UK flooding could cause $2.2B hit to economy

Widespread flooding in the U.K. could cause "significant" economic damage of more than $2 billion, according to analysts at audit firm PwC.

Torrential rain has hit towns and cities across northern England with authorities and residents struggling to protect homes and businesses from the flood water. In particular, the historic city of York has been badly affected after unprecedented amounts of rain brought by Storm Eva over the Christmas period.

Flooded properties are pictured after the adjacent River Ouse burst it's banks in York, northern England, on December 27, 2015.
Flooded properties are pictured after the adjacent River Ouse burst it's banks in York, northern England, on December 27, 2015.

The latest floods come just weeks after Storm Desmond hit the country earlier in December causing widespread damage and disruption.

As many places struggle to cope with the re-flooding of their communities, analysts at PwC said the economic losses caused by the flooding could be as much as £1.5 billion ($2.239 billion).

"After Saturday's torrential rain, and with rare 'danger to life' warnings issued, the economic damage to the U.K. could be significant," Mohammad Khan, general insurance leader at PwC commented in a note on Sunday.

"It is still early to estimate losses but, based on the areas where significant rain has fallen, the great number of roads submerged and including the losses arising from Storm Desmond earlier this month, we would give a very initial estimate of economic losses of between £900 million and £1.3 billion," he said.

"Unfortunately many areas that were affected during Storm Desmond have been flooded again. If rain continues to fall in large quantities, and the areas with warnings in place do indeed flood significantly, it could well be that the total economic losses could breach £1.5 billion with an additional significant increase in insurer losses from our initial estimate."

Khan said that the insurance industry would bear between £700 million to £1 billion of the losses and that the latest flood damage was bound to hit profits.

"The insurance losses that arose from the flooding and storm damage during Storm Desmond were severe but were within nearly all affected insurers' large loss expectations for 2015, as 2015 was such a benign year prior to the December weather. The additional damage from Storm Eva and any further damage caused by additional rain will impact relevant insurers' year-end profitability," he said.

There are still 94 flood warnings in place, 27 of which are for "severe" floods meaning there is a danger to life, the country's Environment Agency said on its website on Monday.

On Sunday, U.K. Prime Minister David Cameron pledged more aid and military resources to help cope with the crisis. Still, the crisis has prompted many to ask whether flood defense spending needs to be increased.

The government and insurance industry have worked together to create Flood Re, a scheme to enable flood cover to be affordable for those households at highest risk of flooding. Domenico Del Re, head of catastrophe management at PwC, said that more could be done to improve the response to flooding.

"Recent additional flooding once again highlights a need to recognize that the introduction of Flood Re and the rebuilding of flood defenses will not automatically solve the affordability of flood insurance, nor will it stop flooding when severe rain falls," he said in PwC's note.

"Following the 2007 floods, a lot of work was undertaken on flood defenses but clearly more can be done. Flood defenses cannot stop everything, as they are based on historical information, but a lot more information exists today than there was even five years ago. Businesses (who are not covered by Flood Re) need to make use of all the flood data that is out there to make themselves more resilient when a flood occurs."

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