Cunningham Lindsey - The impact of a Surge Weather Event on MGAs and the London Market 9 May 2016

cunninghamlindsey.com

CEO announcement

9th May 2016

The impact of a Surge Weather Event on MGA’s and the London Market


Lloyd’s Library

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• Initial Impact Assessment

• Effective Underwriting and Risk Management Measures

• Cost and Effect of Flood Resilience

• Thinking Differently - BI

• Lessons learned

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In our session we’ll cover


Initial Impact Assessment – 2015 Winter FloodsNeil GibsonLoss Adjusting Services Director

9th May 2016


UK Flood Zones

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Winter Flood Surge Numbers

• Total 2,551 flood claims

• Desmond 1,257

• Eva 941

• Frank 353

Type of Customers

• Desmond 57% Dom / 43% Com

• Eva 50% Dom / 50% Com

• Frank 61% Dom / 39% Com

Storm Claim Numbers

• All areas 4,593 claims

Frank

Desmond

Eva


Desmond Impact Assessment

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Affected Area - Cumbria

• Carlisle, Cockermouth, Keswick, Appleby,

Kendal, Penrith


Eva Impact Assessment

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Affected Area – Yorkshire /

Lancashire

• Leeds, York, Tadcaster, Hebden Bridge,

Halifax, Keighley, Mytholmroyd, Sowerby

Bridge

• Bury, Clitheroe, Whalley, Leyland,

Manchester, Oldham, Todmorden, Nelson,

Chorley


Frank Impact Assessment

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Affected Area – Aberdeenshire

• Aberdeen, Arboyne, Ballater, Perth,

Inverurie, Turrif


Market Exposure

Flood Reserves

Total Market Number of Insurers CLUK

Desmond

£1,300m 55

£162.8m

Eva £156.6m

Frank £35.5m

Total £354.9m

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Market Overview - General

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• Fundamental shift in capacity provision

• Last surge – Hull - 19 markets

• This surge – 55 markets

• Impact of Lloyd’s & London Markets & MGA’s

• New market entrants require surge response

• Little or no in-source capability


Operational Surge Response

1. Guiding Principles

a. iCare – put the customer at the centre of

everything we do

b. Use the surge to enhance our clients’

reputation

a. Build a response our staff feel proud to be

a part of

2. Protecting existing clients access to our

surge capacity

3. Optimising capacity through balanced work

allocation without handoffs

4. Immediacy of response and payments

5. Reserve Accuracy

6. Project Management

7. Staff and client engagement / communication

8. Technology

9. Deployment of group resources

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Surge update – case studies

• Aberdeenshire Social Housing Provider

• 23 Properties affected

• Elderly / vulnerable occupants

• £1m repair cost

• Negotiated contract – 6 week saving

• Impact minimised

• Keswick Cooperative Supermarket

• Community impact

• Mitigation and building expertise

• Store open within 2 months, 2 months

ahead of competition

• Substantial saving on BI

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Housing Association

Supermarket


The Cost and Effect of Flood ResilienceRoy ShevlinBuilding Consultancy Services Director

9th May 2016


Understand the Risk

Floods

• Surface water

• Groundwater

• River

• Coastal and tidal

• Reservoir or dam failure.

• Burst water mains.

• Sewer

Construction

• Wall construction

• Floor Construction

• Age

Occupancy

• Protecting the business not the building

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Flood Resilience

• Resilience measures are aimed at allowing

a building to flood, but constructing the

interior from materials that are not damaged

by water.

• Following flooding, a clean-up will be

needed but not major drying and

refurbishment.

• Correctly applied resilience should ensure

that no permanent damage is caused, the

structure of the building is protected and

drying and cleaning are quickened.

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Flood Resistance

Temporary - need deploying (fitting or activating)

prior to flooding arriving

Permanent – do not need activating

• The chosen flood protection products will only be

effective if they are used in the right way, at the

right time and are stored and maintained correctly

to ensure their long term effectiveness.

• There is a risk to the structure of the property if

deep water is held back by the external walls due

to the pressure of water.

• A structural assessment of the building is

recommended where flood depths in excess of

300mm are intended to be resisted.

• Involve and/or inform the neighbours

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Flood resilient examples

• Airbrick Cover

• Non-return valves – overflow, soil & waste

• Silicone gel around openings for cables etc.

• Water compatible walls – Aquapanel, horizontal

boards, cement render, closed cell insulation

• Water compatible floors – Ceramic tiles, cement

rich floor screed, preservative treated timbers

• Hardwood doors

• Mount boilers on wall

• Move service meters above likely flood level

• Services drop from first floor

• Tanking of walls

• Kitchen units – stainless steel, sacrificial,

removable

• Enamelled radiators

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How much?

Defra research

• Repairing a house after a flood costs on average between £15,000 and £60,000

depending on the flood depth.

• Resilient repairs were found to be more expensive than traditional methods (average 34%

higher).

• Reduce the repair costs assuming a subsequent flood up to as much as 73%

Mid-Terraced Net Internal floor area: 37m2 Repair Package

• Sand and cement render;

• Closed cell insulation;

• Quarry tiles and ceramic tiles to floor;

• Rising butt hinges for internal doors;

• Removable kitchen cabinet doors;

• Raised sockets;

• Non return valve

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Cost of package: £7,420

Like for like comparison: £5,530

Additional Cost: £1,890

‘Saving’ in future flood: £3,950


The Commercial Question

New business in flood risk area

46% of SME are tenants - Need landlord ‘buy in’

- Lease issues

Need a loan to start up & fit out - What advice from lender?

- What advice from broker?

- Grant availability

I’m interested

What about premium? - Risk reflective pricing

- Adaptive clauses

What about the future? - Industry agreement on Resilient Risk

- Standards, Risk Register, surveys

Post loss

Will insurers help with cost? - Not just after flood – fire?

- Why? – you may go elsewhere

Build better - BI v planning – speed v change

- DR company & adjuster must recognise

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forensicadvisoryservices.com

Thinking Differently -Business InterruptionMathew GriffinHead of Forensic Advisory Services, UK

9th May 2016


• The vehicle by which Cunningham Lindsey provide expert forensic

accounting capability

• Offices in Australia, New Zealand, Singapore, Middle East, UK, USA,

Canada and Brazil

• Handle all financial aspects of claims: BI, product recall/liability, fidelity,

stock, marine

• Associated services including: TPA audits, expert witness, business

valuations, pre-loss review, dispute resolution

Forensic Advisory Services

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• Largest losses are manufacturing / light

industrial risks in Lancaster, Kendal,

Carlisle, the Calder Valley and Leeds

area.

• Numerous leisure industry losses, most

of which are affected by WAD.

• For many policyholders, the storms

have come at a quiet time. Christmas

production often already completed

before Desmond.

BI – Features of D.E.F.

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• Repeat flooding presents an going-concern threat to many previously

successful SME businesses in the Calder valley / Leeds areas.

• Very few businesses have moved to alternative premises.

• Some significant stock losses

• Paying for replacement equipment (rather than repair) as ICW to accelerate

recovery has been a feature.

• Inadequate BI Sums Insured and short MIPs will hurt some customers

BI – Features of D.E.F. (cont.)

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BI can flow from Damage to:

1. Own premises

2. Customers premises

3. Suppliers premises

and also...

4. Denial / hindrance of access

5. Wide Area Damage (WAD)

BI – Cause of financial loss

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• For most businesses the more extensive

the flood damage in the locality, the

smaller the payable loss based upon

standard contract wording.

• The (subtle) distinction between financial

loss due to the Insured Peril and due to

the Insured Damage is lost on many

policyholders (particularly SMEs).

• Treating Customers Fairly – the socialism

of insurance & the “expectation gap”

BI Overview - Wording

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• An Insured who suffers own property

damage receives his full BI loss

during the reinstatement period even

though some loss may derive from

WAD.

• However in extreme cases of losses

arising from one damaged customer /

one damaged supplier / a severe

denial of access, the above stance

will be amended in insurers’ favour

BI - Market Practice – Core Cover

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• Principles not universally adopted

• Customers on the ground speak to each

other

• Practice of adjusting becomes harder

• Works both ways – insurers generally

not happy the other way

• Evidencing partial downturns from an

accounting perspective is challenging

BI - Market Practice – Inconsistent

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• Understand your surge capacity requirements

• Test the robustness of your surge plan

• Understand the cost and benefit of flood resilience

• Are you inadvertently providing flood cover in a high risk location?

• Inadequate sums insured and maximum indemnity periods continue

• Need for consistent and robust approach on wide area damage issues

Lessons Learned

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Customer feedback

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Questions?

Winter Surge 2015/16


CEO announcement

9th March 2016 cunninghamlindsey.com

For further details, please contact:

Neil Gibson

Cunningham Lindsey

60 Fenchurch Street, London, EC3M 4AD

T: +44 7801 036399

E: [email protected]

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Government & Nonprofit

Cunningham Lindsey - The impact of a Surge Weather Event on MGAs and the London Market 9 May 2016