IntroductionInsurance is a type of risk management used to protect against the risk of uncertain loss. Insurance is usually the equitable transfer of loss risk from one entity to another. Insurance trade risk management with the insurer by exchanging paid premiums. It is recommendable to have a good policy for the home. Insurances are meant to reduce the risks. It is crucial for homeowners to have home insurance in order to protect against loss of personal property and loss of home use. Colin, Edward & Edmund, (2007) argues that severe flooding in UK is becoming a threat to the homeowners and properties with hopes of being insured diminishing.
Consequently, the flood related risk has increased significantly making UK insurers decline to accept such policy. This is likely to force home and business owners to take care of their own business. This is because of increased cost that is being experienced by insurance firms. Insurers are threatening to cease providing cover to business and homes in areas prone to flooding. This is until new anti-flood measures or strategies are put in place by UK government.
According to Association of British Insurers (ABI), approximately 517,000 homes across the UK are at “significant risk” as illustrated by Environment Agency. This is likely to make them become uninsurable in the future according to Andrew (2011). In summer of 2007, several regions of the country were destroyed by three separate flood disasters. This forced insurance companies to pay over £3billion as claims. This has put a lot of pressure on what they will do in the future if such major flood incidences continue. This is the reasons why the UK insurance firms are likely to no longer insurer business and homes affected by increasing floods in the regions.
People living near rivers and coast are likely to lose 40percent of their homes’ value because of the flood risk becoming uninsurable. According to Environment Agency, almost a million homes and 300,000 businesses are at a high risk of floods mainly in areas like London, Hull, Blackpool, Manchester, Liverpool, and Middlesbrough. Insuring some homes in extremely risk areas has become difficult for the insurers. If one becomes lucky to get an insurance premium, then he is likely to pay even up to 60percent more for the premium.
According to Adam (2010), flood claims have increased significantly by over 200percent since 2000. Currently, around 500,000 homes are facing significant flood risk with the figure expected to rise up to 840,000 by 2035. Insurance firms in UK have paid over £4.5billion since year 2000. This is a clear indication of expected increase in the cost of insuring such unexpected flood risk. This is making the insurance firms review insuring homes in regions prone to floods.
This is likely to have an effect in the future as insurance firms become reluctant in insuring homes in flood risk areas. A decision by UK government to cut its spending on flood defences by 27percent has significantly contributed towards forcing the insurers stop providing cover to homes in flood prone areas as illustrated by Lee (2010). This is because lack of proper control measures by the government means increased risk of flood hence higher cost in trying to cover the affected. This has forced the insurers to increase their premiums by 500percent in order to be able to cater for the future claims by the affected.
According to National Flood Forum (NFF), some homes and businesses have their cover excluded from policy during renewal (Lee 2010). However, in areas where government has provided adequate flood defences, insurance industry has agreed to provide insurance to such homes. However, government has to maintain spending on the same without reducing or withdrawing from the funding. Government has to step up its efforts in investing in flood defences failure to which the insurers might withdraw their cover for some households.
Britain’s second largest insurer has talked with the government on the need to increase further funding on safeguarding the UK against the floods. In case the government does not insure, then this is likely to make thousands of business and homeowners to be at a high risk of not getting insurance according to Colin, Edward & Edmund, (2007).