There was a programme about flooding in the UK on the telly a couple of days ago, and the presenter brandished the famous map showing which bits of Central London would be flooded if the river rose by eleven yards. The presenter reckoned that the potential damage/insurance claim would be around £80 billion if it happened, and that it would cost £10 billion to build a new Thames Barrier that would prevent it.
Ho hum. Taking those figures at face value and assuming the risk is assessed at one-in-a-hundred, insurance companies have to charge an additional £800 million a year (ignoring discounting and compounding) to cover themselves. The amortised annual cost of the barrier would be about £500 million a year. Therefore, there is a potential profit of £300 million a year to play for.
1. So let's imagine the insurance companies clubbed together and paid for the new barrier. If they could continue to charge the extra £800 million a year in premiums, they would be laughing - only they wouldn't be, because as soon as it was built, property owners would just take out cheaper insurance with somebody else. So that ain't going to happen.
2. Similarly, if all property owners clubbed together, they could chip in 12.5 years' worth of the extra insurance premiums and that would also cover the cost of building the new barrier. Again, this would only work if they all took part - if a fifth refused, then the others would have to pay nearly 16 years' worth of insurance premiums, making it more likely that even more people drop out etc. so this would probably never happen either.
Now, assuming the costs and risks can be assessed reasonably accurately* and there is indeed an overall saving to be made, can anybody suggest the best mechanism for getting the money together for the new barrier?
* I cheerfully accept that it might be total scaremongering to say that London is at risk of severe flooding. But it cannot be too difficult to find out from insurance companies by how much they would drop their premiums if a new barrier were built, which is quite sufficient for the purposes of this exercise.
Friday 1 January 2010
Insurance
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7 comments:
We could do a stunt where the Cabinet are forced to hold a meeting underwater in the Thames - I accept that it is somewhat murkier than doing it off a coral reef in the Maldives, but regard that as a plus when you consider they look like a bunch of washed-up sea-monsters on dry land, let alone got up in an aqualung - and then appeal at the Mexico summit for £10bn to build the new barrier.
However, don't blame me if, when they see who we are proposing to save, the citizenry don't rise with axes and hack the existing one down, then sacrifice the remaining virgin in Southend to bribe Neptune to send a great wave up to Westminster and flush the lot away, collateral damage be damned.
can anybody suggest the best mechanism for getting the money together for the new barrier?
OK,I'll bite; LVT?
and there is indeed an overall saving to be made, can anybody suggest the best mechanism for getting the money together for the new barrier?
I'm guessing your answer is LVT. Presumably it would only be set on the areas of land that are affected by it.
WOAR, if we managed to lure the cabinet into the Thames, I'm sure there are simpler ways of finishing them off.
TGS, correct :)
OC, "Presumably it would only be set on the areas of land that are affected by it." Also correct, we can establish which areas are at risk by asking insurance companies for which areas they'd cut insurance premiums.
(Strictly speaking, the benefit goes far beyond the directly affected areas - I live on top of a hill miles away but work in central London, so have every interest in it not flooding, for example, but hey.)
I know! Let's make it a tourist attraction and charge it to The London Tourist Board. Yep, a barrier really could be a tourist attraction you know.
AC, the existing Thames Barrier is a legit tourist attraction, and I have been there, but the revenues therefrom are next to nothing compared to the amortised cost.
It was a joke... sigh... ;)
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