UK faces ‘insurance instability’ as flood risk worsens
The UK needs to step up its efforts in responding to climate change or face the risk of homes without protection as floods and other extreme weather events intensify, outgoing Flood Re Chair Mark Hoban has warned.
“This is not just about a small number of homes by a river or on the coast. Over three million homes in urban areas are now at risk of flash flooding,” he said.
“If significant numbers of homes are left unprotected when we leave the market in 2039, both the insurance and £1.3 trillion ($2.5 trillion) mortgage sectors could find themselves facing instability.”
Flood Re, a reinsurance scheme aimed at making home flood cover widely available and affordable, commenced in 2016 as a public-private partnership between the government and the insurance industry.
The scheme will exit the market in 2039 as set by law, by which time it is hoped insurers will be offering policies based on actual risk to property.
“We’ve been largely fortunate in recent years and escaped the widespread flooding that will inevitably return and become more persistent in the UK as the climate gets wetter and warmer,” Mr Hoban said.
“Today, Flood Re is here to pool the risk and make sure people can access affordable flood insurance, but we’re a medium-term solution that will end by law in 2039.
“While we can be proud of what has been achieved, we need to go much further as climate change-related damages grow.”
In preparation for 2039 Flood Re has released a report outlining its plan for insurance to remain affordable and available after its exit.
Reducing flood risk and reducing the damage and cost of flood form part of the plan but Flood Re says whether its aim will be achieved is dependent on other conditions outside its control.
“There is a strong macroeconomic case to invest in flood defences, regardless of the availability of insurance,” the Flood Re report says.
“While Flood Re is a successful model, its existence inhibits some of the market mechanisms which would signal flood risk, incentivise action to mitigate this risk and innovate to provide new solutions.
“In the long-term the aim should be to manage flood risk effectively so that Flood Re is not needed.”
Click here for the report.