Recent Global Disasters and Their Impact on UK Insurance, Gas Prices, and Individual Budgets

It appears that we will all be held responsible for covering the costs following the surge in terrorist attacks in the UK and the devastating hurricane that struck New Orleans. Efforts to reduce the flood waters are expected to take several months, so it will be some time before a clear picture emerges. Currently, the total cost of the catastrophe is predicted to exceed $25 billion (£13.6bn), but many analysts predict that it could rise much higher, even doubling, to $50 billion (£27.2bn).

European oil stocks that were set aside for disaster protection are being rerouted to the United States to aid in their recovery efforts, which is already having an impact on the British economy through rising petrol prices. Already in recent months, oil prices have risen to record highs as traders have pushed up the price on concerns about potential supply issues from the Middle East due to growing terrorism fears. Retailers have warned of further hikes in the cost of gasoline, which means that the £1 per litre seen in some regions will likely be felt across the nation, and wholesale prices jumped again last week as a result of Hurricane Katrina. Already in the aftermath of Hurricane Katrina, Royal Dutch Shell and BP have declared their intentions to increase prices even further. According to Catalist, the average price of a liter of unleaded gas in the UK is currently 92.3p, while drivers in the US are facing record-high fuel prices of $3 per gallon.

"In the coming week, we are going to see increases of 3p or 4p a litre," stated Ray Hollaway of the Petrol Retailers Association. The events in the US have rendered that inevitable.We must come to terms with the fact that 80p per liter is a thing of the past.

Fuel costs in the UK are already high, and the government's refusal to cut taxes is making things even worse for consumers. Meanwhile, oil companies are planning to spend millions of pounds more than expected upgrading pumps and station forecourts in the UK, which will theoretically allow them to charge higher prices when prices go beyond £1 per litre.

Fuel price hikes have analysts worried that they will cause inflation and reduced government spending due to higher transportation costs for suppliers. However, past experience has shown that increases in petrol prices do not significantly reduce government fuel demands, but rather cause consumers to cut back on spending in other areas, which slows down the economy.

Recent occurrences have resulted in significant increased expenses for insurance firms due to the prices of coverage. Insurers like Lloyds might take a chunk out of the damage that Katrina does to businesses both on and offshore in the Gulf of Mexico; estimates for the Lloyd's market put the cost at between £1 billion and £2 billion. "Our analysis suggests that the economic costs may be quite low," Lloyds said of the "terror attacks in London have had a big human cost." Lloyds may insist that the London bombings have had a small financial impact, but with further incidents on the horizon and demands to do away with exclusions for terrorist activities, premium hikes are likely to be implemented piecemeal.

Insurers are understandably concerned about the growing costs of catastrophic weather events in the wake of Katrina and the Christmas tsunami in Asia. Many experts predict that companies will eventually have to pay much higher premiums to cover the costs of the insurance payouts related to the destruction and bloodshed in Asia and Hurricane Katrina. "In the UK, climate change could increase the annual costs of flooding by almost 15-fold by the 2080s under the high emissions scenario, leading to potential total losses from river, coastal and urban flooding of more than $40bn (£22bn)," according to a recent report by the Association of British Insurers (ABI).

Additionally, according to research findings released by the ABI (http://www.abi.org.uk/), less than half of small UK firms have a plan to ensure their survival in the event of a disaster or emergency. Only half of UK households have life insurance, and 25% of mortgage holders actually do not have enough insurance to cover their debt, putting their home at risk.

Given the UK's staggering personal debt of over £1 trillion and the declining investment levels in products like individual savings accounts (ISAs), it is understandable that many people would put off purchasing insurance until they have more money. However, it is precisely during times of financial hardship that these products become invaluable.

There is now more competition among insurance providers, which helps keep prices down. This is due in part to the proliferation of financial information provided by outlets like the BBC, Which?, and eSure.com, as well as UK-based Moneynet (http://www.moneynet.co.uk). The current prediction, however, is that prices will go up; the exact amount, however, will not be known until the complete impact of recent events is computed. The one certainty is that the customer in the UK will be the one to pay the price regardless of where the crisis occurs.

Wow, that is cool!