A ghastly flood scenario for the Thames

Lloyd’s: Imagine record floods along the Thames Valley between Richmond and Oxford. Picture luxury homes under water; the M25 temporarily transformed into a picturesque ox bow lake, plus public transport and businesses grinding to a halt. Now try and put a figure on the insured losses associated with this entirely plausible event. That’s what Lloyd’s has asked its insurers to do.

The Corporation has added a major UK flood to its set of Realistic Disaster Scenarios (RDS) for 2009. Lloyd’s uses RDS to stress test individual syndicates, and the market as a whole, to see how they stand up to chains of accumulated exposure in very extreme cases. Existing RDS events that Lloyd’s insurers use for stress testing include earthquakes in California or Tokyo, windstorms hitting Florida or the Gulf of Mexico and airlines colliding over large cities.

So why has Lloyd’s introduced a new RDS so close to home? “We identified several different factors that are converging to create one worrying dynamic,” explains Paul Nunn, Head of Exposure Management at Lloyd’s. “The most obvious development is climate change, and the scientific consensus that global warming will lead to more extreme rainfall events,” Mr Nunn says.

But at the same time as the exposure and the peril is growing, there is uncertainty around how much longer UK insurers will continue to automatically include flood risk in their property policies. “Inclusive flood cover could well disappear within the next few years in the UK and that could lead to a big change in the market and the insurers who write it,” Mr Nunn believes. “Lloyd’s has a robust risk management strategy and these different forces at work ring alarm bells with us,” he says....

J. M. W. Turner, "Rain, Steam and Speed - The Great Western Railway" (1844), National Gallery, London. The painting depicts an early locomotive of the Great Western Railway crossing the River Thames on Brunel's recently completed Maidenhead Railway Bridge.