Global warming pushes up UK building insurance costs

Flash floods and giant hailstones help increase claims by 15% and insurance premiums by 10%
Patrick Collinson, The Guardian 30 Jul 09;

Householders face higher building insurance premiums after a sharp increase in property damage blamed on climate change. A rise in insurance claims has been caused by flash floods and storms in areas of Britain previously immune to severe weather events.

The AA, which produces an insurance premium index monitoring costs, reports a 15% rise in claims in the first six months of 2009 over the same period in 2008 "in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims."

It cited one village, Carbrooke in Norfolk, where homes were damaged by giant hailstones during an ice storm in late spring. The storm also caused the roof of a supermarket to partially collapse, and when the hailstones melted, a local school was flooded. "It happened in an area with no previous record of severe weather events," said the AA.

Insurers are now demanding higher premiums to meet the cost of such freak weather, linked to climate change.

The AA found that, in the 12 months to June 2009, the average quote for buildings insurance had risen by 10% — though customers who shopped around were able to limit the increase to 5%.

Simon Douglas, director of AA Insurance, said: "Insurers are beginning to reflect concerns about climate change in their premiums. The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.

"Meanwhile, tighter building regulations mean repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim — particularly for older properties — has been rising steadily."

At the same time households are benefiting from a fall in the cost of home contents insurance to a 15-year low. The AA said that despite reports of a recession-related rise in the number of burglaries, there is little evidence of this from the industry.

One reason is that insurers are making more specific calculations of premiums based on local crime rates. So although the average cost of home contents cover is falling, the figure masks a growing disparity between high and low crime areas.

Fraudulent claims are also contributing to a steep rise in car insurance costs, which are growing at their fastest rate for nearly a decade, said the AA. Drivers are typically being charged £526.42 for fully comprehensive cover, up 10% over the past year — the fastest increase since 2000.

"The industry continues to suffer underwriting losses, which are predicted to be in excess of £240m this year," said Douglas. "Although the number of accidents on Britain's roads is thankfully falling, the cost of claims continues to rise — particularly personal injury claims and legal expenses. During the current downturn, fraudulent claims are also putting pressure on premiums, leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6m.

"The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy."

Worst hit are drivers under the age of 21. The average premium for third party, fire and theft cover, typically bought by young drivers, rose 4.6% in the second quarter of 2009 over the first to £968.22.