A dam was breached releasing a flood of red sludge over 16 square miles and poisoning the Danube

A flood of toxic slurry was released from a reservoir at an aluminium plant in what has been described as Hungary’s worst environmental disaster.

Guy Carpenter published an account of the incident on its website.

The accident happened in the town of Ajka and has claimed the lives of eight people after more than 700,000 million cubic metres of industrial waste flooded over surrounding towns and villages and contaminated rivers.

A dam wall at the Ajka Timföldgyár plant was breached on 4 October, unleashing a two metre (6.5 foot) wave of red sludge that affected 16 square miles of land.

Hungary’s government declared a state of emergency. Around 150 people have been injured, several reporting burns and eye ailments.

The Hungarian government initially estimated the cleanup would take at least a year and cost tens of millions of Euros.

Aon said the unfolding environmental disaster should serve as a warning about the strength of new environmental liability laws.

"There is a mature insurance market for these types of risks, and it is entirely possible to get insurance coverage for up to €150 million for an individual risk," said Simon Johnson, Aon Risk Solutions' environmental director.

Both Munich Re and Hannover Re have said they expect their share of any claims to be negligible, according to media reports.

The danger is not over as repair work is continuing as a large section of the dam shows signs of rupturing.

Officials estimates another 500,000 cubic meters of toxic red sludge could spill out if the wall collapses.

The environmental group WWF also claims the reservoir may have been leaking as far back as June.