8 <strong>InView</strong> | An independent eye on Insurance UNSETTLED CONDITIONS FOLLOW EXTREME WEATHER EVENTS Severe weather events, possibly climate change-related, seem to be happening more frequently, with global repercussions for insurers, even when extreme weather conditions are localised. Colin Peck, Partner 020 7822 1984 colin.peck@weightmans.com Simon Colvin, Partner 0161 233 7356 simon.colvin@weightmans.com © Copyright. Weightmans LLP <strong>2016</strong>. All rights reserved.
Issue 3 | <strong>Spring</strong>/<strong>Summer</strong> <strong>2016</strong> 9 When natural disasters occur they cause greater damage and larger losses because world populations and city densities continue to increase. “Countries are developing and modernising, and the uptake in insurance cover continues to grow,” explained Colin Peck, partner in the London Market team at Weightmans. “Often it can be incredibly difficult for the emergency services, and subsequently loss adjusters and technical experts, just to gain access to sites, particularly if there is ‘wide area damage’ such as that following Hurricane Katrina in 2005, the Chilean earthquake of 2010, the New Zealand earthquakes of 2010, the Thai Floods of 2011 or Superstorm Sandy in 2012.” In today’s global economy, the effects of extreme weather events in one region can also impact upon businesses thousands of miles away. “Such ‘contingent business interruption’ losses have arisen because globalisation of businesses has meant far greater inter-dependency, with often very complex supply chains that can be adversely affected by a break in the chain on the other side of the world,” explained Colin. Another worrying development is ‘claims leakage’ – the difference between the actual claim payment and the amount that would have been paid if more effective controls had been in place. “There is clearly potential for some claims leakage where you are dealing with wide area damage claims, with multinational corporations dealing with literally thousands of individual claims from various sites in one region,” continued Colin. “The sheer volume of claims, the conditions on the ground and the language issues can make things very difficult. Claims exaggeration may well creep into the process, particularly if London adjusters can’t work in that jurisdiction because of local regulations.” Nearer to home, UK property insurers are likely to make an underwriting loss as a result of the storms and flooding that hit the north of England in the winter months of 2015. Storm Desmond was largely concentrated in Cumbria in early December, with Storm Eva hitting Yorkshire and Lancashire on Boxing Day, and Storm Frank hitting Scotland on 30 December and New Year’s Eve. “The storms could also result in some reinsurance losses, particularly where the insurer is more exposed to commercial properties than personal lines. However, I suspect that the continuing soft market means we are unlikely to see widespread increases in premium,” added Colin. “What has been interesting is the way in which loss adjusters and insurers have responded to assessing the losses, with increased use of technology such as iPads and drones playing an important part.” The failure of flood defences could represent another emerging risk, according to Simon Colvin, Weightmans partner specialising in environmental law. “Flooding claims could be made against the Environment Agency where there is a question of whether it had a duty to protect against flood damage and whether it breached that duty,” said Simon. “In general terms it would be difficult to establish liability, but in specific situations such as York, where individual flood defences didn’t work properly, there could be grounds for claims.” Landowners with water courses running through their land could also face potential claims for flood damage. “Insurers may well ask land owners if the water courses flowing through their land, or land adjoining someone else’s property, have been properly maintained: for example, if dredging work has been carried out and what action is being taken to manage any risks,” continued Simon. He believes air pollution is a further emerging risk, citing allegations by environmental campaigning organisation Client Earth that London’s air pollution in eight days in January exceeded the legal limit for the whole of <strong>2016</strong>. Client Earth claims the UK government is failing to deal with illegal levels of air pollution which, it says, causes thousands of early deaths in London every year. “In terms of insurance claims, people are testing the ground in this area. Successful claims may not be possible right now, but this situation could change as developments continue in science and technology,” added Simon. Rating agency Fitch believes the winter storms could cost insurers more than £1.5 billion, although that is still less than the £3 billion faced after the summer floods of 2007, and insurers may still report a profit for the year by using reserve releases to support their 2015 results.