Andrew Cave investigates how insurers are attempting to tackle the growing threat of both flooding and arson
Who would be a property underwriter? When they are not having to contend with flash floods pushing Boscastle into the sea or plunging Carlisle into disaster, they are coping with arsonists burning schools to the ground.
Sometimes they must wonder whether mankind or nature is their biggest foe.
Of course, outwitting these rogue elements by calculation and pricing of risk is what property insurance is all about, but recent events have raised the question of who is getting the upper hand.
Take flooding, for example. In Boscastle last August, 20cm of rain fell in 24 hours in a highly localised storm. At its peak, water in the River Valency flowed at 140 tonnes per second.
Helicopter rescue services helped to prevent any fatalities, but 80 homes and businesses and around 100 cars were damaged or destroyed.
The damage to properties and cars exceeded £5m, while business interruption claims were submitted for a further £5m to £10m.
Then, this January, more than 20cm of rain fell in Carlisle over two days. The river spilled over all five miles of the town's flood defences up to a height of one metre.
About 1,700 homes and businesses and 1,500 cars were damaged, taking the estimated financial cost to £240m.
These were not isolated incidents. Flooding regularly affects British properties, with only the major incidents hitting the headlines.
The ABI says it costs between £15,000 and £30,000 to repair a home that has been flooded. This equates to a pay-out of between £500m and £1bn in weather-related claims each year by Britain's insurance industry.
With five million UK citizens living and working in areas at risk of flooding and one in five of all properties in flood-risk areas thought to be inadequately protected, the cost of flood damage is predicted to escalate to £3.2bn a year.
The ABI says climate change could increase that figure to between £5bn and £20bn by 2080, if action is not taken.
Vigorous campaigning by the ABI has led to the government increasing annual spending on Britain's flood defences over the last five years from £332m a year to £564m a year.
Progress has been made on planning guidance and risk management, although urban drainage was not even on the agenda.
Much more needs to be done. The ABI says London alone needs over £4bn to upgrade its defences.
Improved technology
But in the meantime underwriters are increasing the level of sophistication within their systems to ensure that their exposure to major events is limited as they price appropriately.
John Woodcock, chief operating officer of risk consulting at Marsh, says underwriters can now make informed assumptions about flood risks because of improvements in local environmental mapping.
"We know a lot more about flooding than we did in the past," he says.
"If you correlate it to a particular area, you can see whether there is a problem. The critical thing is to take an objective assessment of the risk."
Peter Dower, underwriting manager of UK general insurance business at Zurich Financial Services, says: "We are looking at risk with greater sophistication now and using risk-based pricing. Does the recent flash flooding on the North Yorkshire moors make a difference to how we treat flood risks there? Probably not.
"But someone living in a riverside cottage who gets flooded every year will have to pay more."
Dower says the flood modelling has got "way beyond the postcode".
He adds: "We are using geographic information systems and Environment Agency flood mapping because it is much more sophisticated and identifies flood footprints.
"The postcodes are being left behind because the areas are way too big. The mapping we use now shows contours in the land because the difference between being flooded and not being flooded can be as little as 2cm."
However, there are limits to how much underwriters can hedge their risks.
Keith Bolton, director of Aon's public sector team, says: "Flooding is a lot easier for underwriters than arson, for example, because you can predict things. But you can't predict a metre of rain in a few hours. It is the luck of the draw."
Arson attacks
Man-made disasters are a huge hazard for property underwriters too. The ABI says three British schools are subject to arson attacks each day, costing the insurance industry more than £80m a year. How can the industry marshal its forces to limit its risk?
Bolton says: "Arson in schools has been a problem for many years. I do not think it is increasing compared with previous years.
"Many local authorities have done sterling work on arson prevention and most schools now have fire alarms, smoke detectors and CCTV, but one arsonist can do a lot of damage."
However, Dower disagrees. He says it is a growing problem - a belief borne out by Zurich, which has the largest exposure to school arson as Britain's largest municipal insurer.
Dower says: "School arson in 2004 was on the increase again. We are trying to hold rates and are encouraging local authorities and schools to work with their local fire brigade to manage the risk."
Zurich also has a programme aimed at educating children about the risks of arson, which Dower says is producing encouraging results.
However, he adds: "The problem is that if this does not work and the losses keep rising, premiums will have to rise. A lot more risk is already being taken on by local authorities. They are taking out co-insurance and self-insurance and that is bound to increase."
Woodcock believes more needs to be done by schools to control the risks.
He says: "The most significant thing you can do is to fit a proper fire suppression system in schools.
"It is expensive but frankly it is very difficult to see how you can affect the statistical average of claims unless you make a difference between one school and the next.
"Putting sprinklers into schools reduces the severity of a fire. It should enable schools to obtain reductions in premiums or deductibles."