If you turn your mind to the victims of the recent floods that have devastated much of the north over the last month, it’s unlikely you’ll think first of the insurance industry. Yet, according to the Association of British Insurers (ABI), the sector is set to take a £1.3bn hit from claims relating to storms Desmond, Eva and Frank.
That may not be enough to bring a tear to one’s eye (unless you’re unusually sympathetic to insurance people), but it certainly is eye-watering. Thankfully for the insurance sector and indeed for the wider economy, of course, it can handle such numbers. To put it in perspective, in 2014 UK premium income was a staggering $330bn (£223bn).
Besides, insurers expect to pay out sometimes, but in aggregate the odds are always in their favour. Even though they won’t be happy about it, therefore, it’s unlikely to ruin their year. The sector wide drop in share prices since early December (Aviva is down 7% over the period, for example, while Legal and General stock has fallen 10%) may seem to indicate otherwise, but in fact mirrors the trend for the stock market generally - the FTSE 100 is down nearly 8% since December 2.
Aside from those families and businesses that have actually been inundated then, the greater cost will not be to insurers but to the wider economy in the affected regions. A report before the New Year from KPMG estimated that the overall cost would be over £5.5bn once secondary factors such as lost income are taken into account.
To make matters worse, if storms like Desmond become more commonplace, then insurance premiums for local homeowners and businesses will correspondingly become all the more burdensome in the future. Unfortunately, there's no way to insure against that.