Insurers face £500m bill for floods

Insurers are set to pay up to £500m to customers who have suffered flood and storm damage during one of Britain's wettest summers on record, according to the Association of British Insurers (ABI). The industry body said the £17m-a-day losses were the worst since the summer of 2007, when flash floods landed insurers with a £2.5bn bill.

The insurer RSA has taken a £50m hit from this summer's washout. The owner of the More Than brand said on Wednesday it had received more than 6,500 claims on UK home, motor and commercial property insurance and suffered a £40m loss as a result in June. It has taken a further £10m hit from the deluge since the start of July. Nearly 40% of the claims have been settled so far.

Nick Starling, the ABI's director of general insurance, said: "The widespread floods of this summer highlight how vital flood insurance is. During June alone, insurers helped 68,000 customers hit by the floods and storms."

The industry is trying to hammer out a new flood agreement with the government, without which some homes in high-risk areas could be left without cover after next June, when the current agreement runs out.

Analysts have warned that home insurance premiums, which are already rising, could go up further in the wake of the heavy rainfall.

The areas worst affected by the storms, flooding and hail stones the size of golf balls are the east Midlands, the north-east and the north-west. RSA and its bigger rival Aviva face the biggest losses from storm damage.

Barrie Cornes, insurance analyst at Panmure Gordon, said the cost to RSA was much higher than the £8m to £15m he had pencilled in, and blamed losses in commercial insurance as well as motor. He cut his annual earnings per share forecast for RSA by 14% to 11.98p.

The total of RSA's losses from "acts of God" this summer is £85m after the company, which operates in 140 countries and employs 23,000 people, added that two earthquakes in the Emilia-Romagna region of Italy in May resulted in a further £35m loss.

RSA has a 7% slice of the UK home insurance market and controls 15% of the commercial property market, with the losses split broadly equally between the two, plus a bit extra in motor cover, analysts estimate.

Oliver Steel, insurance analyst at Deutsche Bank, said: "RSA's losses would imply a total industry cost of the June/July storms combined of £450m." Based on Aviva's market shares of 11% for household and 15% for commercial property, he estimated a cost to Aviva of £60m, which he considered "manageable".

Companies that only offer home insurance are RBS with a 15% share of the market, Lloyds Banking Group with 13% and Legal & General with 4%. This would imply a £9m impact for L&G.

RSA's losses are far less than the £120m bill it had to foot after the widespread flood damage in Britain in 2007.

Marcus Barnard at Oriel Securities said about RSA's hit: "We don't think the UK losses should come as a particular surprise but are unhelpful."

Shares in RSA dropped 1.3p, or 1.2%, to 107p on the news.