"Widespread breaches of contract could lead to chaos" says JLT partner
Broking firm JLT has warned the Government’s £200m cuts on flood defences could have a catastrophic effect on the commercial property market by making flood insurance unavailable.
Speaking at a conference, Bill Gloyn, partner of European real estate for broker JLT said: “If cover is not available - and that is already the case in some areas of the UK - the consequences are almost too catastrophic to contemplate.”
Gloyn continued: “The widespread breaches of contract could lead to chaos and a potential collapse of the property market - both commercial and residential.”
Although cover is currently available in the UK, the Statement of Principles agreed between the Association of British Insurers (ABI) and the Government in 2008 stipulates that the Government must maintain and improve the country’s flood defences.
But Gloyn now believes that deal and the continuity of flood insurance is in doubt because of the spending cuts announced in October.
“Anyone thinking that the insurance market would not withdraw cover on a widespread, rather than selective scale, only needs to remember that there is clear precedent for that to happen,” said Gloyn.
It did for terrorism - first, for fire and explosion, following the City of London bombs of the early 1990s and did again, for all cover, following the atrocities of 9/11,” he continued.
Figures published by the ABI on 24 November 2010 showed that since 2000 insurers have paid claims of £4.5 billion to customers whose homes or businesses have been hit by flooding. This is up 200% on the £1.5 billion paid in the previous decade in real terms.
Major losses included the 2007 summer flooding which resulted in insurers paying out £3 billion, the 2005 floods in Carlisle that cost £272 million, and the Cumbrian floods in November 2009 costing £174 million.
According to the ABI, reasons for the rise in flood costs include the increased frequency and severity of flooding in the UK and the growing problem of surface water flooding - about which not enough is yet known.