Extreme weather events have already caused UK insurers to lose around £1.5bn, says senior insurance analyst

Insurers can expect a drop in capital as climate change takes its toll and flood risk rises in the UK, warns GlobalData’s senior insurance analyst Shabbir Ansari.

As of today (16 January 2023), the Environment Agency Flood Warning System has announced 110 flood warnings and 169 flood alerts in the UK for this month alone.

Ansari said that “the current flood alert is expected to further increase claims, which will have a negative impact on the profitability of insurers”.

The cost of climate perils to insurers was particularly evident in 2022, as damage caused by Storms Dudley, Eunice and Franklin during February last year triggered around 1.9m individual insurance claims – equating to a market loss of €3,739m (August 2022: £3,142m), according to industry data organisation Perils.

Data deep dive

Ansari explained: “Extreme weather conditions have likely cost UK insurers around £1.5bn in 2022. The country is experiencing more extreme weather every year and this is expected to wipe out at least 1% of GDP growth every year.

“In Q3 2022, claims related to retail property increased by 33% to £702m. For commercial property, claims increased by 8% to £542m compared to Q2 2022.

“Subsidence is one of the major area of claims for retail property. Claims related to this category grew by 394.5% in Q3 2022 against the same period in 2021.

“Claims related to subsidence stood at £115m in Q3 2022, the highest level since Q3 2006 – this was followed by water escape, which increased by 24.3% for the same period.

“House rebuilding cost index registered a double digit increase and stood at 19.4% in December 2022 – this, along with the increased frequency of weather-related incidents, will lead to an increase in property insurance premium rates and negatively impact the profitability of UK property insurers in 2023.”