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The event that shows insurers have lost their principles

The event that shows insurers have lost their principles

The event that shows insurers have lost their principles Having run his business for close to 30 years, you’d think that Duncan Woodcock, chairman of Reid Hamilton, had seen and done it all. However, even with his extensive tenure in insurance brokering he has been left stunned by the floods that rocked Lancaster last December – or, rather, by insurers’ reactions to these events.

“We had this major event last December – a combination of factors caused it,” he said. “It had been raining so incessantly for such a long period beforehand that rivers were flooded, drains weren’t coping with whatever was going on and the ground was completely saturated.

“We have a tidal river here in Lancaster and it ended up with the city centre and various surrounding areas being flooded very severely for the first time that we can really remember. It created incredible infrastructure issues because the sub-station that looks after about 150,000 properties was conveniently situated near to the banks of the river and so we were without power for about three days. It also affected mobile phone masts so we were left without any form of communication.”

It was an event that impacted not only the city at large, but also Reid Hamilton directly – the main flood event occurred around 10:30pm on Friday, December 05, and there was still no power in Woodcock’s office when he returned to work the following Monday. Indeed one member of his own staff still hasn’t been able to return to her own home following the flooding, even though eight months have passed.

However, it’s not the personal disruption that has upset Woodcock the most – it is the impact on his clients and the battle he’s faced with insurers to get them fair coverage ever since.

“We go through four stages when something like this happens,” he said. “Stage one, get someone out to look at them, loss adjustors, and unsurprisingly they were extremely busy at the time. Step two is that we need to get interim payments to them so they can continue to function at least in some form. The third is to get the claim negotiated and paid and then finally we have to ensure that they have some cover going forward.

“Where we have had a problem is with insurers agreeing to interim payments – or rather not agreeing to them quickly enough and then having agreed to them not paying quickly enough. It has led to some clients having to liquidate their assets to keep their businesses afloat. We’ve got a number that have gone through to settlement now.

“Then we have the issue of getting cover for floods in the future - and we’ve had some pretty seismic excesses put on by insurers. We think in some cases they are unreasonable.”
According to Woodcock, insurers are mistakenly bracketing Lancaster in the same loop as its neighbour Cumbria – whereas in actual fact the river flow level last year in Lancaster was the highest ever recorded by some margin.

“This leads us to believe that this is not something that will happen regularly: indeed, far from it,” he said. “The statistics are unbelievable – the flow rate per minute was enough to fill 41 Olympic swimming pools.”

Yet insurers seem to have taken a different point of view – issuing significant premium increases and hiking up excess charges. In one case, a pub, run by a family for 200 years, has endured an increase in net premium of £1,972.11, from £2,647.93 + IPT to £4,620.04.  The excess for storm/flood has also increased 10 fold to £25,000. In another case, a sandwich chain shop owner had an expiring premium of £13,997.97 – only for its insurer to indicate that this would increase to £29,474.87 with a £50,000 storm and flood excess across all the group’s premises. 

The examples are numerous and, according to Woodcock, threaten the very future of many of the businesses affected.

 “Their justification is that the statistics suggest it will happen again and on the basis of that they don’t want to take the risk,” he said.

“However, in a lot of cases we’ve got people with £25,000 excesses, £50,000 excesses, £100,000 excesses… they’re at a level where if another event did happen they wouldn’t be able to stand the excess and it would effectively put them out of business.

“I’d like insurers to take more interest in the background facts and while our unfortunate neighbours up in Cumbria suffered worse than we did it’s not the first time it’s happened to them and it’s a racing certainty that it will happen again. However, I would like them not to bracket us with Cumbria and look at the very specific circumstances that happened here that I think would support the idea that is a 100 year event more than a 10 year event.”

Woodcock believes that such cases suggest that insurers have lost sight of their principles and what the business is supposed to be all about.

“We’ve got away from our principle of: the losses of the few are met by the contributions of the many,” he said. “If that were to hold good when events like this were to take place, everyone’s insurance premium would go up by £15 to deal with it rather than it being the affected properties that are penalised. And the fact that the insurance industry has now so cleverly educated people to believe that the cheapest insurance is the best insurance to have has led to these sort of terms being applied to people for circumstances that are wildly beyond their control.”

What do you make of these circumstances? Leave a comment below with your thoughts.

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