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February 28, 2022

Week of storms reinforces climate change risk as 27% of household claims relate to weather incidents

By GlobalData Financial

Insurers must brace for rising claims as storms Eunice and Franklin batter the UK, serving as a reminder of the consequences of climate change. In all, the severity and frequency of weather events are increasing, posing challenges to insurers.

GlobalData’s 2021 UK Insurance Consumer Survey shows that weather incidents, including floods and storms, now account for 27% of all home insurance claims. Of these weather-related incidents, storms remain less significant, accounting for 7.3% of all claims. However, the ever-increasing nature of severe weather events, not only in the UK but around the world, highlights the importance of tackling climate change. This will be particularly challenging to insurers, who will face the prospects of significantly expensive claims.

Source: GlobalData’s 2021 UK Insurance Consumer Survey

Indeed, the scale and regularity of such events can lead to extortionately high claim pay-outs. While it is still too early to assess the impact of storms Eunice and Franklin, the Association of British Insurers (ABI) estimates that previous similar storms, such as Ciara and Dennis, saw insurers having to pay out over £360m ($483m). Insurers must brace themselves for a situation that is unlikely to change in the near future. Data from the ABI shows that domestic property claims for weather-related incidents had more than doubled in 2020 compared to 2019, totalling £459m in claims and accounting for 20.7% of the gross claims total. As climate change worsens, insurers can expect to pay out more for this type of claim.

Yet home and commercial property insurers are not the only ones to brunt the consequences of these problematic weather incidents. Motor insurers, too, will face such consequences: weather events may lead to falling branches and trees as well as flying debris, which may land and damage vehicles parked on roads. Worse, severe weather events may claim lives.

With the prospect of weather events becoming even more problematic, insurers are looking at ways to mitigate costs and prevent damage. Leading insurers and reinsurers utilize big data and analyse data points such as wind speeds, water temperatures, and air temperatures to predict the likelihood of events. But as these technologies become more widespread and improve, and as the data becomes more robust, large areas of land may become uninsurable.

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