UK flood costs could hit insurance premiums | ccnew

Association of British Insurers expects flood claims to run into low hundreds of millions of pounds, the worst since 2007

British insurers face the worst bills for flood damage since 2007 this summer and are likely to pass increased costs on to their customers if the heavy rainfall persists.

The period from April to June was the wettest since records began, with double the average rain falling in June alone, according to the Met Office.

The Association of British Insurers expects the costs of home, commercial property and motor insurance claims to run into the ?low hundreds of millions of pounds?. A spokeswoman said: ?It doesn?t look as bad as 2007 but it?s too early to tell the cost, as the floodwaters haven?t receded in some areas. We won?t know for some months.?

In the summer of 2007 severe floods landed insurers with a ?2.5bn bill. Two years later they paid out ?175m after flooding in Cumbria.

Barrie Cornes, insurance analyst at Panmure Gordon, said home insurance premiums were already going up and could rise further if it got any wetter.

Households also face higher premiums under a scheme being discussed between the government and the industry that would ensure 200,000 homes in areas at high risk of flooding can still get cover. Any house that would normally incur a much higher premium because of flood risk would have the extra paid out of a levy on every home policy in the UK.

The current flood cover agreement between the government and insurers runs out in June 2013, and there are fears some households will not to be able to get insurance unless a new agreement is struck.

The insurers most affected by this summer?s washout include Aviva, which has a market share of about 12% and faces home insurance losses of between ?20m and ?40m in the first half of this year, according to Cornes. He estimates claims at ?8m-?15m for RSA, which has a market share of 7%, and ?5m-?12m for Legal & General, with a market share of 3%. On top of that, there will be claims for commercial property and motor insurance.

Cornes did not have estimates for Royal Bank of Scotland, the owner of Direct Line and Churchill, and Lloyds Banking Group, which control 15% and 13% of the home insurance market respectively. The likely losses are nowhere near the level where reinsurance protection kicks in, at ?250m for Aviva, ?100m for RSA and ?20m for L&G.

Cornes said: ?While these costs are relatively immaterial, given the wet start to July and the forecast of more to come, the second-half impact could be much worse although unlikely to be on the same scale as the floods in 2007. The worst of the rain/flooding occurred in the last three days of June, and the July downpours will have a progressively worse impact as the rain falls on already sodden ground.?

Source: http://ccnew.org/blog/2012/07/15/uk-flood-costs-could-hit-insurance-premiums/

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