation. A careful and critical approach to these issues is essential. First and foremost, it is important to recognize that the main role of these EU funds is to drive sustainable change. Therefore, any diversion of disaster recovery funds should be guided by a clear plan to ensure that these investments also contribute to broader green and digital goals. For example, post-disaster reconstruction projects could be designed to include green infrastructure, renewable energy sources, and resilient digital systems.
Time for action: How can government and insurers co-operate?
Over the past nine months, Europe, including the eastern tip of the continent and the Middle East, has been affected by severe storms, floods, droughts, wildfires, and earthquakes. No matter what the disaster, it is undeniable that all of them are having a colossal negative impact on social and economic life, and those who are affected by them are struggling to cope.
Germany: Severe storms brought heavy rain and damaging winds to several towns and cities across the country.
Austria: Floods and landslides occurred in Styria, Tyrol, and Salzburg, whilst Carinthia suffered hailstones up to 8 centimetres in diameter
Italy, Croatia, and Bosnia and Herzegovina: all suffered relentless rainfall which caused severe flooding
France: The west of France was hit by a rare 5.8 magnitude earthquake. A month later, the central western region was hit by flooding.
Spain: Drought continues, and the country faces ongoing water shortages.
Greece: More than 80 wildfires were recorded following a series of heatwaves.
Turkey: On 6 and 7 February 2023, a series of massive earthquakes devastated the south-east of Turkey and the north-west of Syria. 55,000+ people died, and many buildings were destroyed. Total economic losses reached 40 billion USD, while insured losses were 5 billion USD.
This means partnership solutions between the public sector and the insurance industry are in demand more than ever before. In some countries, compulsory insurance pools have been established to lessen the financial consequences of natural disasters. Good examples of these can be found in France, Spain, and Turkey.
Should other countries follow suit by creating their own compulsory insurance pools to mitigate against natural disasters, or is there another solution?
Unequal treatment due to different national insurance systems for natural disasters
In summary, despite good intentions, certain EU funds are being misused for disaster relief, or at the very least diverted from their original purpose. A major problem in this complex issue is the fact that each member state deals with the issue of insurance against natural disasters in a separate and independent manner. There are member states that have introduced compulsory insurance against damage caused by natural disasters (for example, France or Spain) whilst in other member states, such as Germany and Austria, there are intense and ongoing political discussions, but no solutions. If one was to be provocative, one could also speak of unequal treatment of member states in the use of EU funds.
It is clear a harmonised European solution should be worked on as a matter of urgency. At the very least, common minimum standards for member states should be established and, building on this, a common reinsurance vehicle / a new coordinated catastrophe fund should be set up.
Damir Pelak
General Manager GrECo Slovenia
T+386 (0) 40 875 066
Nathalie Vantieghem
Group Practice Leader Property & Engineering
T +43 664 96 24 048
Paul Spittau
Head of Group Carrier Relations & Insurance Mediation
T +43 664 537 17 42
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