Delivering affordable flood risk cover through the intermediated market

February 27, 2017 Adrian Coupland

The increased prevalence of flooding means it is no longer just a winter issue. Recent data on natural catastrophe losses from Munich Re showed floods accounted for 34% of overall losses last year, while the number of flood events in Europe requiring insurance payouts has more than doubled since 1980.

Such incidents are costly too. When the winter floods of 2015-16 hit the UK, the average payout for each domestic flood claim was £50,000, and the final bill for all repairs is expected to reach £1.3 billion. Without insurance, these costs would represent a significant financial burden for families already struggling with the physical damage to their home.

All of this highlights the importance for consumers of being adequately protected against the devastation flooding causes — a point highlighted by Torsten Jeworrek of the Munich Re Board of Management. He stressed the importance of greater insurance density to help "alleviate the financial consequences of a catastrophe for more people".

Yet individuals living in flood-prone areas have often struggled to obtain affordable premiums and excesses, as well as being somewhat limited in the choice of provider for their cover. Therefore it is important for the industry to pull together to provide protection and choice for affected policyholders.

To help achieve this, the government introduced Flood Re, a not-for-profit re-insurance scheme funded through an annual tax on every UK home insurer. The scheme is set to back 130,000 policies by this April, a year after it was first launched, which is more than a third of the estimated 350,000 households that could eventually benefit from Flood Re. One of the top insurers registered with Flood Re, Aviva, reported that new customers were saving an average of £500.

Insurers who participate in the scheme can cede the flood risk part of their home insurance products to Flood Re. As any claims payments are subsidised by the pooled levy of £180 million, the premiums charged to insurers (based on the property's council tax band) are lower than those usually associated with at-risk residences. This enables the insurers to provide more affordable cover to the individuals who inhabit these properties.

Flood Re works behind the scenes to back these policies, so homeowners interact with their own insurance provider as per usual, and if they need to make a valid claim, Flood Re reimburses the insurer for the valid claims it pays out.

Of the 26.7 million households in the UK in 2014, 20.4 million had contents insurance and 17.3 million had buildings insurance. More of this household insurance is intermediated than direct, which highlights the important part the intermediated channel has to play in ensuring at-risk customers can shop around to find a policy that provides the most appropriate cover for their particular circumstances at the right price.

Indeed figures from the Association of British Insurers (ABI) show that nearly a third (31%) of home insurance is distributed through brokers. So it is imperative that intermediated insurers are committed to the Flood Re scheme, so they can ensure their customers are not disadvantaged.

Brokers who partner with member insurers can offer their customers dedicated advice to ensure they get the right cover for their individual flood risk at an affordable price. Those brokers who connect to Flood Re and insurer partners through their software house need to ensure the relevant development has taken place to enable them to provide these policies.

SSP has progressed well with its Flood Re programme, and launched its panel earlier this year with three of the UK's tier one insurers signed up. This underlines its commitment to working with insurers and brokers to serve the entire insurance market.

By connecting to the Flood Re Property Data Hub and capturing the council tax band, SSP can feed this and other relevant risk data into its centralise rating, pricing and quotation solution, Intelligent Quotes Hub. The Flood Re premium is then considered with other risk factors to determine the overall home insurance price for each at-risk customer.

As more insurers join SSP's panel, policyholders will have a wider range of Flood Re-backed policies to choose from. So whether they are obtaining a new quote or renewing their cover, homeowners in high risk areas will be able to shop around in a similar way to other policyholders.

With only 28% of homebuyers researching the flood risk of their current home prior to purchasing it according to data from the ABI, some may be in for a nasty surprise. It is important that all policyholders who find themselves at risk have the greatest possible choice of cover. This is why SSP is continuing to engage with other insurers who have registered for the Flood Re scheme to offer consumers the most comprehensive protection options across the whole market.

First published on bobsguide.

About the Author

Adrian Coupland

Customer and Marketing Managing Director — Adrian joined SSP in 2005 and has over 20 years’ experience in the market across broking, distribution, business development and technology. This includes 15 years in the broking industry, ten of which were with A-Plan. As Customer and Marketing Managing Director, he is part of the executive team, and his expertise in data and innovation ensure SSP's customers are at the leading edge of advancements in the insurance industry. Adrian has been instrumental in developing SSP's real-time pricing and telematics strategies and shaping its data strategy across all territories.

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