Cicero Policy Briefer

Issue 17, October 2007

Responding to disaster: How AXA Insurance tackled the summer floods

By David Williams, Claims Director, AXA Insurance

Throughout June various parts of the country were subject to extreme weather with, at one point, a full month’s rain falling in the space of two hours. This deluge quickly caused localised flooding, culminating with parts of Yorkshire and Humberside being inundated, which resulted in insurance claims totallling £1.5bn.

This represented the worst flooding for 60 years, but within one month we experienced a further event, this time in the west of England and particularly the Severn Valley, where estimated insurance costs are a further £1.5bn.

The total cost of £3bn is more than three times the usual annual total cost of weather-related claims in the UK, and comes at a time of year when minimal impact from storm or flood is expected. From an insurance perspective these two very serious events have presented major challenges in meeting customers’ needs and expectations.

Flood claims can take a very long time to settle as full drying out is necessary before repairs and redecoration can be started. Many of our customers expect to be back in their properties a lot sooner than is practical.

At a recent ABI workshop it was suggested that properties which had suffered a ‘shallow’ flood (i.e., flooded by less than 30cm—typical of the June floods) would be fit for occupation by the end of the year but would still require the final cosmetic decoration.

The second Severn Valley Event would take longer to dry out. Properties affected by ‘shallow’ flooding should be fit for occupation by Easter 2008. The ‘deep’ flooded properties, however, would probably take up to six months longer, with final repairs and redecoration in some instances stretching to the end of 2008 or the first quarter of 2009.

The immediate issue in dealing with this situation was that of finding alternative accommodation for the flooded families. There was a distinct shortage. After the June event all hotel rooms were rapidly filled in Yorkshire, and there was clear evidence that some landlords were taking advantage of the situation by massively inflating rents. Caravans have been used, partly in a response to this issue, but also many policyholders wanted to remain close to their properties as there were reports of looting. Whilst happy to support this, many insurers are concerned that, as the winter draws in and despite the substantial nature of some of these caravans, this is not an appropriate solution.

The second major issue was mobilising sufficient resources to address the problem. Such was the scale of the incident that the capacity of disaster restoration companies has been stretched to the limit. This means response times in dealing with individual claims are longer than would be ideal. Fortunately this did not cause a huge public outcry as most members of the public recognised the exceptional nature of the event, and have been very tolerant as a result.

Essential drying equipment and dehumidifiers have become scarce in the affected areas with the result that suppliers have been charging higher rates for hire or purchase of such equipment. To counteract this insurers have brought in large numbers of these items from overseas.

The high demand for reputable building contractors in the affected areas is unlikely to be met by available supply. This will lead to delays affecting customers and again, potentially cause an increase in the average cost of repairs. The high demand for contractors in the area, which has probably yet to reach its peak as we are still in the ‘drying out’ period, will inevitably encourage builders who may not necessarily be reputable to attend from further afield.

As flood water recedes it leaves a deposit of mud or silt to building interiors, while at the same time often washing away sections of external paths and hard standing areas. While claims essentially relate to water damage, in most areas the situation is further complicated by the presence of sewage and the attendant health risks. This can often slow immediate mitigation works. An example of this is that tests on water present in the Meadowhall Shopping Centre in Sheffield revealed the presence of human waste, and in any situation where drains have surcharged it is reasonable to assume we are dealing with effluent. This can necessitate repairs of a far greater magnitude than first anticipated or may initially be apparent. Decontamination procedures must therefore be thorough and carry the confidence of the public given the emotive nature of this issue.

AXA Insurance has already recorded over 10,000 claims as a result of the summer floods. Despite the increased workload, with reallocation of resource across the claims teams and working additional shifts we are maintaining service levels. We are however concerned about the ability of some of our external providers to continue to deliver, all of whom are under tremendous pressure, and with limited resources.

At AXA we believe that we exceeded the goals we had in terms of disaster planning. Our response exemplifies our aim to respond quickly, creatively and flexibly to any situation and which places the customer at the heart of what we do.

David Williams is the Claims Director of AXA Insurance

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