Flooding across several parts of the country could result in big claims, leading insurance providers to consider increasing their insurance premiums, analysts revealed on Tuesday.
UK insurers, who risk missing their profitability targets in the wake of heavy rainfall across England and Wales, might respond by raising their overall home insurance premiums. The news follows alerts issued by the Environmental Agency that predicts continued rainfall in parts of Wales and southern England and the possibility of flooding in 38 areas.
Hundreds of people were evacuated in West Wales over the weekend and several others were hit by smaller levels of flooding across England in what appears to be one of wettest periods on record. The 24-hour period to Saturday morning is believed to be the country’s wettest day since the Cumbrian floods in 2009 which recorded rainfall of 316mm.
According to the Met Office, more than a month’s worth of rainfall fell in just 36 hours in parts of England with the wet weather set to continue through the week.
Companies like Aviva and RSA that are heavily invested in home and commercial property insurance are set to face the biggest losses, revealed a spokesperson from stockbroker Oriel Securities. Marcus Barnard explained that previous weather conditions had cost UK insurers between three and six percentage points of their combined ratio – a measure of endorsing profitability.
Although the extent of damage caused this year is yet to be assessed, one can expect “significant” claims, said Mr Barnard.
One of the most expensive weather-related events for UK insurance providers was the heavy flooding in 2007 that cost the industry £3 billion. This also led to some insurers raising their insurance premiums by about 10 percent.
The current flooding brings into question the government’s promise of raising the standards of flood defences. Following the Pitt review in the aftermath of the 2007 flooding, the government and UK insurers came together to protect those hit by floods. While the government assured that it would invest in flood risk management, insurers offered flood coverage to those at risk. However, in the face of spending cuts undertaken by the coalition government, investment in flood defences has not been as promised. According to reports, the insurance industry does not plan to renew the agreement when it expires in June 2013.