“However, these projections do not include any Government spend on flood defences which we understand may be between £2.3bn and £2.8bn. Also, these estimates do not currently include the impact of Storm Frank.
“Based on the currently available information, our understanding is that Desmond and Eva combined had at least 11,500 houses flooded which combined with the commercial insurance losses we are expecting is the driver of our insured loss estimate. Given that Storm Frank is ongoing it is far too early to tell what the full impact will be. However, given 16,500 homes and businesses have already been left without power by Storm Frank in the Republic of Ireland, Northern Ireland and the North of Scotland, the total economic loss caused by the three Storms may well breach £3bn.”
BUSINESSES
The storms and resultant floods in December 2015 have been unusual compared to prior storms and floods in the UK in that there have been a significantly greater proportion of commercial insurance claims compared to personal lines insurance claims. Traditionally, commercial lines insurance claims have made up approximately 10% - 30% of the total insured loss claim. Based on what PwC has observed in the market, commercial lines insurance claims will make up about 50% of the total insurance claims.
Far more businesses have been affected this time because the floods have hit far more towns and cities and therefore impacted more SME businesses that have commercial property insurance. PwC is helping many businesses deal with insurers and claims assessors to help them manage at this most difficult time. There could be further potential economic fallout for the UK due to the fact that SMEs help drive the economy and the impact on their ability to trade will have a knock-on effect on UK GDP.
One particular type of commercial lines insurance that will pay out for more compared to prior years is Business Interruption insurance. This insurance pays out claims to cover loss of income that a business suffers after a disaster. Many business insurance contracts, however, only last for 12 months and so even with this cover, many SME businesses that will take longer than 12 months to recover may suffer cashflow issues after their business interruption cover period expires.
Mohammad Khan, general insurance leader at PwC, said: “Unfortunately, many of the smaller and family run businesses that have been impacted by Eva and Desmond will not have commercial insurance in place due to the impact of the recession and lower business volumes in recent years. Many of these businesses will have made the economic decision not to purchase insurance. For many of these businesses the impact of the recent storms and floods will mean they will have to protect themselves against the prospect of insolvency.
“It is also true that the storms this time have generated a far greater proportion of non-insured losses compared to the total economic damage. Traditionally insurance claims in the UK have covered many of the losses so non-insured losses have made up between 15% and 35% of the UK economic losses caused by storm and flood damage.
“For example in the 2009 floods that hit Cumbria, 35% of economic losses were not covered by insurance. As the floods this time have hit far more UK infrastructure in York and Manchester and affected more SME businesses that do not have insurance, our estimate is that businesses and councils will have to pay between 35% and 50% of the total economic losses suffered due to Storms Eva and Desmond - about £700m - £1.1bn. This does not include the additional cost of repairs and any further building on Flood Defences which may be in the order of £2bn.”
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