Consultancy PwC has raised its estimate for the insurance and reinsurance industry loss from flooding and damage experienced in the UK from windstorms Desmond and Eva up to £1.2 billion ($1.8 billion), while storm Frank hitting the UK today will raise the toll further.
Mohammad Khan, general insurance leader at PwC, commented; “The effects of continuing torrential weather are set to hit parts of the UK even harder. Our latest estimates now suggest that economic losses due to Storms Eva and Desmond will be £1.6 billion – £2.3 billion, with insured losses of between £900m – £1.2bn.
“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.”
Earlier this week PwC put an estimate of up to £1 billion on the insurance and reinsurance industry cost from the storms and resulting flooding, which has hit a large swathe of the UK northern counties, Scotland and Ireland.
Meanwhile, as we wrote yesterday, fellow consultancy KPMG put an insurance loss estimate of up to £1.5 billion on the flooding bill, while it said the total economic cost including to the UK government could be as high as between £5 billion to £5.8 billion.
PwC note today that the current spate of storms and flooding have been unusual because “there have been a significantly greater proportion of commercial insurance claims compared to personal lines insurance claims.”
With commercial flood coverage included in many business policies that could result in a rising toll as the UK gets back to work after the New Year and claims are filed.
“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,” PwC continued.
PwC also believes that there could be a business interruption claims surge, again likely when businesses get back to normal after the holidays.
However, many smaller businesses do not have adequate insurance coverage, or their insurance excludes flood damage. As a result there are now calls being made for the UK’s Flood Re reinsurance risk pooling facility to be expanded even before it has launched to include commercial properties.
Khan added; “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.”
As the loss to insurance companies grows, the impact to reinsurance companies becomes increasingly likely and thus also to some insurance-linked securities (ILS) fund managers that have participated in UK general insurer catastrophe reinsurance programs on a collateralised basis.
With storm Frank now hitting the UK and further torrential rain expected in some of the flood hit areas, the eventual toll from the recent spell of severe UK weather is likely to continue to grow. The toll to insurers and reinsurers is bound to increase and the eventual leakage of some claims to ILS fund managers seems increasingly likely.
Risk modeller AIR Worldwide provided an update on the flooding:
Boxing Day Floods Inundate Northern UK: AIR
BOSTON, Dec. 29, 2015 – According to catastrophe modeling firm AIR Worldwide, Storm Eva brought severe flooding to northern UK on Boxing Day—the day after Christmas—when record-breaking rains fell on already saturated areas. Parts of northern England, including areas of Manchester and Leeds, were submerged by up to 1.8m of water after a month’s rain fell in a single day in some parts of Lancashire. Environment secretary Liz Truss stated that, “Every single river was at a record high,” and some rivers had reached levels exceeding historical records by one meter. During the event, a total of 21 severe flood warnings, 227 warnings, and 138 alerts were issued across England and Wales, and 16 flood warnings and three alerts were issued for parts of Scotland.
“Just three weeks after Storm Desmond, Storm Eva―the second major storm and fifth named storm of the season― moved into the region on Saturday, December 26, 2015, with drenching rains,” said Dr. Marc Marcella, scientist at AIR Worldwide. “Peak sustained winds of 65 km/h with gusts as high as 120 km/h were recorded, and rainfall totals from 50−80mm fell over just 6−9 hours on soil still saturated from Desmond and already elevated water levels. The highest rainfall totals from Storm Eva were around 100mm with peaks of 130mm in Lancashire and in excess of 200mm in Snowdonia.”
“Prior systems throughout the month of December left much of the region already at more than double their average December rainfall totals. The Met Office confirmed that this will be the wettest December on record for Cumbria since 1910, where areas have experienced more than two and a half times the expected monthly rainfall.”
Red warnings were issued by the Met Office in Lancashire, and Yorkshire and the Humber, indicating danger to life, expected property damage, and a need for immediate action. This marks the first time two such alerts were issued in one day. Amber and yellow warnings were issued for parts of Lancashire, Cumbria, northern Wales, and parts of Scotland.
These regions were among the hardest hit by Storm Desmond about three weeks prior, and the overall saturated soil conditions in the region elevated flood risk due to heavy rainfall from Storm Eva. Final December rainfall totals ranged from 280−770mm in Cumbria, and from 240−330mm in the Lancashire and West Yorskhire regions. Record-breaking December rainfall totals were also seen in Wales, where Conwy reported 1009mm; the previous record was 613mm.
Dr. Hemant Chowdhary, principal scientist at AIR Worldwide noted, “River level records were broken around the region: Water levels at Ribble river at Ribchester reached their highest levels ever recorded at 5.91m at 3:00 p.m. on December 26; the level of the Calder river at Hebden Bridge peaked at 3.63m on December 26, passing its previous record of 3.33m; the River Aire at Armley exceeded its previous record of 4.03m on December 27 when waters reached more than 5m; the former record of 2.44m in York at Tang Hall was surpassed when waters reached 4.62m on December 27; and the River Ouse’s water level at Viking Recorder nearly touched its highest record of 5.4m from November 2000 when it reached 5.19m on December 28. Although many river levels peaked by Monday afternoon, more rain was expected in southwestern England and southern Wales on Monday afternoon and northern Wales and northwestern England Monday evening, albeit at lesser amounts than those seen on Boxing Day.”
Thousands of homes and business have suffered significant damage from flooding due to heavy precipitation and rising rivers. Evacuations were ordered in multiple areas, and British armed forces were dispatched to join fire and police teams to help locate the worst-affected and provide assistance. In Leeds, 12,000 were without power and 1,000 homes were affected. Power was cut to 10,000 homes in Rochdale and Lancashire when flood waters hit a main substation, and another 3,000 homes in North and West Yorkshire were also without power.
More than 300 flood-related calls were reported in Greater Manchester. Flooding contributed to a gas explosion in Radcliffe in Greater Manchester at around 4:30 p.m. on Boxing Day, caused by a ruptured gas main, which also caused a footbridge collapse. Road closures were expansive, including a number in the wider Manchester metropolitan area, where the Bolton, Bury, Rochdale and Oldham areas were most affected.
Flooded streets turned into urban rivers, sinkholes were reported, travel was disrupted, and some regions were completely isolated. Northwest Wales was effectively cut off by flooding when its two major arteries were shut down due to rising waters. Todmorden, in Calderdale, was also completely cut off, impeding emergency services.
Flood defenses were breached along the Calder, Ribble, Nidd, Irwell, Ouse, Foss, and Aire rivers, all of which burst their banks. Questions are being raised about flood defense spending and mitigation efforts. About 85% of the Britain’s temporary flood defenses were sent to Cumbria after Storm Desmond, and many residents reported a lack of available defenses during the Boxing Day floods. In York, a decision to raise a flood barrier for fear of water overtaking it and compromising its electrical functionality is being highly debated, with specific questions aimed at upkeep and design. The 4 km of flood defenses around York, constructed between 1985 and 1995, were built to withstand river levels of up to 5.45m above normal summer levels and have never been breached.
Prime Minister David Cameron told Sky News that flood defenses do not “always do enough.” A EUR 2.3 billion plan exists to improve flood defenses over the next six years. Environmental Agency Deputy Chief Executive David Rooke expressed a need to rethink flood defense and mitigation. Rooke acknowledged the unprecedented extremes of recent storms, and voiced an interest in proactive engineering, construction, and warning systems for enhanced flood resilience.
According to AIR, most of the residential buildings in this region are detached, semi-detached, or terraced (row) houses and are primarily of masonry construction. Light metal is often used for low-rise storage buildings. When low-rise buildings such as single family homes are flooded, a significant percentage of the building, and its contents, will sustain damage; however, the damage is usually limited to the cellars. The presence of a cellar also increases the risk for contents damage, particularly in the case of heavily-used cellars that enclose recreational rooms, bedrooms, or home offices. Some homes may have entire apartments located in the cellar as well. However, heavily-used cellars usually have better flood defense mechanisms than unfinished ones.
According to AIR, commercial building stock uses a wider variety of materials including masonry, reinforced concrete, or steel. Commercial buildings are usually built to stricter standards under the supervision of an engineer and therefore usually have sophisticated flood defenses in place, particularly in zones with a lower return period for flood. However, post-disaster surveys indicate that low-rise commercial wood frame and masonry buildings are generally non-engineered and have vulnerabilities similar to those of their residential counterparts. Large apartment and condominium buildings frequently receive a degree of engineering attention similar to that given to engineered commercial construction, reducing their vulnerability.
Loss estimates from the Boxing Day floods will continue to form over the next few days as water levels recede and companies can enter properties and assess damage, though economists submit that the impact could hinder Britain’s economic growth by 0.2pc. York, which was the hardest hit by flooding after the River Foss broke its barriers, is likely to represent a significant proportion of the upcoming insurance claims.
In the UK, flood coverage is included in standard policies under an evolving informal public-private partnership, whereby the industry agrees to provide affordable insurance while the government invests in flood defenses. Requests for emergency insurance payments are expected to be high; EUR 2.6 million was reportedly paid out in emergency insurance payments after storm Desmond.
Dr. Marcella concluded, “On the heels of Storm Eva looms Storm Frank, set to bring more rain and gale-force winds to parts of northern and western UK on Wednesday.”
Met Office yellow rain warnings have already been issued for northwestern England, northeastern England, Yorkshire and Humber, Wales, and Northern Ireland. Rainfall totals of 20−40mm are expected, with 60−80mm possible in some areas. Amber rain warnings have been issued for Cumbria and parts of central and southern Scotland, where 100−120mm of rainfall may be seen. There were 57 flood warnings as of 7 p.m. on December 28, 2015, including nine Severe Flood Warnings and 48 Flood Warnings, and another 64 flood alerts.
Subscribe for free and receive weekly Artemis email updates
Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.