Flood insurance in the UK faces challenges of rising losses, affordability, and long term viability. A new system called Flood Re was launched in 2016 to help address these issues. However, questions remain about whether Flood Re and the overall approach to flood insurance in the UK is sufficiently focused on risk reduction and resilience to manage increasing flood risks over time. The system will need incentives for property protection, resilient repairs, and coordination with spatial planning and flood risk management to ensure insurance remains affordable and available into the future as climate change impacts increase flood losses.

1. Flood insurance – fit for the future?
Dr. Swenja Surminski, 05/04/2016

2. Overview
• Flood insurance in the UK
• The role of Flood Re
• Is flood insurance “fit for the future”?

3. The story
• We have a problem: flood losses are rising (for a
variety of reasons).
• We have different views on who should pay for flood
damage: solidarity versus risk-based concept.
• There are growing concerns about affordability and
availability of flood insurance.
• We can’t avoid flooding, but need to manage it. It is
often unclear who can actually deliver flood risk
management.
• In order to be fit for the future: any insurance scheme
that wants to remain viable needs to deliver two
results – risk transfer and risk management.
• What is the role of insurance?

4. Insured flood risk losses
Bank of England/ PRA, 2015

5. The UK situation
• Underwriting is provided by the private
sector, while government maintains a role in
terms of flood risk information and flood
management through partnership approach
• Enshrined in the Statement of Principles
between government and industry
• High rate of market penetration (91%
buildings/75% contents), but not compulsory
• Move to new system ‘Flood Re’ in April 2016

6. UK flood insurance

7. Who pays for whom?
Quelle: Defra, 2013

8. Flood Re starts in April 2016

9. “Fit for the Future?”
• What will be the impact of Flood Re?
• How will the insurance market respond?
• Are we going to continue building in flood risk areas?
• Will we have a better understanding of all types of flood
risk?
• Will flood risk management efforts be sufficient?
• Will we see more resilience?

10. Climate change impacts
• Flood losses across the EU are expected to increase from €4.2bn
per year (2000-2012) to €23.5bn by 2050.
• Insured losses are expected to increase from €1.6bn per year
(2000-2012) to €4.6bn by 2050.
Present and projected flood losses for return periods across the EU form Jongman et al. (2014)

11. Pricing and Climate Change
Based on Jenkins et.al. (2016), cited in Prudential Regulation Authority and Bank of
England. The impact of climate change on the UK insurance sector (2015)

12. How to design flood
insurance fit for the future?
Source: Defra (2011) ‘Principles for flood insurance’

13. Encouraging flood risk management?
Surminski and Eldridge, 2014

14. Flood Re: what levers for flood
risk management?
Resilient
Repair?
Risk
Information?
Incentivising flood
protection, planning
policy ?
Incentives for
resilience
measures?

15. The risk reduction and
resilience angle
Insurance is widely considered as an economic incentive for
prevention and risk reduction. The practical evidence for this is
limited, barriers are well-known.
→ What is needed to proceed?
Some examples:
• Advice and information for clients (flood alert)
• The WIND-advice service from Provinzial in Germany
• Resilient repairs
→ Does it work???

16. Some recommendations
• More transparency and data sharing – why is Flood Re
‘hidden’ from those who are covered?
• A clear transition plan for Flood Re, including FRM
investment levels and how risk reflective pricing will be
achieved particularly with the expected impacts of climate
change.
• More incentives and information needed for policyholders
to minimise their risk through property resilience measures
e.g. improved terms, reduced premiums, community strategy.
• A clear message to national and local government that flood
risk needs to be addressed.
• Use of resilient reinstatement when paying claims.
• Bring mortgage providers and developers to the table.

17. Thank you for your attention.
For further information:
s.surminski@lse.ac.uk