Insurance companies are changing their flood coverage policies as they prepare to pay hundreds of millions of crowns for damage for the third time in 10 years.

The total financial fallout of the rising waters that have ravaged towns throughout the Czech Republic in the past two weeks is still unknown, but could reach into the billions of crowns. As a result, the majority of insurers will no longer offer coverage to clients whose property has been flooded in the past or is in a high-risk zone, usually near a river.

"We will not insure properties that have been flooded in the past," said Václav Bálek, spokesman for the country's largest insurance company, Česká pojišťovna. "The thing is that, in general, insurance policies are designed to cover random risks, not something that occurs repeatedly."

Česká pojišťovna became the first insurer to announce this policy shift after melting snow and rainwater pushed river levels so high throughout the country that the government declared a state of emergency in seven regions through April 10.

Early this month, insurers registered more than 6,000 claims worth hundreds of millions of crowns. And, with the water levels decreasing only slowly, claims are expected to continue coming in throughout the next few weeks.

"Thousands of claims will be flowing in, and we'll just hope that the costs will be lower than during previous floods in this country," said Richard Kapsa, spokesman for the Czech Association of Insurance Companies (ČAP).

In the country's first major flooding in recent years, in 1997, insurers paid out slightly less than 30 billion Kč. Five years later, when the country suffered its worst flooding in more than 100 years, insurers spent 34 billion Kč and covered about half of the total damage.

Insurers are weary. Allianz, Kooperativa and Uniqa, among others, are all discontinuing certain types of flood coverage.

"It is inevitable that the frequency of floods is making insurers change their policies," he said.

No more high risk

In addition, insurers will not cover real estate in areas that are particularly vulnerable to flooding.

To identify the areas in the Czech Republic with the highest risk, insurance companies have developed a special map of flood zones named Acquarius.

Based on the Acquarius map, real estate is divided into four categories, according to the likelihood it will be at risk.

Properties in low-risk areas are eligible for coverage. Properties in the midrisk range can receive insurance, but owners must assume some of the financial risk.

From this point on, however, no insurer contacted for this story will provide flood coverage for property in high-risk areas.

"It's clear that we cannot offer insurance policies against something that is very likely to happen," said Milan Káňa, a spokesman for Allianz.

He added, however, that not many clients have been rejected.

As a result of the tightened policies, the price of real estate located near rivers is falling. Real estate experts said the price of property in high-risk areas in major towns could drop by as much as one-third.

In smaller towns, this property is becoming nearly impossible to sell.

The government has stepped in to help. Prime Minister Jiří Paroubek said the Cabinet will try to get a long-term loan for as much as 15 billion Kč ($647,948) from the European Investment Bank that the government will use to buy property in high-risk zones that has become uninsurable.

On the losing side

Insurance companies didn't make any major policy changes after the 1997 floods, but premiums shot up an average of 30 percent after 2002.

The hike was driven by reinsurers, which are basically insurance companies for insurers. An insurance company will get reinsurance so it can safely take on more risk and also protect against a catastrophic loss.

In 2002, reinsurers offered very generous policies, so much so that they ended up paying for 97 percent of that year's flood damage. After that, they raised their prices.

Reinsurers suffered considerable losses in 2002, "so they had to increase their prices in order to get some money back," said Marek Vích, spokesman for Kooperativa insurance company.

"As a result, we had to respond by increasing" prices, he said.