How the UK is keeping flood insurance affordable – until 2039

Conversation
A flooded road in the UK

While floods are becoming more frequent in recent years, you should still be able to buy reasonably priced home insurance. That reassurance exists largely because of Flood Re. Launched in 2016, Flood Re is a national public–private reinsurance scheme that prevents many properties from being priced out of cover.

But the Flood Re scheme is a temporary fix that’s due to end in 2039, on the assumption that flood risk will fall and the market can move back towards more risk-reflective pricing. As financial experts, we’re worried that the UK may not be able to adapt its infrastructure and systems to climate change fast enough.

The success of the Flood Re scheme hinges on a shared contract between government, homeowners and insurers. Government has to cut risk through investment and delivery. Homeowners reduce damage by building back better and avoiding preventable exposure. And insurers must increase prices of premiums to better represent the climate risk but not so fast that cover becomes unaffordable.

If premiums rise too quickly, fewer households will stay insured and the ability to socialise risks across a large pool will not be possible.

The scale of the challenge is already clear. Flood Re was designed when a global temperature rise of 1.5°C still felt achievable and a 2°C increase should be a hard limit.

Climate change has accelerated since then. By around 2050, around 8 million properties in England, roughly one in four, could be at flood risk.

The House of Commons public accounts committee warns that deterioration in existing defences has left around 203,000 properties without reliable protection, while the government aims to protect 200,000 more by 2027. Labour’s target to deliver 1.5 million new homes in England by 2029 risks adding pressure by pushing development onto cheaper land that’s at greater risk of flooding.

Continues…

The Conversation logoFor the full article co-written by Dr Meilan Yan visit the Conversation.

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Notes for editors

Press release reference number: 26/40

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