Why do insurers not provide universal flood cover?
Whilst all the news headlines in Ireland are about flooding, and Met Eireann issues regular storm and flood warnings, the real value of insurance is in providing protection against fire damage. Indeed, if properties are flooded once or are deemed to be in a flood prone area they will be excluded from obtaining cover by Insurers.
Fire insurance was the “original of the species” which was developed following the Great Fire of London in 1666. Initially it was started by Edward Lloyd in a coffee house in London providing marine insurance to ship owners, which became Lloyds of London.
The Insurance industry developed over the years to include cover against many additional perils, such as storm, flood, burst pipes, theft, subsidence and liability losses among others. The principle of “the premium of the many paying for the losses of the few” was the underlying way of spreading risk. However insurers in Ireland do not want to be exposed to the risk of flooding in flood prone areas and so they seek to exclude providing cover to property owners in those areas. In some proposal forms or declarations of fact they ask if the property is within 100 meters of a river or other body of water.
The Irish Government has spent millions of Euros over the years providing flood defence works to some of the worst affected towns to much success, and yet the Insurance Industry still do not want to underwrite these risks. They will argue that they are not there to indemnify against an inevitable event. Yet there are vast areas of the globe that suffer hurricane damage, earthquake damage, tornado damage, tropical storm damage or bush fire damage every year and these property owners are allowed into the pool to transfer their risk to insurers in their countries. Why should the underwriters in Irish Insurance companies be allowed to avoid their corporate social responsibility to the Irish nation by excluding risks that may be more prone to a certain risk? Increased premiums and increased excesses or specific flood protection measures could be imposed, but to exclude cover is to put a strain on these individuals and on communities.
The Government are wringing their hands and offering to provide financial support to affected home and business owners. The cost of this is coming from the public purse, i.e. you and me, the Irish tax payers. Instead of this, why do they not force the insurance industry to adopt a universal cover to all property owners, so that we do not have to have a portion of our society that is not living in fear every winter and particularly every time they hear a weather warning? In return they should commit to dredging rivers and improving flood defences to protect the irish citizens which is their primary responsibility, rather in dabbling in compensation packages to get them over the next general election.
Ireland is a very small insurance market in the global sense and we should look after our own. Catastropy events are reinsured in the global market. That means Irish policyholders contribute to bush-fires in Australia, or earthquakes in Japan. Why therefore should some of Ireland’s catastropy losses not be shared among the global market?
It is time the Government and the Central Bank stood up to the Insurance Industry and exercised their muscles to solve this problem.