Storm Klaus

An explosive cyclogenesis event occurred in the Atlantic on 23-25 January 2009 and caused a high-impact storm named Klaus. The storm gave rise to very high winds and significant property damage and personal injuries in Spain and France. Storm Klaus resulted in more than 265,000 claims handled and more than 564.1 million euros in indemnities paid out by Consorcio de Compensación de Seguros (CCS). It is by far the most severe episode of extreme winds CCS has had to face and at the time posed a major challenge to the insurance industry as a whole. The approaches employed to tackle this historic loss event laid the foundation for managing subsequent extreme windstorms and are a model for public-private cooperation in the field of property insurance in Spain.

The concept of extreme wind was redefined in 1963 as wind classified as extreme by the authorities in each individual instance based on its exceptional intensity and characteristics and the extent of the damage produced, without prescribing any additional condition or objective threshold for coverage.

A dual-faceted concept of atypical cyclonic storm (TCA, for the Spanish) was introduced in 1986: 

• violent tropical cyclones with wind speeds above 96 km/h averaged by 10-minute intervals and precipitation in excess of 40 l/m²/h
• and intense cold lows, with wind speeds higher than 84 km/h averaged by 10-minute intervals and temperatures lower than 6 ºC below zero measured at the closest point on the coast.

Since then, the CCS's coverage of wind events has no longer depended on a declaration by the authorities but, providing that the pre-established conditions and thresholds are met, is instead based on a new definition that could be used to define these events quickly, automatically, and objectively. 
An important change took place in 2004, when the legal concept of TCA was expanded to include two new types: 

• tornadoes ? a violently rotating column of air, narrow in diameter, that is in contact with the ground and descends from a cumulonimbus cloud
• and extreme winds, gusting at speeds higher than 135 km/h.

The two last-mentioned TCAs, tornadoes and extreme winds, are the kinds that occur most frequently and cause nearly all claims from wind paid out by the CCS.
Finally, some years later, in 2011, the current definition of a TCA took effect, reducing the threshold for extreme wind coverage from 135 to 120 km/h. 
Therefore, when storm Klaus hit in January 2009, the threshold for extreme wind was 135 km/h.
The following table summarises the timeline for the successive legal definitions of extreme wind.

The Implementing Regulations for the Reglamento del Seguro de Riesgos Extraordinarios [Extraordinary Risk Insurance Scheme] provides that the wind data will be furnished to CCS by the Agencia Estatal de Meteorología [Spain's National Weather Service]  (AEMET from the Spanish abbreviation). Therefore, systematically, whenever a windstorm occurs, CCS immediately asks AEMET for a report so that it can determine the locations where the TCA has struck.

Unlike other extraordinary perils, wind is shared by private insurance companies and the CCS. This makes these organisations interdependent and requires good coordination between them to be able jointly to offer good services to the insured.

Three regions can be established based on the highest gust reached during a given event as depicted in the following Figure:

Figure 1. Distribution of coverage for wind damage between the CCS and private insurance companies depending on the peak gust.

In region A, the winds are below the coverage threshold set by the insurance company (point 1), and the damage is not covered by insurance. It is important to point out that there is no single coverage threshold. Instead, each insurance company sets its own peak gust of 75 km/h, 84 km/h, 90 km/h, 96 km/h, etc.

Private insurance companies cover wind damage if the gusts are located in intermediate region B (between points 1 and 2), where the winds are higher than the insurer's coverage threshold but lower than the threshold for coverage by CCS.

A peak gust in excess of 120 km/h (135 km/h until 2011) moves us into region C, where the winds are higher than the threshold for coverage by CCS (point 2), and damage is consequently covered by the public insurance compensation scheme.

TCAs are Spain's second most damaging exceptional peril, accounting for 15.9% of all the indemnities paid over the historical series from 1987 to 2021, after flooding, which accounts for 69.6% of total indemnities (Table 1).

PROPERTY, BUSINESS INTERRUPTION AND PERSONAL INJURY LOSS
AGGREGATED DATA, 1987 - 2021 SERIES
BY PERFIL / CAUSE

Table 1. Property damage, pecuniary losses, and personal injuries. Time serie 1987-2021.

As shown in Table 2, over the period 1987 to 2020, the CCS received nearly 700,000 claims as a result of TCAs and paid out indemnities totalling over 1.5 billion euros for that same cause. Nearly 40% of those are attributable to just one event, storm Klaus in January 2009, the single most important windstorm the CCS has had to deal with, much larger than other significant storms like Delta, Floora, Xynthia, Kurt, and Gloria.

Table 2. Main exceptional windstorms.

Until storm Klaus, CCS managed exceptional windstorm events directly, receiving claims for compensation from the insured parties or their representatives. It assessed the damage using its own network of associated adjusters, reviewed the documents for each claim using its own processing services, and finally compensated the insured by bank transfer. The procedure followed was the same as the procedure used to handle any other exceptional peril like floods, earthquakes, or volcanic eruptions.

The largest windstorms —storm Klaus in particular– impact extremely broad areas and give rise to large numbers of claims, though with an appreciably lower average cost than claims caused by earthquakes, floods, or volcanic eruptions. Table 3 compares (1) Klaus with two other past natural disasters, the Lorca earthquake and the September 2019 cut-off low flood event. The Table shows that while the total indemnities paid out were similar in all three cases, around 500 million euros, the average cost paid out for Klaus was much lower than for the cut-off low —one-fourth as much– and for the Lorca event —one-ninth as much. 

Table 3. Totals current as of 31 December 2021.

Experience shows that the difficulty attaching to claims handling depends mainly on the volume of claims, more than on the size of the damage.

CCS has had to deal with such major and harmful catastrophes as the Lorca earthquake and the September 2019 closed low referred to above, and these unquestionably put a strain on the handling capacity of CCS on its own. Even so, the sheer number of claims ensuing from storm Klaus far outstripped its handling capacity. CCS was therefore confronted with a major challenge: handling an unprecedented number of losses far in excess of its direct handling capacity and its ability to coordinate with the private insurance companies without impairing the quality of service provided to the insured.

• Cities and towns where gusting was over 135 km/h (shown in blue on the map on the left below).
• Cities and towns where gusting was very close to that 135 km/h threshold and hence for that reason, and also based on geographical proximity, the probability that they were directly affected by the atypical cyclonic storm could be assumed to be reasonably high (shown in red).
• Cities and towns that were located at the edge of the coverage area based on the two preceding factors and so could have been affected by the atypical cyclonic storm (shown in yellow).

It was clear from the very first that the size of the TCA ruled out direct handling by CCS. For this reason, through the Spanish Insurers’ Association, UNESPA, private insurers in Spain and CCS set up a joint handling procedure for storm Klaus set out in a document entitled “Claims handling and reimbursement protocol for the atypical cyclonic storm on 23-25 January 2009” ["Protocolo sobre gestión de siniestros y reembolsos derivados de los mismos con motivo de la tempestad ciclónica atípica producida entre los días 23 a 25 de enero de 2009"]. Both parties signed the Protocol at the end of July 2009 after the final map of the TCA had been published at the beginning of that month. 

The Protocol set the rules and time limits for claims handling by the private insurers and subsequent review and reimbursement by CCS. 

Besides the indemnity paid to the insured or the costs of repairs paid, reimbursement covered the adjusters' fees and other external expenses for claims handling paid by the private insurers.

The supporting documents to be submitted by the private insurers included the full contract of insurance (general, special, and particular terms and conditions), the damage appraisal (the adjuster's report or the invoice or estimate from the company making the repairs), and proof of payment for all sums to be reimbursed (proof of payment of the indemnity, of the repairs, of the adjusters' services, or of other external expenses).

• The insurers were to group their reimbursement requests together and send them to CCS in batches of cases.
• An online procedure was developed to expedite submission of the batches of reimbursement requests, though submission of hard copies was also allowed.
• Since the insurers had already paid out the indemnities or repairs to the insured, it was agreed that CCS would reimburse 80% of the sum requested immediately on receipt, with reimbursement of the remainder depending on the outcome of the review.
• CCS reviewed all requests for reimbursement greater than or equal to 30,000 euros and reimbursed the total resulting from the review.
• Requests for amounts below 30,000 euros were reviewed by means of random samples taken from batches for reimbursement of that amount or less, with a tolerable error of 7% and a confidence level of 95%. 
• All the cases included in the samples taken were reviewed by a team of adjusters associated with CCS.
• Where the review of a batch yielded a difference of more than 5% between the sum requested and the sum calculated by the review, a second more precise sample was taken with a tolerable error of 5%, i.e., less than the tolerable error of 7% of the first sample. 
• The final outcome of the sample-based review was then extrapolated to the reimbursement request for the corresponding batch.

Number of cities and towns affected: 2,778.
Population affected: 13.5 million inhabitants.

¹ Totals current as of 31 December 2020.
² Of this amount, 22% or 48.5 million euros was for damage to the overhead electrical grid caused by trees or other items falling on electric lines or by downed transmission towers, and 10% or 22.1 million euros was for damage to wind power generating facilities
.

Table 4. General statistics.

Table 5. TCA Klaus. Indemnities by kind of property.

Table 6. Indemnities by province.

Number of insurance companies that adhered to the Protocol. 56.
38 of these companies submitted information using the online procedure and 18 chose to submit documents in the form of hard copies.

Number of reimbursement batches submitted by the insurers: 196.

Table 7. Requests for reimbursement submitted to CCS by insurers.