U.K Flood Insurance Policy - Case Study Example

Running Head: U.K FLOOD INSURANCE POLICY U.K Flood Insurance Policy (Tutor) (Date) Introduction United Kingdom being under the category of the developed countries of the world has a very wide financial sector and complex financial system. This system is composed of among others the financial sector, securities sector not forgetting the insurance industry, the insurance industry is in fact the largest under the financial system taking of up to a percentage of over 50% of the financial system and a financial driver to the to the key most sectors of the UKs economy. The rapid development of the insurance industry borrows from the fact that inhabitants have the wealth and can readily afford to ensure that their security is vastly cared for hence resorting to investment in their security and that of their wealth. The insurance industry undertakes a wide range of covers from fire, accidents, and financial loss agricultural risks and to the extreme floods risk policies which were developed recently to cover the risk of floods on property owners, businesses as well as home-owners. Need for flood insurance The current debate on whether insurers should continue providing covers to flood and flood related cases has become very fierce. UK citizens see it as a necessity for their security and hence demand for such covers as well as advocacy for the government to regulate the industry through policies that suite the consumers of the product. On the contrary the insurers argue that despite introduction of the flood and flood insurance products its nature poses very great risk and high costs in its insurance. Choosing your flood insurance or insurance cover is an important decision that you should not be rushed into or about. So much has to be considered before making a choice on an appropriate cover is made. Time should be taken by the buyers of covers to ensure that they are exposed to all the available flood insurance covers. This information is available from several sources ranging from insurance firms, government all through to the various media sources. Shopping around various information sources is done to ensure that the consumer of the products get well- priced and competitive flood insurance policies (Evans, 2005). In the UK getting a flood zone insurance policy will help you feel at ease when emergencies like floods arise. Whatever the state of your house is, whether bought or undergoing the payment of mortgage, you should get adequate insurance so that if your house is damaged beyond repair, your insurance policy will cover the replacement price or cost of rebuilding a new and similar house incase its completely destroyed. Requirements for a better flood insurance cover When a consumer makes a choice where to get a flood zone insurance cover, the consumer can then just fill the forms sent by the insurer providers and may even do enquiries on more information to ensure that no mistake is made as the form is being filled as this may be all against the consumer himself. The buyer of a product must also take into consideration the price quotes included in your flood insurance cover. There may be expensive quotes that may include cover for risks that that are irrelevant to the needs of the consumer hence not actually needed, therefore should be avoided buy the buyers hence choice of the price quotes that cover vital things relating to the risk of floods (Gammell, 2009). Honesty with your flood zone insurance cover providers should be highly maintained. Tell the insurers about the contents of your home fully if for example it is contents cover you are taking. Your future insurance claim may be at loggerheads when you become dishonest with your insurance company. Honest and full discloser of information is done during the assessment phase by the insurance support staff. But as it’s the practice, the Insurance companies will usually ask buyers of covers to get a policy for both their buildings including the contents of your property, the same requirement are demanded from the business owners (Planning Service, 2006). Therefore its all to the benefit of the policy buyer to disclose everything so that incase of lose resulting from damage by floods, the insurance companies are able to replace everything ranging from the house to the properties by the insured. It takes so much to establish and amass property, wealth or business capital which includes machines and equipment hence need for full disclosure. It is therefore up to the insured to decide to either get cover for the buildings only or both depending on their financial base and ability to pay the premium. Again an insurer is not restricted to the same or one insurance company for the rest of their life. Therefore depending on the prices and company policies consumer of products can always choose between the companies to spread their risks and coverage. Flood Insurance UK conducts a regular survey of the numerous flood insurance coverage sites in the United Kingdom to check which of them offer customers the most affordable quotes that would meet your specific needs (Evans, 2005). Reasons for the difficulties in covering flood risks safely by insurers Insurers in the United Kingdom insurance industry have of recent found it very difficult providing safe coverage of risks caused by floods and flood related cases. This has largely been as a result of among many factors caused by the stakeholders in the industry which ranges from the government paused obstacles all through the insured themselves. The financial system in the UK has also had a very significant impact given the nature of its complexity resulting from the large economic base of the developed countries. Furthermore the challenges always end up even causing great multitude of losses to the homeowners and businessmen incase the risks occur; financial or property loss and even the fear of prospective development. The first and foremost factor that causes a difficulty is the Underwriting of flood risk and other weather-related perils which is one of the greatest challenges faced by general insurers in the UK. This is due to the fact that flood risks are most of the time caused by climate change , climate change is highly unpredictable therefore insurers are put in a dilemma of among which specific policies to develop that are suitable for the flood risks coverage…..following the heavy flood losses sustained by the UK insurance industry in 2007, Zurich undertook a review of flood underwriting strategy resulting in a deeper understanding of the causes of flooding, and of weather risks associated with climate change (Starling, 2010). Other reasons were: - lack of government intervention in continuing the support of flood management and the required building management through long term national plan and policies. This resulted into all the flood and flood management cases being left to the to the insurers including the development and implementation of policies which is quite costly to the insurers making the business unattractive. The bureaucracy and the long procedures that are at time put in place incase the insured wanted to follow claims in the occurrence of such risks most of the time discourage people from undertaking such covers which is also unfavorable for the business due to narrowed business hence very low profitability of such business to insurers (Francis, 2008). The nature of flood risk which is also affected by numerous factors categorized as either natural or anthropogenic, the identified factors are constantly changing and so with it the constant dynamism nature of flood risk throughout the UK. A considerable percentage of cities in the UK were recently identified as most vulnerable urban areas to storm surge risk and as having a recent history of urban flood events this has majorly arisen from climate change due to global warming. Reports based on hazard and vulnerability have frequently been produced to show how the ‘’risk’’ of flooding is likely to change in the future (Dowden, 2008), this as a result puts the insurers in a state of uncertainty hence inability to safely give covers to such risks. The complexity of the UK financial system also does not allow for attractive investment opportunities and reinvestment schemes for insurance companies. The government through their stringent policies, rules and regulations also limits very highly the operations of, most so financial dealings of insurance companies. Insurance companies also by the fact that they are very fragile ventures, severely feel the difficulty in operating in such environments. Flood insurance covers and homeowners covers are normally provided separately. Insurance covers provided to the homeowners may include those covering a variety of perils like - fire, lightning, theft, vandalism and many others; on the other hand Flood insurance is presented through a flood insurance policy offered through the federal governments National Flood Insurance Program (NFIP) (Power & Houghton, 2007) .The coverages available under a standard National Flood Insurance Policy include those on Building Coverage, Contents of the risks Coverage and Replacement Cost Coverage.. Nationally through such policies, there are over three million policies in action which is an extremely large number to be managed by the few insurance companies, this reduces as well the safety by which insurers area able cover risks safely. Inadequacy of the policies in place to cover if not all but a bigger percentage of the contents of flood insurance hence claims at times become very difficult due to the overlooked critical areas. Therefore during assessment of risk occurrence given the inadequate information, insurers are faced with slim facts which limit their effective decision making and further hindering safe coverage. This may again result to discontent among their clients of the services offered by insurers and they may op to withdraw their access to such services and even sabotage or discourage others from gong for the services in question(Dowden, 2008). Asymmetry of information flow in the entire financial system normally costs the insurance firms so much. These costs either result from the use of inappropriate channels of information flow hence barrier to effective information flow; this may in turn result into information not reaching the intended target in time (Brown, 2005). Again, if such information reaches the target it may do so in a distorted manner which is not good for decision making. Asymmetrical information usually present mixed communications to subscribers of policies or covers which to an extent can instill fear in the clients hence decline in taking the covers. What should be done by home and business owners to ensure their safety To ensure sanity in the floods insurance industry all the major stakeholders in the industry need to undertake several measures which may include, home and business owners should be in the for front in the implementation exercise:- to reduce the burden of insurance coverage from insurers, the government needs to pressurized develop a comprehensive flood management program which covers the management of floods before they occur, floods may also be considered if they are imminent or persistent hence develop programs that can mitigate or reduces the intensity of such risk burdens to insurers (London Assembly, 2002). Policies should also be developed to manage floods as they occur should coverage policies be in need. Policies to be adopted before flooding may include:-, registration with the Environment Agency Flood line where available which may provide a free service to provide early warning of a flood threat to the business premises; the Environmental Agency: a. Are mandated to provide protection to ensure that members of the flood team, employees and visitors to the business premises are not exposed to danger during a flood incidents b. Environmental Agency also assign responsibilities to relevant personnel for all the required actions c. They also establish a means of continued communication throughout and after the flooding incident as well as Safeguard critical business documents including the insurance coverage contracts. d. The Agencies also acts as storage to and they posses essential contact details and phone numbers readily available and even the physical locations of various insurance companies. Establishment of an emergency site team who act as foreseers of events before they occur; the emergency research team is also mandated to detail, rehearse and test procedures to ensure the emergency notification of possible flooding or severe weather from (Lace & National Consumer Council, 2005). The site team should also be placed in a position so that they are able to collect critical information, help in the analysis and interpretation for decision making. Conclusion For the safety of coverage by insurers against flood claims a greater input of the stakeholders and specifically home and business owners to come out strongly; enforce rules and policies guiding floods and flood risk related covers. This would adequately support the insurers in safely and successfully delivering their products to the clients. References Brown, P. (2005). flood risk could make 300000 homes uninsurable. Retrieved April 14, 2011, from http://www.guardian.co.uk/money/2005/feb/01/insurance.greenpolitics Dowden, M. (2008). Climate change and sustainable development:law, policy and practice. London: Elsevier. Evans, G. W. (2005). Flood Risk Assessment. New York: Elsevier. Francis, J. (2008). Philosophy Of Mathematics. Ho Chi Minh: Global Vision Publishing Ho. Gammell, K. (2009). Flood insurance: cancellation risks a rising tide of miser. Retrieved April 14, 2011, from http://www.telegraph.co.uk/finance/personalfinance/insurance/buildings/5611146/Flood-insurance-cancellation-risks-a-rising-tide-of-misery.html Lace, S., & National Consumer Council. (2005). The glass consumer:life in a surveillance society. Bristol: The Policy Press. London Assembly. (2002). Flooding in London. Retrieved April 14, 2011, from http://legacy.london.gov.uk/assembly/reports/environment/flooding.pdf Planning-Service. (2006). Planning and Flood Risk. Retrieved April 14, 2011, from http://www.planningni.gov.uk/index/policy/policy_publications/planning_statements/pps15-flood-risk.pdf Power, A., & Houghton, J. (2007). Jigsaw cities:big places, small spaces. Bristol: The Policy Press. Starling, N. (2010). Flood Insurance in the UK. Retrieved April 14, 2011, from http://www.nfrmp.us/IFRMA/docs/pre/summary/StarlingPaper.pdf Read More