David's Blog

Ye Fludde

25th January, 2015

Some time back I wrote a piece for my Blog on the NFP website entitled "Black Cygnets". The essence was to remind us all how fragile we may be, how dependent we are on Nature's whims as witnessed by the number of Black Cygnets which have cruised past us on the way to potentially catastrophic disaster.

In our rather narrow-minded aspect as Lloyd's Names we are bound to concern ourselves with the cost of insured losses in general and more specifically losses to Lloyd's. Still, it's just as well to be aware of economic losses which emphasise the reality for those who are directly exposed to such misfortune.

In the past few weeks we have seen an exceptional number of tornadoes in the South and South West of the USA, floods in the Mid-West, brush fires in California and bush fires in parts of Australia, no doubt exacerbated by the impact of El Niño. But, without meaning to be parochial, I want to focus specifically on the floods in North and North West England, and more recently the West of Scotland, which have been wreaking havoc on thousands of homes and businesses.

The point is not to dwell on the personal impact. Those who were directly exposed to Superstorm Sandy will all too easily understand and appreciate how impossible it has been for people to cope with the incessant rain and burst river banks. People directly affected generally seem to have been Desmond Eva Frank (def)iant, and determined to get their lives back on track. If only it would stop raining.

What seems to me so remarkable are some early estimates of the economic versus insured losses. I believe this scale to be of extreme importance to the future of our business world. We know and accept, maybe being a bit disconcerted, that floods in countries like Bangladesh are immensely destructive, uninsured and primarily uninsurable.

I don't think we expect that to be the case in countries like the UK or USA. But an early estimate by the accounting firm, KPMG, put the economic loss from the UK floods at about £6 billion and the insured loss at 'only' £1.5 billion, subsequently revised downwards to somewhere in the region of £1 billion. This range of numbers is likely to be revised again as more solid information comes to hand. Note that the cost to us as Lloyd's Names is likely to be insignificant.

Of course this has all happened many times before over many centuries. Wikipedia is a good source of information, including the likes of St Mary Magdalene’s flood of July 1342 (the rivers Rhine, Moselle, Elbe, Vltava and many others); the 1931 Huang He flood which caused somewhere between 800,000 and 4,000,000 deaths in China; the December/January 2006/7 Peninsula Malaysia, Sumatra and Sabah floods which killed hundreds and forced 100,000 people to be evacuated in Johor alone; between June and August 2010 flooding in China affected more than 230 million people with 15.2 million people evacuated and thousands dead. And many, many more.

A lead article in the New Yorker of August 24 last year dwelt on the flooding of the Mississippi River in April 1927. This covered an area of 27,000 square miles. The river breached levees, funnelling as much as 30 feet of water into the surrounding areas “and wrought devastation unfathomable even in a region long accustomed to cyclical flooding”.

I have attached an extract from a recent report by Aon Benfield entitled “Flood Remains a Major Global Growth Opportunity” which encapsulates insured flood losses since 1990. However, the report does not attempt to provide a detailed estimate of economic flood losses beyond stating that they have averaged roughly 26% for all global catastrophic perils over the past 25 years.

What are we doing wrong as a Society to leave so many exposed to so much without recourse? No doubt as Names we are relieved that the insured loss is easily manageable. But there is something wrong, somewhere, don't you think?

15th September, 2017Under-insurance
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15th September, 2017It never rains but it quakes
25th January, 2015Ye Fludde
12th March, 2015Lloyd’s USP
26th November, 2014Leadership
2nd October, 2014Yellowstone National Park
18th August, 2014Trip Report
11th August, 2014Questions to ask yourself
18th June, 2014Black Cygnets
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