Archive for August 2011

Could Flooding Become A Fundamental Risk in The UK?

For those UK underwriters and loss adjusters watching the scenes of devastation caused by hurricane Irene and particularly flooding in states like Vermont, they will be glad that their insurance company does not have to pick up the bill.

They needn’t have worried though because in the United States Flood Risk is considered fundamental and cannot be covevered under a normal home insurance policy as such…as yet!

In fact all home insurance flood risks are the responsibility of each State to provide under a national scheme. In the United States, uniquely in the developed world, insuring houses against flood damage is the sole province of the federal government.

The National Flood Insurance Program (NFIP), was created in 1968 by Congress and is administered by the Federal Emergency Management Agency, is virtually the only place to get protection against the ever increasing disasters of flood and storm surge.

From an insurance point of view the program is the same as any other private-sector insurance program.

You pay the government a certain amount and when a flood happens, receive coverage for repairs and losses.

As of June 30, the program had nearly 5.6 million policies in force with a total insured value of $1.246 trillion. But from a fiscal standpoint FEMA does not manage the NFIP like a traditional insurer.

Most insurers use a measure of solvency that looks at their capital and reserves and their ability to pay claims. In particular, regulators require insurance companies to keep a statutory reserve of liquid assets to cover potential future losses. FEMA, on the other hand, has said it manages the NFIP to generate enough premiums to cover expenses and losses for an average loss year, rather than keeping capital for the long term.

In other words it does not keep enough reserves! And guess what? It’s run out of money!

Apparantely former agency officials admit it charges rates that dramatically underprice the risks faced. That is all well and good in a normal year and when business is good, but when a worse-than-average loss year happens, the consequences are disastrous.

Folowing the disatrous hurricanes Katrina and Rita in 2005, the NFIP was more or less insolvent, without the capacity to pay the huge volume of claims those hurricanes created. Congress reacted by increasing the NFIP’s borrowing ability from the U.S. Treasury more than 13-fold, to a level of nearly $21 billion. That debt burden is, by all accounts, unsustainable.

While Irene was no Katrina, it comes on top of serious Midwestern flooding that the program has already had to deal with this year. Some people believe NFIP will stretch its debt boundaries and may well end up needing more assistance. “It may be a little bit too soon to tell but it’s certainly not going to be a very good year for the NFIP and we’ve not finished the year yet,” said Robert Hartwig, an economist and the president of the Insurance Information Institute (III).

Hartwig said a private insurance market for flood coverage is absolutely possible, with plenty of insurers and reinsurers willing to get into the business – but only if the NFIP raises its rates and if insurers get assurances from state regulators that they will be able to do the same.

Insurance Blog wonders if given all the recent flood claims in the UK due to climate change and the pressure to build houses on floodplains, whether Flood Insurance will at some point become a fundamental risk in the UK for some homes?

The UK Government would be well advised to consult with construction companies, environmental scientists, climatologists, pressure groups and Insurance companies before we reach the crisis about to hit the US Treasury.

The solution is simple – do not solve the UK housing problem by building on floodplains or areas of geographical risk.

ABI Plea For Longer Riot Claims Period Approved By UK Government

The Association of British Insurance companies, the ABI, has issued a statement clarifying the position of Insurance and Claims for Riot Damage.

The ABI warn…..

On current estimates insured losses and damage suffered by individuals and UK businesses are likely to be well over £100 million.

The ABI has reassured customers that they are covered for riot damage under their home and business insurance and claims will be paid by their insurer as quickly as possible. People with insurance should claim directly from their insurer as soon as they can.

Riot Damages Act 1886

When a riot happens a statutory police compensation scheme is activated to provide compensation to organisations and individuals for losses that they could not possibly have predicted. This compensation scheme has existed on the statute books since 1886 with its operation having stood the test of time for the last 125 years.
The scheme means that people who are under insured or do not have insurance have somewhere to go for compensation and redress.

Other organisations, including insurers, can claim under the scheme for money they have paid out to their customers for loss and damage they have suffered as a result of the rioting, although insurers will themselves be liable to pay for business interruption losses, which are not covered by the scheme.
The scheme means that people do not have to pay higher premiums every year to insure their home or business because of a riot which may only happen once every thirty years.

For example, shopkeepers in Tottenham have still been able to get insurance, despite events in 1985, and have not had to pay extra because the police compensation scheme gives individuals and organisations, and their insurers, certainty that costs of the unexpected will be covered.
Contrary to some reports, neither the Home Secretary nor the police need to designate the events as a “riot” in order for the police compensation scheme to be activated. The law sets out a range of criteria for this, for example the number of people causing a disturbance.

Extension of Claims Period

The ABI met with the Home Secretary on Tuesday and have written to ask her to extend the claims period to the police compensation schemes from the usual 14 days to the maximum 42 days to give people the time they need to fully assess the loss and damage they have suffered and properly submit their claim.
Insurers’ priority is to support people affected by the riots in London and other major cities, and people are urged to contact their insurer as quickly as possible to start discussing their claim. Many firms have 24 hour helplines and are on hand with support and advice.

David Cameron has just finished speaking for 165 minutes on the riots in the House of Commons, and has confirmed that the ABI’s request will be met and the period extended to 42 days.

Mr Cameron also stated that the Riot Damages Act provided ‘unlimited’ funds for those affected by riots and both the Treasury and the Home Office would provide the financial support for claims against local police authorities.

Riots and Business Insurance Claims For Property Damage

The impact of riots on the community can have long-lasting and unforeseen effects.

Riots may not last very long, but the time to put a community back to where it was takes a lot longer.

For a business or property owner the work ahead can be daunting.

The actual damage to each premise needs to be accessed and repaired.

This can take time and may depend on whether adequate insurance was taken out to cover the damage.
If adequate insurance is in place insurance companies need to access the damage.

Putting Things Right

There maybe damage to the property, injury to staff, residents, tenants and owners.
Tenants maybe homeless. New temporary accommodation needs to be found.

Loss Adjusters need to be appointed to look and access the damage and give authority for repair work to commence. Quotations from repairers have to be given and of how long and when work can commence once agreed.
Immediate remedial damage may need to be repaired eg windows boarded up, broken glass cleared, any unstable structures removed .

Removal of goods not stolen need to be placed in a secure area to avoid further loss. Further accommodation and storage space may need to be found.

Vehicles may need to be hired if transport or commercial vehicles have been damaged. This can also delay work be carried out if contractors have damaged vehicles as well.

Evaluating Business Continuity and Business Interruption

Shop keepers and property owners have to decide if they can continue to trade and should ask themselves the following question:

Is the structure safe?

Do they have still have goods to sell?

Is there chance of further rioting?

If thieves have raided the shop will new stock have to be ordered?

How long will the stock take to deliver?

Are supplies of gas, water and electricity working ?

Have staff been injured or mugged?

Can staff get to and from work?

Are staff involved in the riots in any way?

Have they been arrested or injured?

Will they need time out because their homes have been damaged?

Are there any customers or are they too scared to enter the area or have police closed the area?


If you have been affected by the riots it is imperative that you contact your insurance company immediately to pursue a claim. If you do not have insurance but have been affected and have suffered loss, visit your local police station and report the incident and inform them you wish to make as claim under the Riot Damages Act of 1886.

For more information on the various types of business insurance and commercial property insurance available for riot and civil commotion cover, visit UK Commercial Insurance.

Police Negligence Fails to Mitigate Riot Insurance Losses

Watching live coverage of the riots as they happened across the UK it was quite clear that the Police were totally unprepared to deal with incidents of this type, and more worryingly their laissez-faire approach has cost this Economy tens of millions of pounds in damage that could have been avoided.

Listening to these patronising Chief Constables talking about how they were going to go after these criminals  ‘after the event’ made Insurance blog feel sick.

Countless stories appeared on the TV news of how business people saw the Police stand by and watch doing nothing to prevent their livelyhoods being trashed by mindless kids.

From recent dealings with the Police I am disgsuted that their attitude to everything is that Insurance is there to pick up the bill for their professional negligence.

Well it isn’t!

Insurance Blog urges all UK Insurance companies to refuse to pay for riot damage where the Police stood around idly and watched a bunch of kids run riot.

Under UK Law if the Police are not able to deal with a situation the risk becomes Fundamental and is the responsibility of inept UK coalition Government, and not covered by any insurance policy. The taxpayer will then be footed with the bill for damage that could have been mitigated.

Insurance Blog predicted that the minority conservative Government would cause riots on the streets of Britain and we were right. If the cuts continue there is a lot worse to come!

Don’t rely on the Police saving your home and property and if the trouble gets any worse, they just stand around filming, and I’d read that fineprint of that policy very carefully!

Home Insurance Money Saving Tips

How can you reduce your Home Insurance Costs?

When it comes to home insurance, many people simply accept the first quote that they are given without ever looking for alternatives.

However, there are several things that you can do to help reduce the cost of your building insurance and contents insurance.

Obviously, depending on where you live your home insurance is always going to cost a certain amount, but it is definitely worth taking steps to reduce your costs as much as possible.

Were your calculations accurate?

When you take out insurance, you will generally be asked how much you want to cover your home for.

For example, when you take out building insurance you will have to specify a value in case the worst should happen and your home needs to be rebuilt from scratch.

Many people are unsure about this and, as such, the figure they give is inaccurate; quite a few people could reduce their costs by making this more accurate.

Do you have good security?

Something else that affects the cost of your home insurance is how safe your property is. Simply put, the safer it is, the cheaper your policy will be. Of course, there is very little you can do to reduce the amount of crime in your area, but you can do things to secure your house. For instance, good door locks and bolts can help to improve security, as can burglar alarms, gates and even CCTV.

Did you shop around?

As mentioned above, a lot of people never shop around for their home insurance and simply stick with the same provider. Often, though, it is possible to get cheaper insurance if you shop around, or even by asking your current provider if there are any other deals they could offer you: the worst they could say is no so it’s definitely worth giving it a go.