Winter Floods: Have Your Insurers Let You Down?

Three storms battered Britain throughout December 2015. The subsequent floods weren’t just the most dramatic in recent memory. They were also the most expensive.

Storm and flood damage recovery image

It’s not yet clear just how much the floods are going to cost UK insurers, but estimates range from £300m to over £1.5bn.

According to the Environmental Agency, approximately 6,700 homes and businesses have been damaged so far. And with further heavy rain predicted in the coming weeks, the damage looks set to increase – which, of course, will worsen the total economic impact of the floods.

Most flood insurance claims cost between £30,000 and £130,000. But far too many insurers are insisting that they’re still unable to provide detailed estimates for the majority of the claims they’re handling.

Because there are still at least nine severe flood warnings in place, and because so many affected areas are still too difficult to access, most of the major insurance companies believe that it’s still far too early to conduct any reliable assessments.

Is this understandable? Or is it unacceptable?

The Real Reason Insurers Have Been Slow to Act

When dealing with contentious cases, insurers call upon the services of loss adjusters. They’re mainly responsible for gathering evidence in order to determine the true cause of the incident. But as they’re also responsible for compiling and presenting cases, loss adjusters often have a vital role to play in even the most clear-cut of claims.

In recent years, leading agencies in the insurance industry have made dramatic cuts to adjusters’ fees. As a result, many adjusters have either had to spread themselves thin, or else trim their services to the bone. The end result is a national shortage of loss adjusters, which might explain why so many insurers have failed to quickly respond to their policy holders.

Lessons Learned From 2007

In 2007, less than a decade ago, severe floods hit north-east, central, and southern England and Wales, ultimately costing insurers approximately £3bn.

Given that insurers faced hundreds of similar claims so comparatively recently, many of those afflicted are no doubt wondering why it’s once again proving so slow and so difficult this time around.

Part of the problem is that no two insurance policies are ever quite the same. What’s more, since the last major floods the world has been shook by a global financial crisis. This means there’s the added issue of underinsurance, as many policy holders will have opted for reduced insurance premiums in the wake of the recession.

Differing levels of insurance coverage make recovery difficult, and there are vast numbers of people who don’t have any insurance at all. This situation entails that many home and business owners will have no choice but to foot the recovery bill themselves – resulting in a major blow to the UK economy.

The underinsurance issue has created a shortfall of approximately £1bn. Add to that the £750m local councils will have to invest in repairing flood defences, and the £2bn pledged by the government, and the total cost of these floods is currently standing at £5bn, and rising.

So what did we learn from the 2007 floods? Very little, it seems. Everyone, from the government to the insurance agencies, was simply unprepared for another disaster of this magnitude. But as such major deluges become increasingly common, what’s to be done?

The Need For Uniformity, Co-ordination, and Solidarity

There’s clearly a pressing need for some kind of UK authority to coordinate and quantify disaster relief. Such authorities already exist in other countries. The US has The Federal Emergency Management Agency, while Australia has the Government Disaster Assist programme. But in the UK, we have what has been described as “a convoluted and archaic structure for relief management… [which] requires immediate simplification.”

But equally pressing is the need to throw a lifeline to the millions of UK businesses and homeowners who cannot obtain insurance. Insurance should not be limited to those who can afford it – everyone in the UK should have ready access to affordable and adequate coverage.

There are calls for “mandatory levels of insurance, coverage models that reflect relevant risks and conditions, fair value premiums, and an ability for policyholders to fund the cost of insuring their possessions.”

Yet it’s one thing to make insurance more affordable and accessible. It’s quite another to convince people that it’s something they simply cannot live without.

Unfortunately, the insurance industry doesn’t have the best of reputations. An inability to act in times of need, coupled with story after story of unscrupulous behaviour and inequitable settlements, has led many to view insurance not as a necessity, but as a necessary evil – and that’s if they can afford it in the first place.

Nobody buys insurance because they want to. They buy it because they have to – and then only begrudgingly. This needs to change.

Perhaps the winter of storms and floods will convince everyone that adequate insurance is a vital part of a swift and efficient disaster recovery process. And perhaps the total cost to the UK economy will convince those who live in unaffected areas that this really is an issue that affects us all.

This shift in attitude, coupled with major reforms across both the government and the insurance industry, will hopefully mean that the next time we have to face adversity, we’ll be prepared. We’ll know what to do, and we’ll have what it takes to recover.

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