Blog: Managing risk in bricks and water
Driven by global events and new economic dynamics, the risks of property damage claims are rising dramatically.
The flooding in Cumbria over the 2015-16 winter has made headline news, with recent figures from the Association of British Insurers suggesting that payouts will reach £1.3bn. However, this only scratches the surface of potential claims and costs that could be accrued in the coming years.
Against an economic backdrop of cautious optimism, political changes can have dramatic consequences. Cuts to government budgets in flood defences have already turned out to be a costly decision, and with the focus firmly on reducing the budget deficit, further reductions could lead to a growth in property fraud claims as struggling business owners look to avoid insolvency.
Pressures on housing, caused by net migration along with births to foreign-born parents, has accounted for 85% of population growth in the UK since 2000. Official figures project that the population will rise by almost 10 million over the next 25 years, with 68% of this increase down to future migrants and their children. An expanding population creates enormous pressure on an already strained housing market.
Innovation, while the lifeblood of economic success, also poses problems for insurers. To alleviate concerns surrounding the reliance on non-renewable energy, the creation of new technologies has led to the emergence of new risks. Whereas large environmental projects such as onshore wind, solar, energy from waste and biomass have established the UK as a world leader in renewable energy, wind and fracking also create risks. Coupled with the growing levels of extreme weather conditions, design flaws could lead to expensive repair costs, setting back both the project and the insurer.
The construction of tower buildings - especially in London - has made the UK susceptible to a new breed of claims. A 2015 survey found that 263 towers (buildings over 20 storeys high) are in the pipeline across London. The expansion in the property market has had an impact on the labour skills market as with a greater number of buildings projects being embarked upon, there is a growing demand for qualified builders.
All of these factors have led us to a situation where over the last decade, the average cost of each individual claim has more than doubled. This should act as a warning to the insurance industry, which must look to stem the tide of claims to prevent significant profit checks in the coming years.
Cathy Hawkins
Head of property damage, BLM
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