In reaction to the recent floods across areas of the UK, Justin Balcombe, UK head of general insurance consulting at KPMG warns of the long-term cost of flooding to businesses, homeowners and the economy and discusses the implications for businesses, government as well as insurers.
Justin Balcombe said: “Due to the scale of the recent floods, we predict that the economic impact may be felt for at least two to three years due to the volume of water, sewage, agriculture and infrastructure damage. This in turn means that conventional business interruption and homeowner insurance cover may not be adequate to provide financial compensation to flood victims and businesses. The significant amount of under insurance will place additional financial pressure on people who simply can't afford to fund any gap.
“As assets and infrastructure need to be rebuilt, the challenge for local authorities and government will be to develop an economic risk and compensation model which not only considers the immediate remediation, but also addresses the long-term cost of recovery and any shortfalls including further sustainable preventative measures."
“The insurance industry is well equipped to handle large-scale events such as flooding. However whilst there will be a number of large claims due to the floods, there will also be an unprecedented volume of low value claims, which will undoubtedly stretch the resources of the insurers.
“This will be a challenging test for insurers in terms of claims handling processes and procedures as well as presenting an opportunity for the industry to innovate and refine their claims processes for any further events.
“In the long-term, we will see further innovation from the insurance industry in response to the floods, such as the recent introduction of the not-for-profit scheme Flood Re, being developed by both the Association of British Insurers and the Government. This will ensure flood insurance remains affordable, even for those in high risk areas.”
Notes to editors:
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