Existing U.K. Floods Not as Costly as Repeat of 1947, Says RMS

Newark, Calif. – July 24, 2007 – Despite the widespread devastation caused by this summer’s UK floods, the damage is not yet as costly as the March 1947 floods, which would have resulted in insured losses of £4.5 to £6 billion if it reoccurred today, according to Risk Management Solutions, the world’s largest provider of expertise, products and services for catastrophe risk management.

RMS estimates the floods in late June cost over £750 million in insured losses, and that the current floods will be at least as costly. While it seems that the number of affected properties is less than June’s flood, a combination of factors such as higher average claims and proportion of damage which is insured, together with business interruption caused by loss of power and running water, are expected to be higher, and could take the total insured loss for late June and July to over £2 billion.

Therefore, although the situation is ongoing and more flooding could occur, it is highly unlikely that the total damage so far this summer will be as great as from the 1947 event, which affected many rivers in the south, midlands and northeast of England.

But while the current floods are not as extensive, they will pose the biggest test to the private flood insurance market - as flood cover was not widely available until the 1960s - and may lead to a serious reconsideration of the availability of flood insurance.

“Premiums charged by insurers do not fully reflect the flood risk to which properties are exposed,” commented Robert Muir-Wood, chief research officer at RMS. “This summer’s floods have exposed many shortcomings in flood risk management and the location of critical infrastructure like power stations and water treatment plants, which have been shown to be vulnerable. The catastrophe risk models that have been developed for the insurance industry to assess flood risk today should now be employed to help reduce the impacts of floods in a climate change future.”

Assessing Flood Risk

RMS believes that existing national flood risk maps – as used by councils and property developers – are incomplete, omitting both sheet flooding caused by inadequate drainage as well as flooding from minor streams. Also extreme flood return periods employed for designing flood defenses are based on river flows measured over the past half century that may already understate an increase in the hazard of extreme rainfall events associated with climate change.

“Unless the true level of flood risk is assessed accurately, effective measures cannot be put in place to manage and mitigate the risk, such as building and maintaining flood defenses and making properties more resilient,” commented Mr. Muir-Wood. RMS flood modeling since 2003 shows that close to a third of average annual flood losses come from sources outside the major floodplains.