UPDATE: RMS Gives Preliminary Loss Estimates from UK Floods

Risk Management Solutions has issued a bulletin that presents several possibilities concerning the economic losses from the floods, which have caused extensive damage in northwest England [See IJ web site – https://www.insurancejournal.com/news/international/2009/11/23/105496.htm].

The catastrophe modeling firm notes that the floods seem to be subsiding; however it estimates that approximately 1,300 properties are thought to have been affected by the flooding, brought on by record amounts rainfall.

RMS said it would not be “calculating an industry loss estimate for this flooding event. However, it is providing some guidance on losses based on assumptions from the 2007 UK floods.

“There is presently no information on the split between the number of residential and commercial properties damaged, although the high street businesses in towns such as Cockermouth, Keswick and Dumfries are known to have been impacted as well as an industrial unit close to the river Derwent at Cockermouth and a business park in Kendall on the river Kent.”

RMS is basing its estimates on the similarity of the average value of claims “to those estimated due to the June 2007 UK floods.” It reached the following loss estimates:
– If all claims are residential: £45-60 million [$74.8 to $100 million]
– If 75 percent of the claims are residential and 25 percent commercial: £80-105 million [$133 to $175 million].

“These figures take into account the reported number of damaged properties, average insurance uptake by coverage and line of business and average claim cost by line of business and flood type,” RMS continued. “The estimates also factor in motor losses – although the number of vehicles damaged by the floods is not clear yet.” The loss figures are in the same range as those announced by the Association of British Insurers (ABI) over the past weekend.

RMS also observed that losses of this kind from floods aren’t unexpected. “A loss of this value from flooding anywhere in the U.K. could be expected less than once every two years on average, according to the RMS® U.K. Inland Flood Model (the return period relates to the loss and does not mean this particular flood event is expected once every two years on average).”

Dr. Claire Souch, vice president of product management at RMS, commented: “The main determinant of loss will be the number of commercial properties affected, as commercial damage tends to be far more costly than residential and business interruption coverage can kick in. At this stage, the ratio of residential to commercial buildings affected appears to be much lower than during the 2007 floods.”

The June 2007 UK floods caused losses of approximately £1.25-1.75 billion [$2.075 to $2.9 billion], while the July 2007 floods cost around an additional £1-1.5 billion [$1.66 to $2.5 billion] (adjusted to 2008 values). In January 2005, the Carlisle floods caused some £300 million [$498 million] in losses (adjusted to today’s values).

RMS added that it will continue to monitor the situation.

Source: Risk Management Solutions – www.rms.com