Commercial insurance article archive
Floods take their toll on UK insurance market
The deluge of rainfall that swamped Britain earlier this month also sent a flood of claims heading to the doors of insurance companies who may have to make payouts totalling £3 billion.
And just as the UK's flood defences were unprepared for the volume of water that poured down on places like Tewkesbury and areas along the upper Thames, some commentators say the insurance companies were caught unawares.
German insurer Allianz said the floods should now act as an overdue "wake up call" for the industry to protect itself from the risk of flooding.
"Flood in the UK we believe is right up there as a major world-class risk," the Financial Times quoted Allianz UK chairman Clement Booth as saying.
He added that insurance premiums were bound to increase country-wide in the wake of the Biblical downpour as firms build up more capital to cover their costs due to household claims, estimated to be around £1.5 billon.
But Mr Booth said it was too early to tell how much higher insurers would push home or commercial premiums in the long-term for those living or working in a flood-risk area.
Fellow Allianz employee Paul Maidment, the firm's southern and London trading director, called for lessons to be learned from the recent flooding.
"If the market needs a major incident to start focusing minds on pricing adequacy rather than exposures, this is as good as it will get," he said.
"Insurers, brokers and the industry as a whole must work together to ensure that clients are aware that they should expect to see price increases sooner rather than later."
Motor insurance premiums also seems likely to be affected by the widespread flooding as, apart from the vehicles caught in the rising waters of which many had to be written off, they will increase to offset the much higher home and business insurance claims, according to Neil Faulkner at finance website Fool.co.uk.
"With billions of pounds of claims, insurers may find that the cost was a little bit too much. This means we'll see a ripple of cross-subsidisation affecting our car insurance and maybe other insurances too," he said.
"However, I think if the floods do cause this to happen, the effect will be much more modest than those of the collective US hurricanes of 2005, or of the WTC attack."
Although not on the scale of those disasters, the flooding has still caused substantial costs, with the UK's largest insurer Aviva - best known for running Norwich Union - warning last month that it faced losses of £400 million as a result of flooding in June and July.
This prompted the firm's stock to take a dip of 10.5p to 757.5p last month as investors showed their concern over the upcoming payouts.
Aviva's £400 million bill is significantly higher than that incurred by the second largest British insurer Royal & Sunalliance (RSA), who face claims totalling £120 million.
An insurance market analyst told the Independent: "The level of loss is about where you would expect it to be, given their market share, but I think RSA has done a bit better."
10 Aug 2007
