Spotlight: UK businesses brace for evolving claims risks

It’s not just a rise in extreme weather events that is contributing to the claims tally for UK businesses. Tim Evershed explores the gaps in insurance cover in the workplace

The risks facing UK businesses are constantly evolving, and trends in claims follow in their wake. New risks emerge while existing ones develop or are amplified so UK businesses must remain vigilant. Convective storms, workplace claims, underinsurance and escape of water are all areas where insurance claims continue to rise.

Storm warning

Globally, there has been a rise in convective storms – strong localised weather such as rainstorms, hail and strong winds – which can cause immense damage and result in costly insurance claims.

Although the weather in 2024 so far has been relatively benign, the UK has experienced many extreme weather events over recent months. The cost of weather claims is increasing: in 2023 the average flood claim cost £29,000, but extreme weather in October 2023 resulted in claims averaging around £60,000.

Neil Hodgson, managing director of risk management solutions at broker Gallagher, says: “The whole natural catastrophe/flood area [is far more prominent on] the risk management radar. It’s something everybody is paying more attention to. Storm claims used to be quite localised but now they are all over the country.

“The impact on flooding is that we’ve got more buildings than ever, we don’t have the run-offs, and the flood map is changing all the time.

People need to understand what is climate and how it impacts them as an individual.

Dougie Barnett, AXA UK

“There’s very little a business can do to prevent the event happening. We’ve got the insurance solutions out there. Some insurance policies include funds to improve the preparedness of the building.”

Businesses in flood zones need to look at moving all electricals to higher levels while stock and machinery should be raised off the floor. Organisations will also need a flood plan and business continuity arrangements.

Hodgson continues: “Test the plan. Most people think they have the solution to the problem. Because of the pandemic people think they’ve tested it, but actually it was more by luck than management. You need to test it against a proper flood scenario or natural catastrophe scenario. Nat cat risks have always been associated with the US and hurricanes but actually what we’re getting over here now is bordering on hurricane standard.

“Testing always draws out features and benefits for any organisation, no matter who they are. Even the best will find something they can do better.”

The increase in convective storm risk is usually attributed to climate change. The insurance industry is looking at how the climate will change over the next 10, 20 or 30 years and is talking to its customers.

Dougie Barnett, AXA UK director of customer risk management, says: “We have made 12 modules on climate change available to our brokers and customers, because we want them to start thinking about it. We have to make things understandable. Some people think it is a complicated subject so you need to give them the tools to understand what it is. They need to understand what is climate and how it impacts them as an individual.”

A safer workplace

Elsewhere, research has found that more than a third of workplace claims come in employees’ first year of work. The care sector has seen an increase in the number of employees arriving in the UK since 2022 and has an estimated 28% turnover rate.

Furthermore, the new UK Government is keen to ‘get people back to work’ to drive economic growth and will pursue several return-to-work policies.

Fiona Gill, partner, regulatory – safety, health and environment at DAC Beachcroft, says: “Where employers are scaling up by increasing their workforce, or seeing high levels of staff turnover, they should also be reviewing their risk assessments and staff training provisions and considering whether they need to be updated in accordance with any changing risk profile for the business.

“According to the HSE, workers are as likely to have an accident in their first six months at work as during the whole of the rest of their working life. The increased risk may be due to lack of experience, or not wanting to raise concerns. New employees should be given adequate training and supervision while they ease into the role, and made aware of how they can raise any concerns about workplace risks.”

Training must be suitable and adaptable to different individuals and different roles. Cultural and language barriers must be accounted for. Businesses must ensure all employees understand the training received, ensuring the guidance is provided in the most appropriate way especially if English is not the employees’ first language.   

According to the HSE, workers are as likely to have an accident in their first six months at work as during the whole of the rest of their working life.

Fiona Gill, DAC Beachcroft

A robust induction training programme should be implemented that shows how important safety, health and wellbeing is within the organisation, and the part that each employee plays.   

Effective monitoring and supervision of employees will be needed to confirm the training is being followed correctly, with instruction and retraining provided where required.   

Where accidents do occur, these should be investigated to identify underlying and root causes and any possible changes to working practices that may be needed.

Gill Milner, head of risk management solutions casualty classes at Aviva, says: “To manage the risk appropriately, the promotion of transparent and open communication is key within a business to ensure the documented health and safety policy and procedures are known, understood and followed. This should result in a healthy, safe and productive workplace with a positive work culture.

“It must be acknowledged that communication is a two-way process between all levels – for example an employee must be able to raise an issue if they do not feel competent in the task that has been allocated.”

Underinsurance

Another common problem is underinsurance, which is often driven by periods of economic uncertainty and high inflation, such as the past 24 months.

Underinsurance occurs when the insured has insufficient insurance cover, leaving it responsible for a percentage of a loss or expense, which in turn may lead to financial hardship.

Hodgson says: “The amount of claims that we get now where people are not adequately covered [has risen]. So much has happened over the past 24 months with the cost of living issues that people don’t truly appreciate that something that was accurate two years ago isn’t now.

“Many things are 50% underinsured compared with two years ago. That has a dynamic effect on what you will get back. This will continue to rise and become a bigger issue.”

Plumbing problems

Another risk that is increasingly on insurers’ radar is escape of water. This poses questions over the types of water systems and pipes in new builds as well as proper maintenance regimes.

Improving this risk involves co-operation between government, designers, builders and fire specialists.

Barnett says: “Escape of water is as big, if not bigger, than fire risk. It is largely, but not solely, from burst pipes. Because we’ve moved away from copper into plastic there’s so many different types of plumbing systems. If you look at the claims from the past few years, particularly in residential flats, there’s been big losses from escape of water in buildings. It’s not just from plumbing systems but from other things like water coolers.”

Whatever the risk, it is vital that the insurance industry uses claim trends in a positive way to help the customer put solutions in place. Lessons must be learned from each claim so that what works for one customer can be used to help thousands of others.

Sponsored