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Flash floods put rain top of insurance risk league table

insurance companies must be better prepared for ‘acts of nature’

March 18, 2008

Flooding is the biggest ‘act of nature’ risk to the UK insurance industry, according to EMB the non-life actuarial and business consultancy.

Increased rainfall and poor drainage means flooding is affecting policy prices for consumers in the UK insurance market. It now tops the list ahead of problems caused by heat and wind, according to research carried out by EMB across the UK’s leading insurance companies.

Before 2007 UK insurers were meeting a large number of claims caused by heat, as subsidence caused damage to properties across the country. Heat is now relegated to third place in the ‘acts of nature insurance league table’ as the wet weather of 2007 has driven flood claims and eased the risk of subsidence.

“The issue of flooding used to be a problem restricted to people living close to rivers and coasts,” said Karl Murphy, partner at EMB. “Most insurance companies had previously based their calculations on river flood models. However 2007’s floods hit people previously unaffected by such conditions and companies are now having to modify their pricing strategies.”

The floods of 2007 cost the insurance industry around £2.5 billion and reveal how business should be better prepared for future risks.

“Companies should not be resting on their laurels when calculating their pricing. By looking to implement the latest modelling techniques, businesses can incorporate third party data of flash flood risk assessment data by postcode to develop profitable pricing strategies for non-life risks,” added Murphy. “Applications can be used to vary the factors used in modelling risk to gain a higher degree of granularity and allow insurance companies to adapt along with the forces of nature.”

“Insurance companies need to factor in issues surrounding climate change and must look to incorporate long-term weather trends into their pricing.”

The trends differ across Europe and the US, which means businesses must develop specific models for individual markets. In Germany wind tops the list, while in France winter storms are the biggest problem. Meanwhile in the US hurricanes are the number one force of nature that is driving insurance claims.

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“The issue of flooding used to be a problem restricted to people living close to rivers and coasts,” said Karl Murphy, partner at EMB. “Most insurance companies had previously based their calculations on river flood models. However 2007’s floods hit people previously unaffected by such conditions and companies are now having to modify their pricing strategies.”

“Companies should not be resting on their laurels when calculating their pricing. By looking to implement the latest modelling techniques, businesses can incorporate third party data of flash flood risk assessment data by postcode to develop profitable pricing strategies for non-life risks,” added Murphy. “Applications can be used to vary the factors used in modelling risk to gain a higher degree of granularity and allow insurance companies to adapt along with the forces of nature.”

“Insurance companies need to factor in issues surrounding climate change and must look to incorporate long-term weather trends into their pricing.”

About the company

Established in 1993, EMB (www.emb.co.uk) is a rapidly growing international firm, which combines actuarial consultancy with highly analytical risk assessment software. EMB’s range of actuarial software is unrivalled, using leading edge techniques that dramatically reduce the time required to provide in-depth insight for clients. Headquartered in the UK, it has more than 250 people around the globe covering Americas, Asia-Pacific and Europe, Middle East & Africa. It is the market-leading consultancy in non-life insurance, covering personal lines, commercial insurance and the London Market. Clients include 28 of the world’s top 30 non-life companies.

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Fax: +44 (0) 20 7802 2627
Email: louisetullin / rachelh@lewispr.com
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