An Insurance Perspective

Professor David Crichton

Association of British Insurers

World wide insurance losses

0102030405060708090100

US $ Billion

1960s 1970s 1980s 1990s

Natural Catastrophe Losses - Decadal Totals

Source: Munich Re, January 2000

UK Weather Claims Costs

0

500

1000

1500

2000

2500

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

£ million

Source: ABI Statistics Bulletins

UK Storm Claims

• October 1987– 1 million claims, cost £1,400 million

• January/February 1990– 3 million claims, cost £2,400 million

• Reinsurers paid 60% of the claims costs then. Now they would only pay 20%

• 1993 “Braer” Storm, 915 millibars (European record low, 912 millibars)

UK Subsidence - nearly £1m a day £ million incurred costs

Source: ABI Statistics Bulletins

UK Domestic subsidence totalcost over last ten years: £3338m

0

100

200

300

400

500

600

1983 1985 1987 1989 1991 1993 1995 1997 1999

Increased Flooding?

Medium-low

Medium-high

2020s 2050s 2080s

Source: UK CIP Technical Report No 1

Government and insurers...

• May 1998, Sarno floods in Italy, the Italian Government paid the equivalent of 150m Euros in compensation to victims.

• April 1998, Midlands floods in England, insurers paid the equivalent of 232m Euros in compensation to victims.

• - but many low income families in the UK cannot afford insurance.

The Risk Triangle

RISKRISK

Haz

ard

Vulnerability

Exposure

A Framework for Adaptation?

Example: Flood Risk

• Insurers are becoming more pro active

• They are increasingly taking steps to manage vulnerability and exposure

• ABI wants to help Government to manage hazard. It has funded major research projects and shared the results with Government.

Dealing with Hazard

• New methods for calculating return periods

• Remote Sensing for better flood mapping

• Importance of SUDS

• Analysis of sea defence capability

• Guarantee of continued cover but only so long as Government is seen to be taking action.

Dealing with Vulnerability

• National Flood Claims Database - 25 insurers contributing

• Importance of building standards

• Resilient reinstatement?

Dealing with Exposure

• Scottish NPPG 7 - Flood Appraisal Groups

• Draft PPG 25 for England

• Financial Services Authority’s new policy.

Adaptation Priorities

• More resilient, mandatory, building standards and quality assurance inspections, for new build, reinstatement and renovation.

• Stricter planning control in flood risk areas and on contaminated land.

• Take climate change into account in design of drainage, flood defence, and buildings.

To Conclude...

• The insurance industry has a role to play.

• The ABI welcomes dialogue with the Government and its agencies.

david@crichton.sol.co.uk

Association of British Insurers: www.abi.org.uk