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UK insurers confirm post-flood rate hikes

UK insurers have finally confirmed this week that they will increase rates following this summer’s flooding which is estimated to cost the industry around £3bn.

Norwich Union and Lloyd’s TSB both warned consumers that the price rises will be factored in for both new and renewal customers starting from next week.

Direct Line and Churchill have also said that they would be raising the cost of homeowners’ policies.

The news follows ZFS’ warning yesterday that the June floods would cost the firm around £200mn ($400mn) before taking into account the flooding in the midlands and south of England in July which will be incurred in the group’s third quarter results.

Modelling firm Risk Management Solutions (RMS) estimates the June and July floods could combine to cost insurers between £2.25bn and £3.25bn.

Commenting after ZFS’ loss estimates, analyst William Hawkins of Keefe, Bruyette & Woods, said: “Translating the reported loss to about £200mn compares with £175mn from Aviva, £60mn from HBOS, £55mn from RSA, £40mn for Lloyds TSB and £30mn for Legal & General.”

Hawkins added: “The nature of the loss is complicated given storm/flood loss definitions and the hours clauses that make one event into two for reinsurance purposes. However, we understand that most likely claims inflation can be allocated to the period around 25 June, which means it will fall into the first event cover and hence pass to ZFS’ reinsurers. We expect that there is therefore a relatively high degree of confidence around this loss estimate.”

In contrast, ZFS’ loss prediction is likely to see upwards pressure on some of the earlier estimates, such as R&SA, which is due to publish its interim results next week.

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