Insurance in a Risky World - Case Study Example

INSURANCE IN A RISKY WORLD By Introduction Insurance in a risky world is an interesting concept in the world of insurance. In this report paper, a friend is thinking of buying a house on Trent Road, Beeston, Nottingham NG9 1LQ, but is worried about the likely cost and availability of buildings insurance to cover the risk of flooding. The purpose of the report is to provide the friend with necessary points and facts to assist her make an informed decision (Environment Agency 2014). To do this, it is necessary to discuss flood insurance contents and facts; analyze factors the friend should take into account in deciding whether or not to buy insurance cover for flood risk and future factors that could affect the availability and potential price of insurance against flood risks (Casale 1999). Trent Road, Beeston, Nottingham Flood History As an interested party in buying building in the location it is necessary to be abreast with flood facts of the area. This will assist to help you make informed decision on flood risk insurance and other issues. Nottingham has an extended account of flooding, going back to 1683. The present flood defence were constructed in 1947 after flooding damaged 28 miles of highway, 3000 assets and 86 industries in the city (Fisher 2013). After the flood incidents in 2000 the local authority worked with associate organisations to analyze the flood menace over the whole length of the River Trent and together with main branches (Environment Agency 2014). The results were documented in the Fluvial Trent Strategy (2005) that revealed the existing protection offered a comparatively low benchmark of protection compared with the most modern best practice proposal. Based on this effort the authorities have built the Nottingham Left Bank flood system. This section is essential because it gives details concerning flood risk in the region and provides the friend with basic flood facts in the area (Environment Agency 2014). Risk of flooding Insurance is rated on the basis of risk occurrence or potential. One seeking house in this area should be aware of the fact concerning the region’s flood facts. The fact that flood has been a risk for many years has led to establishment of insurance schemes and organisations (Evans 2005). However, Trent being a low-income area insurance cover is not readily available because resident’s income ratio cannot afford premium (Kunreuther 2004; Green et al 2000). It is natural to be worried about the flood risk; however, the risk is can be managed with proper insurance cover (Environment Agency 2014). This is to say worry less and seek proper covers that are available. Risk is a make, applied to describe the likelihood that something may take place, in the future, that could bring undesirable consequences for affected individual (OECD 2008). Considering risk definition it is understandable for one to get worried; however, the world is risky so after getting worried there is need to take actions that could reduce the impact of undesirable consequences in case they occur (Flood 2000). In Trent Road, Beeston, Nottingham, there are elaborate risk cover to avert flood worries. According to environmental agency, there is the £45 million system reduces the threat of flooding to around sixteen thousand homes and businesses through a 27 kilometre stretch of the River Trent, from Sawley to Colwick. It also gives extra protection to key transportation at the core of the societies along the Trent. The novel scheme minimizes the danger of flooding to 1% (1 in 100 chances) in any given time. The scheme is the largest individual internal flood protection ever built in terms of assets protection (Proverbs and recovery, 2008; Parker 2000). The scheme covers the subsequent areas: along Sawley and Trent Meadows the followings are flood risk measures being put in place (Sene 2008); raising and reconstruction of roughly 1.8km of flood embankment, building approximately 250m of fresh flood wall, elevating the B6540 at Sawley and substituting the flood gateway crossways the Erewash canal (Environment Agency 2014; Buto 2004). Along Beeston and Rylands these are projected raising 700m of existing flood wall, building 200m of new flood wall, rebuilding 900m of flood embankment and lifting of the flood entrance on the Beeston channel. These are the initial measures that should arrest worries concerning flood risk in the region (Environment Agency 2014). Fig. 1 shows a flood warning template that covers the area. By analysing it is obvious to note that flood issue is well handled by environmental agency and in case of greater possibility early warning is provided (Environment Agency 2014). Fig. 1 Flood warning by region Flood Alert Warnings: The inhabitants of the home at 27 Trent Vale Road are listed in the Environment Agency’s Flood Warning vigilant service. The service offered by the agency functions by monitoring precipitation level and sea/river extents 24 hours daily and giving a local flood anticipate (Jha et al 2013). The warnings are provided using three series warning kinds, those being Warnings, Severe Flood Warnings and Alerts (Environment Agency 2014). The insurance of flood risks: Insurance Corporation in the past has been reluctant to insure weather related catastrophe such as flood and earthquake (Hacker 2006). However, this has since been reviewed and UK has two approaches for handling flood insurance matters. 1) The ‘option’ system – disaster risk is a non-compulsory extra (Beider 2009). Under the system, insurers insure flood threats on the payment of an extra premium concurrent to the customer’s climate risk (Kunreuther and Michel-Kerjan 2007). 2) The ‘bundle’ system – disaster cover is packed up with other property indemnity. Under the package system, insurance for flood is available (Dixon 2007; Jha et al 2013). The UK flood insurance administration is in an era of transformation, with the expected expiry was in 2013 of the declaration of Principles’ between the Association of British Insurers (ABI) and the Government (Association of British Insurers 2008). There is a) Individualist, risk-sensitive insurance, offered via a market where individuals’ disbursements are comparative to their point of risk; b) solidaristic, risk-insensitive indemnity, in which persons at lower risk chip in to the support of persons at higher risk (Lamond 2012; Defra (2011). Above considerations are convincing factor that the area is well covered and flood risks examined thus the friend should not be so worried to buy a house or rent one (The Money Advice Service 2014). Factors Considered Whether to Buy Insurance Cover for Flood Risk Probability of flood occurrence: this is a factor that would determine the premium payable for the insurance cover for flood risk. The flood prevalence average risk of flooding in Nottingham by 2007 was at 0.13% (Samuels 2008; Osborne 2014). Flood probability; The flood probability falls in arrange of 1 in 100 year floodplain along the River Trent. The 1 in 100 year flood stage before the commissioning done in 2012 flood fortifications in Beeston Rylands was 26.860 AOD (Flood 2000; Defra 2011). On wrapping up of the major flood protection programme, the novel revised 1 in 100 year flood stage has been minimized to 26.380 AOD as selected by the ecological Agency. Consequently, the current position floor stage of 27.255 AOD gives a freeboard of 875mm, with extent to minimize the ground floor level by 575mm to the reduce flood extent +300mm freeboard of 26.680 AOD (O’Neill and O’Neill 2012). This provide probability rate that can be used by insurance company durance insurance contract. Flood Insurance Cost The cost to insure possessions against flood risk and damage is determined by risk connected factors such as the time of building structure, level of flood risk (Brown 2011; PropEx 2005), number of floors and the sum of coverage needed by lender. This amount must be based on the cost to reconstruct, which can be accessed from your homeowners cover company (Botzen 2013; Jerry and Richmond 2007). Measuring risk The chance of flood risk in Nottingham Flood this year minimizes to 1% (1 for 100) Therefore p=1/100, so that of no impact this year is (1-p) = 0.99. The chance of no impact for 100 years is (1-p) 100 = 0.37. This average likelihood of flood in Nottingham as 1% this present a low probability and thus low premium cost per year. Flood policy premium is around £150 per year. Low-risk flood region areas may be capable to acquire flood insurance for a small as less than £50 a year. Risk Models The risk models provide varied aspects of flood risk insurance availability within the area. As provided in the appendix it is safe for you to take flood risk insurance since they are available and appropriate for different categories. Insurance contacts: This is a factor that would guide the agreement, it is necessary for one to assess viability of the contract (Anderson et al. 2000; Defra 2011). Insurability is part of insurance contract issue since some risks are not insurable (Birds 2010; Lamond et al 2011). Legal Principles: there must be key legal principle that binds the friend to insurance firm. These include indemnity, subrogation, insurable interest, proximate cause, and Utmost Good Faith principles (Pender and Faulkner 2010; Schumann 2011). UK Insurance policies: flood cover in the UK is unique in having a simply market-oriented strategy to insurance in which threat is shown in the premiums reimbursed and borne by personality households, albeit by means of a subsidy from low-risk to high-risk family (O’Neill and O’Neill 2012). Flood Insurance Shortfalls and Warnings Flood insurance is costly and like some common types of insurance can make residence ownership less inexpensive or even too expensive for some individuals (Boivin 2004; Mambretti 2012). The friend needs to calculate whether she will be able to afford flood cover for as long as needed to have it prior to commit to possessions. If the flood insurance policy costs $1,000 annually and she take a number of years to repay mortgage, make it additional cost (Ebi et al 2006; Osborne 2014). Factors affecting the availability and possible price of insurance against flood risk Future policy on flood indemnity has turn out to be a pressing subject. The regularity and amount of flooding in the UK has augmented and can be anticipated to increase more with climate transform (Kunreuther and Michel-Kerjan 2007; Brown 2010). The conformity on insurance in the UK ended in 2013 and Defra is at present in debating with the insurance sector, flood action categories and other involved parties as to its substitution (Klijn 2013). This deliberation is a detail that would influence flood risk cover for the next three years (Bauman (2002). Risk pricing constitute to lower premiums. An advantage of safer conduct – aside from averting the occurrence in the first incidence can lead to lower average premiums (The Money Advice Service 2014). If one reduces the amount of claims he/she makes, their premium may follow suit. This is since every insurer will take clients claims history into consideration when setting the premium (Botzen 2013). Conclusion As a young investor, the friend stands a chance of getting insurance at a lower premium rate. In addition, the area is low-income zone thus cost of houses are relatively cheaper and the insurance cover low. The facts above should convince to take buy the building and take flood risk cover. The facts above are convincing fact that you can afford to buy a house in Trent Road, Beeston, Nottingham Trent Road, Beeston, Nottingham at affordable costs. Flood risk insurance is available at affordable premium costs within the region in correspondence with Environment Agency principles. UK Insurance policies: flood cover in the UK is unique in having a simply market-oriented strategy to insurance in which threat is shown in the premiums reimbursed. References list (2010). International issues in social work and social welfare: selections from CQ researcher. Los Angeles, SAGE. Anderson, E. R., Stanzler, J. S., & Masters, L. S. (2000). Insurance coverage litigation. New York, NY, Aspen. Association of British Insurers (2008). 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Climate Change, Insurability of Large-scale Disasters and the Emerging Liability Challenge, NBER Working Paper No. 12821, pages 1-27, http://www.nber.org/papers/w12821.pdf?new_window=1 Evans, G. W. (2005). Flood risk assessment. [S.l.], Eg Books. Federal Emergency Management Agency. The floodway: a guide for community permit officials. US Federal Insurance Administration, Community Assistance Series, No.4, 1979. Fisher, S. G. (2013). British river navigations: inland cuts, fens, dikes, channels and non-tidal rivers. Flood insurance claims handbook. (2006). Washington, D.C.: National Flood Insurance Program. Flood, C. M. (2000). International health care reform: a legal, economic, and political analysis. London: Routledge. Green, C.H., Parker D.J. & Tunstall, S.M. 2000 Assessment of Flood Control and Management Options. Thematic Review IV.4. Cape Town: WORLD COMMISSION ON DAMS (WCD), nov., 183 p. Relatório de Trabalho. Disponível em . Hacker, J. S. (2006). The Great Risk Shift The Assault on American Jobs, Families, Health Care and Retirement and How You Can Fight Back. Oxford, Oxford University Press, USA. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=430907. Jerry, R. H., & Richmond, D. R. (2007). Understanding insurance law (4th ed.). Newark, NJ: LexisNexis Matthew Bender. Jha, A. K., Miner, T. W., & Stanton-Geddes, Z. (2013). Building urban resilience principles, tools, and practice. Washington, World Bank Publications. http://elibrary.worldbank.org/content/book/9780821388655. Klijn, F. (2013). Comprehensive flood risk management: research for policy and practice. Boca Raton, FL: CRC Press. Kunreuther, H. (2004). The economics of natural hazards. Cheltenham, UK: Edward Elgar Pub.. Lamond, J. (2012). Flood hazards: impacts and responses for the built environment. Boca Raton: CRC Press. Lamond, J., Booth, C., Hammond, F. & Proverbs, D (2011). Flood Hazards: Impacts and Responses for the Built Environment. 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Chichester, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=624707. PropEx (2005). Flood Insurance Cost. http://www.propex.com/C_f_env_fldcost.htm Proverbs, D. G., & recovery, i. a. (2008). Flood recovery, innovation and response. Southampton: WIT. Samuels, P. (2008). Flood Risk Management Research and Practice.. Hoboken: CRC Press. Schumann, A. (2011). Flood risk assessment and management how to specify hydrological loads, their consequences and uncertainties. Berlin, Springer. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=667067. Sene, K. (2008). Flood warning, forecasting and emergency response. Berlin, Springer. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=364591. The Money Advice Service (2014). ‘Flood insurance – getting the right cover’, https://www.moneyadviceservice.org.uk/en/articles/flood-insurance-getting-the-right-cover Appendix Flood Risk Consideration Model 1: do nothing Model 2: Facilitate Model 3: create a risk pool Read More