FOOL'S EYE VIEW
Insurance: The Day After Tomorrow

By Jane Mack (TMFJane)
June 8, 2004

According to the synopsis of the latest blockbuster from Hollywood, The Day After Tomorrow, the enemy in the film that the hero of the day is battling against seems insurmountable. It's nature itself.

"Tornadoes rip Los Angeles; a massive snowstorm pounds New Delhi; hail the size of grapefruit batters Tokyo; and in New York City, the temperature swings from sweltering to freezing in one day."

It all sounds like a torrent of cobblers to me but I gather the special effects are quite good. But while Hollywood may take its vision of the future to extremes, the effect of global warming is no laughing matter.

The UK insurance industry has just produced a report warning that insurance costs are likely to rise considerably because of increased extreme weather conditions. In fact, weather damage might rise to a point where insurance could become unaffordable or unavailable.

The report, A Changing Climate for Insurance, published by the Association of British Insurers (ABI), says weather risks for property insurance are already increasing by 2 - 4 % a year. Claims for storm and flood damages in the UK have doubled to over £6 billion over the period 1998 - 2003, compared to the previous five years, with the prospect of it tripling by 2050.

It's not hard to see why when you look at the sort of events that have occurred since the TV weatherman, Michael Fish, made the biggest gaffe of his career when he told millions of viewers that 'a lady has rung in to ask if there is going to be a hurricane tonight ...... there is not!'. That was a couple of hours before the great storm of October 1987 began.

(I remember it well because at the time I was the early morning reporter for a radio station and got an earful from my news editor for waking him up at 5 am to say I needed all hands on deck to cover the story. He thought I was exaggerating until he tried to drive into work and encountered all the trees that blocked his usual route in).

Take a look at the UK's recent weather history and its impact on the insurance industry:

• 1987 - Hurricane-force winds caused over £1.2 billion in property damage, giving rise to 1 million claims in a single day;
• 1990 - Storms and coastal flooding in January and February led to £2.1 billion in insurance claims, the highest figure for weather related claims to date. Over a 4-week period 3 million claims were received;
• 1995 - Following the hot, dry summer subsidence claims rose to £326 million in 1995 and £333 million in the following year;
• 1998 - Easter floods led to the evacuation of 1500 people from their homes, and a cost to the insurance industry of around £500 million;
• 2000 - The UK experienced its wettest autumn for almost 300 years, with heavy rainfall leading to damage of 10,000 properties, and nearly £1 billion in insurance claims;
• 2003 - The UK experienced its hottest summer temperatures on record, leaving insurers with close to £400 million in subsidence claims in that year alone.

It's not just property insurance that's affected. For example, winter weather-related road accidents increased from 8% of all accidents in 1998-1999 to 12% in 2001-2002, and 25% in the first half of 2003-2004. During the Autumn 2000 floods, there was an estimated additional £25 million cost of motor claims. The report says that, as a result, road construction and vehicle design may need to change in order to reduce weather related accidents.

And what about life assurance and critical illness premiums not to mention annuity rates? Warmer winters could reduce cold-related deaths in the UK by 20,000 per year although, apparently, this would be marginally offset by more people dying in the summer heat. This isn't an exaggeration - it's thought that as many as 11,500 elderly people died because of the punishing heatwave that hit France last summer.

The report advocates the government and industry working more closely together to find ways of counteracting the potential problems. But, as it's a report for the industry, there's little advice for individuals. And, of course, no-one can change the weather.

But, according to the ABI, we can lobby our local authorities to ensure the necessary flood defences are in place to protect our homes and comply with new building regulations that require replacement windows to be thermally efficient. And, presumably, everyone knows that you don't plant thirsty trees too close to your house because it might cause the foundations to sink.

Oh, and shop around for cheaper household insurance. It's a very competitive industry and the ABI says many people could save as much as 30% on their premiums. Let's face it, you might as well save as much as you can now by getting a better deal because premiums will undoubtedly be on their way up - the day after tomorrow.

Find out more about getting the right level of insurance.