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Recovery Guidance - Infrastructure Issues

Dealing with Insurance Issues

Background and Context

Insurance and insurance companies have a major role to play in dealing with and recovering from emergencies. Loss adjusters will be among the first on the ground following an event. Insurers and loss adjusters will seek to help their customers get back on their feet and help businesses get back up and running.

The following guidance sets out advice for organisations and individuals on the insurance issues that are likely to arise following an emergency. This advice and guidance has been developed over a long period and with the experience of a number of emergencies. It has been prepared with the assistance of the Association of British Insurers (ABI).

The insurance industry has a great deal of experience in dealing with emergencies. Insurers are committed to dealing with claims quickly and effectively. However, if an event is on a very large scale and over a large geographical area, the resources available to the insurance industry are likely to be tested. In these circumstances, it is important that individual insurers, and the insurance industry as a whole, communicate effectively with their customers. The ABI takes a leading role in dealing with the media immediately after an event and local responders should contact the ABI to discuss any emerging issues around insurance at the earliest opportunity.

Insurance coverage

• 93% of all homeowners have Home Buildings insurance in place, although this falls to 85% of the poorest 10% of households owning their own home. This insurance is a standard condition of a mortgage;
• 75% of all households have Home Contents insurance in place;
• Half of the poorest 10% of households do not have Home Contents insurance.

Many local authorities and Registered Social Landlords (RSLs) offer low cost Home Contents insurance via “insurance with rent” schemes to their tenants. Similar affordable cover is available via Credit Unions, Trades Unions and certain charities such as Help the Aged and Age Concern. Despite this, some homeowners may either not be insured, or may be underinsured.

UK Policy and Guidance

The Financial Services Authority [External website] regulates the insurance industry. More information can be found at their website.

What does insurance do?

Protecting against the risks associated with every day life is essential to everyone's well-being and peace of mind. Insurance is a way of allowing people to minimize their individual financial damages by combining their potential for loss with that of others.

Although many types of insurance seem complicated, the basic principles are straightforward. Insurance companies assess the risk of any eventuality and the potential downside associated with it. Then, based on past experience and their own expertise, insurance companies calculate the ‘premium’ that a customer needs to pay to provide ‘cover’ against injury or loss. When the insured event happens, the company pays out the agreed level of ‘claim’.

More information on insurance and its benefits can be found on the ABI website[External website]

General Guidance

The following notes summarise cover normally included in standard policies and are provided as a general source of advice to be drawn on by local authorities. However customers should ALWAYS check the details of their own policies since insurers operates in a highly competitive market and offers a range of products to suit different needs, from low cost policies to high service level policies. Some details will vary accordingly.

General Advice for Affected Communities

The actions to be taken immediately following an event are:

• Make sure people are safe first, treat injuries, evacuate unsafe areas.
• Check the property is safe. Advise those affected to speak to their insurers or brokers, as soon as possible, giving as much information as they can. Unsafe structures should be stabilised/demolished, taking advice from the insurer on how best to handle this – they may have preferred contractors/suppliers who will undertake the work.
• Properties should be secured against crime and weather as early as possible – homeowners should check whether their insurers will arrange this or whether they need to take action and claim back any costs.

For households

• If homeowners are unable to stay in severely damaged properties overnight, they should speak to their insurers as soon as possible about arranging alternative accommodation.

For businesses

• Businesses should do as much as they can themselves to minimise business losses. They should remember that they can lose customers just because they assume something is worse than it is, but this type of trade loss is not covered by insurance.

Insurers expect to respond with loss adjustors on the ground within hours of an incident and will often attempt to make contact pro-actively with customers in affected postcodes if they have not heard anything within 24 hours. A complete list of ABI members is available on their website [www.abi.org.uk] together with information on insurance coverage and what people should do when making a claim.

More information on buildings insurance can be found on the ABI website[External website]

Guidance on Specific Events

Weather and Earthquake Damage

Homeowners and householders

• Storm damage (which includes tornado) and damage caused by earthquakes are standard features of Home Buildings and Home Contents insurance. These covers may be bought under a single policy or separately. Tenants only need purchase Home Contents insurance.
• Home Buildings insurance covers:
  • Immediate repairs to buildings to make them safe and secure;
  • Where necessary, demolition, site clearance and re-building;
  • Repair of building and replacement of fittings (eg. bathroom suites, fitted kitchens) which have been damaged;
  • Alternative accommodation, up to a set proportion of the sum insured (check policy for details but typically 15-20% of total sum insured) while repairs are being undertaken if the level of damage is such that an individual cannot occupy the property.
• Home Contents insurance covers:
  • Repair or replacement of furniture and possessions damaged by the weather event or earthquake;
  • Replacement of possessions stolen whilst the property was insecure provided that all reasonable steps were taken to secure the property at the earliest possible time;
  • Alternative accommodation, up to a set proportion of the sum insured (check policy for details but typically 15-20% of total sum insured) if the address on the policy cannot be occupied.

Landlords

• Storm damage (which includes tornado) and damage caused by earthquake are standard features of Landlords insurance policies – any specific exclusions will have been notified to the policyholder as part of the policy documentation.
• Landlords insurance typically covers:
  • Immediate repairs to buildings to make them safe and secure;
  • Where necessary, demolition, site clearance and re-building;
  • Repair of building and replacement of fittings (eg bathroom suites, fitted kitchens) which have been damaged;
  • Repair or replacement of landlord's furniture and contents damaged by the weather event or earthquake;
  • If option purchased: Alternative accommodation, up to a set proportion of the sum insured (check policy for details but typically 15-20% of total sum insured) while repairs are being undertaken if the level of damage is such that a landlord and/or the tenant cannot occupy the property;
  • If option purchased: Loss of rent during repairs if the property is unoccupiable, up to a similar amount.

Businesses

• Storm damage (which includes tornado) and damage caused by earthquake are standard covers in business policies – any specific exclusions will have been notified to the policyholder as part of the policy documentation.
• If a business has suffered storm damage or damage caused by earthquake, this will also trigger the business interruption cover where appropriate. Standard package policies for eg. SMEs will normally include business interruption. Tailored policies will include this where the customer has asked for cover.
• If the business premises are not themselves damaged, but access to the business is denied by the authorities for eg, public safety reasons, some policies will also respond to cover loss of profits/business interruption. Businesses should check their policies to see if they have this cover in place.
• Loss of trade solely due to people being put off coming to the area, or because they think it isn't open to business, is not covered by business interruption, so let customers know you are open for business as soon as possible.

Flooding

Key messages for people affected by a flood:

• For those people living in a flood risk area, personal safety is the top priority. They should:
  • listen to local radio and Environment Agency Floodline bulletins (0845 988 1188) for up-to-date information on the flooding situation in their area, or alternatively register with the Environment Agency's ‘Flood Warnings Direct’ early warnings system;
  • collect personal belongings, including insurance and bank details, and essential telephone numbers together, and keep them in a waterproof bag;
  • if safe to do so, move belongings from lower floors to higher levels.
  • be prepared to turn off essential supplies – gas, electricity and water – at the mains.
  • listen to the advice of the authorities and follow any instructions to leave a property.
• If people are affected by a flood, they should contact their insurers as soon as possible after their properties have been damaged. Most insurers have a 24-hour helpline. Claims staff will be able to give advice on the actions that need to be taken. In certain circumstances, claims staff may also be able to give the go-ahead for repair work to be commenced.
• If people have to leave their houses during the flood and subsequent repair, alternative accommodation must be reasonable and in keeping with their normal lifestyles. They should always obtain their insurers’ approval before incurring any costs.
• Once the flood waters have receded, the property should have mud removed, be cleaned and disinfected, and dried out. Where possible, people should seek professional advice as to how walls, furniture and carpets should be cleaned and dried out, before any work is undertaken.
• It is a good idea for people to take photographs of the damage. Any carpets, furniture or other goods that have been removed from their homes should be retained until their insurers have agreed that they can be disposed of. If it is not possible to store or retain goods, every effort should be made to contact the insurers or their representatives (loss adjusters) to obtain their agreement to the disposal of goods.

The Environment Agency website provides further information on the Floodline bulletins[External webiste] and the steps that can be taken to prepare for flooding. The Environment Agency has also produced an After a flood guide which gives practical advice on recovering from a flood.

Further information on insurance and flooding is available for the Association of British Insurers website.[External webiste]

The ABI have produced a leaflet for householders [External PDF] describing the support they can expect from insurers following a major flood.

The ABI Statement of Principles on the Provision of Flood Insurance[External website] explains insurers' commitment to continue to provide flood insurance cover to as many people as possible.

Terrorism

Key messages:

• The Pool Re scheme was set up by the insurance industry in partnership with the UK Government, in 1993, and is designed to ensure that insurance cover can continue to be offered by insurers for damage caused by acts of terrorism to commercial property in Great Britain. Cover is provided, in return for an additional premium, as an optional add-on to commercial property insurance in mainland Great Britain through insurers participating in the Pool Re scheme.
• The only exclusions applying to the terrorism cover are in respect of war and related risks and damage to computer systems caused by virus, hacking or similar acts. The cover includes clean up costs following a chemical, biological, radiological or nuclear (CBRN) incident.
• Some commercial insurers have also altered the cover available within Small and Medium sized Enterprises (SME) insurance packages, ensuring that any terrorism exclusions are more clearly spelled out.
• Similar cover under the Pool Re scheme is also available to blocks of residential flats (as they are dealt with as commercial properties for terrorism cover purposes). Again, cover is optional and there is no statutory obligation to take it out – the broker needs to specifically ask for this extra cover. However there may be contractual obligations imposed by the landlord or lender and policyholders need to check their contract terms.
• For the Pool Re scheme to operate, the HM Treasury needs to issue a certificate deeming the event an “act of terrorism”.
• Nearly all Household policies include wide cover for damage caused by terrorist activity including fire, explosion and blast damage. However, contamination cover is excluded on virtually all policies (irrespective of whether or not it is caused by a terrorist incident), so CBRN clean up is not included – some policies explicitly re&045;state this as a specific terrorism exclusion. In such circumstances, local authorities would normally take the lead in arranging decontamination of private property.
• Separate arrangements apply in Northern Ireland and in UK islands, eg. the Isle of Man and Channel Islands.

Further guidance on insurance and terrorism can be found on the ABI website[External website]] and the Pool Re website[External website].

Guidance on Specific Types of Insurance

Private Medical Insurance

In some circumstances responders may want more information about Private Medical Insurance. Further information on this cover is available on the ABI website[External PDF].

Life insurance

Life Insurance and Pensions are products that protect income/lifestyle, and in some cases family members, in the event of premature death of the policyholder or even just once retirement age has been reached and the policyholder is no longer working. Further information on Life insurance can be found on the ABI website[External website].

Travel Insurance

Some travel insurance policies contain exclusions for claims arising from a terrorist incident. Individuals should be aware of this and should check the policy details to ensure that the policy contains an appropriate level of cover for their individual needs.

The Government are currently working with the insurance industry to raise consumer awareness around terrorism exclusions in travel insurance policies, and to identify whether industry guidance would be necessary to help improve the quality of disclosure to consumers. Following an announcement by the HM Treasury in June 2007, the Financial Services Authority (FSA) will now regulate the selling of all travel insurance. This followed a call for evidence, review and Treasury Select Committee report which had all looked at the level of information provided to consumers when purchasing policies. Further work looking at the need for exclusions to be written in plain English and the level of consumer awareness of exclusions continues.

At the same time, HM Treasury and the Department of Culture, Media and Sport (DCMS) are working with the Association of British Insurers (ABI) to ensure there is adequate provision of terrorism cover within travel insurance clauses.

Further information on what travel insurance covers is available on the ABI website[External website].

What if something goes wrong?

The Government has established a system of financial services regulation that works through the FSA, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS). These are independent from the Government although subject to the provisions of the Financial Services and Markets Act 2000, and more detailed rules made further to it.

Policy documents explain how to make a claim. If a customer is not satisfied that the claim has been handled correctly they should contact their insurer, who will explain how they will handle the complaint. If a customer is not satisfied with the insurer's final response to a complaint, they can refer the case to the FOS. The service is free to consumers and their decisions bind the insurer, but do not affect the customer's right to take legal action should they wish to do so.

The FSA is responsible for the setting and enforcement of Insurance: Conduct of Business rules, including requirements relating to insurers' claims handling procedures.

The FSCS is the UK's statutory fund of last resort for customers of authorised financial services firms, which means that the FSCS can pay compensation if an insurer is unable, or likely to be unable, to pay claims against it.

More information on the FSA can be found at their website [External website].

Roles and Responsibilities

Local and Regional

Insurance Industry

Following an emergency, the insurance industry will provide the following:

• facts and figures about who and what is covered by household and business insurance
• specific guidance on the issues likely to arise after a flood or terrorist event
• details of the protocol between the insurance industry, the police and other emergency responders on communication and co-operation after a major event (see below)
• key contact details of the organisations that represent the insurance industry.

The protocol is in place between the Association of British Insurers (ABI), The Chartered Institute of Loss Adjusters (CILA), aviation insurers' representatives, Air Accident Investigation Branch (AAIB), the Local Government Association (LGA), the Chief Fire Officers' Association (CFOA) and the Association of Chief Police Officers (ACPO). The protocol was introduced on 20 September 2007 and will be reviewed biennially in the light of experience.

The protocol sets out a framework for co-operation between the parties in the event of an emergency. It is not legally binding, but there is an expectation that parties to the protocol will abide by its provisions and co-operate to the fullest possible degree in ensuring it is operationalised.

Dealing with the uninsured

Although Local Authorities have discretionary powers to commit “expenditure” in an emergency situation, Section 138 of the LG act 1972 and amended by Section 156 LG and Housing Act 1989, this is not usually used to cover the costs of the uninsured, but rather to fund the response and to deal with welfare needs of those affected.

Lead Government Department

HM Treasury is responsible for the overarching framework for the regulation of financial services (including insurance) in the UK.

Devolved Administrations

The generic insurance advice set out above applies in England, Scotland, Wales and Northern Ireland with the following exceptions:

• The Pool Re terrorism insurance scheme does not apply in Northern Ireland, where a separate scheme exists through the Compensation Agency, an agency of the Northern Ireland Office.
• The above Protocol on the role of the insurance industry following a civil emergency only formally applies in England and Wales but it is the intention of several of the signatory organisations to apply it throughout the United Kingdom in due course. It remains the responsibility of the local responder to make contact with the Association of British Insurers.

Links to Other Topic Sheets

• Financial support for individuals
• Financial impact on Local Authorities
• Economic and business recovery
• Site clearance
• Access to and security of sites
• Repairs to domestic properties
• Displaced communities
• Damaged school buildings
• Historic environment
• Environmental pollution and decontamination
• Dealing with waste

Case Studies (Incidents and Exercises)

• Buncefield: 11 December 2005
• Carlisle flooding: 8 January 2005
• Kensal Rise tornado: 7 December 2006
• Lewes flooding: 12 October 2000

Other Documents

Help and advice on insurance issues is available from the ABIs website [www.abi.org.uk[External website]] together with information on insurance coverage and what to do when making a claim. Specific information is also available on how to deal with a flood claim. [www.abi.org.uk/floodinfo[External website]]

There are up-to-date Flood Warnings [External website] and helpful guidance on dealing with flooding on the Environment Agency's website.

After a flood guide - Practical advice on recovering from a flood from the Environment Agency

Information on the role of insurance brokers can be found at British Insurance Brokers' Association website[External website].

Further information about The Chartered Institute of Loss Adjusters[External website] can be found on their website.

List of Contacts

ABI is developing a list of contacts within its membership who can be contacted in the event of an emergency. In the first instance, the ABI should be contacted on 020 7600 3333.

A complete list of ABI members is available on their website. [www.abi.org.uk[External website]]