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Insurance rates likely to increase after massive flooding in England

Insurance rates likely to increase after massive flooding in England

As insured loss estimates from recent flooding in England rise, buyers may need to brace for flood insurance rate hikes or even withdrawal from the market by some insurers, experts say.

The July floods hit East Anglia, the Midlands and the Thames Valley regions, affecting thousands of commercial properties and homes. Late last week, the Assn. of British Insurers said in a statement that the insured loss from the latest flooding is likely to reach £1 billion ($2.05 billion), with 3,500 claims already filed from businesses and another 12,000 claims coming in from homeowners.

The July floods followed widespread inundation in northern England in June. The Chartered Institute of Loss Adjusters and the ABI have estimated the insured cost of those floods to be more than £1.5 billion ($3.08 billion). In its latest update last week, the ABI noted that insurers are dealing with 27,500 household and 7,000 business claims from that flooding.

And the July floods may result in larger insured losses.

London- and Bristol-based Darren Combes, partner at Davies Chartered Loss Adjusters, said he would be surprised if the July floods were less costly than those in June, because the sums insured are likely to be larger.

"The June and July floods are two of the biggest natural disasters we have seen in terms of scale and the value of the property affected," Mr. Combes said.

Fitch Ratings Ltd. in London said in a statement that for the insurance industry, "the flooding is the most severe natural catastrophe in the United Kingdom since hurricane-force winds at the start of 1990 in England and Wales cost the sector £2.2 billion ($4.25 billion).

The total cost to insurers from the June and July flooding is likely to exceed £3 billion ($6.17 billion), Fitch said.

Businesses affected by the June floods included London-based confectionery and beverages company Cadbury Schweppes P.L.C., which was forced to temporarily close a factory in Sheffield.

A spokesman for the company said that all the staff are now back onsite and the company was seeking to minimize disruption to production by outsourcing it to sister factories in the United Kingdom and Europe.

"We do have insurance in place," the spokesman said, declining to provide details.

Experts say that while the floods will result in a large insured loss, they will not threaten the financial strength of the U.K. insurance industry. Rates are expected to harden, though.

Warnings on rates, capacity

David Stephenson, London-based associate director of Fitch Ratings, warned buyers that rates will rise in the wake of the floods.

There is also some concern that insurers may withdraw cover altogether, particularly if there is pressure from the reinsurance sector.

Aon Ltd., the U.K. arm of brokerage Aon Corp., said that if the government does not invest more in flood defenses, some insurers may withdraw cover.

"Insurers could remove flood cover in more areas of the United Kingdom if the government does not start investing in adequate flood defenses rapidly," Aon said in a statement.

"Property owners could become more exposed to recovery costs as high-risk, uninsurable regions become more widespread following an inevitable reassessment by insurers of their role in dealing with flood claims," said Bill Gloyn, chairman of European real estate at the London-based Aon Ltd.

London-based Neil Greaves, head of the major loss practice at Marsh Ltd., a unit of New York-based Marsh & McLennan Cos. Inc., said that the floods highlighted the importance of business continuity planning.

"Investors will be looking to see how the company responds. Its reputation will be enhanced if it responds well and damaged if it is slow or disorganized. The key is to get the business up and running, and to drive forward the insurance claims as quickly as possible," Mr. Greaves said.