Since April 2016 the UK has a new flood insurance scheme: Flood Re has been heralded by government and industry as a roadmap to affordability and availability of flood insurance. However new research highlights how the scheme is doing relatively little to address the longer-term issue and it is only one piece of the puzzle.

There needs to be more of a multi-pronged approach to tackling the problem of flood risk and there are some things insurers can do to help the process.

Flood Re has seen successful take-up by insurers and it is making flood insurance more affordable to individual households regardless of the flood risk. Yet it does not – and cannot –  do much to tackle the problem of flood risk in terms of land use planning, sustainable drainage systems (SUDS) or resilient building design, all aspects of protection that are undervalued in the current system.

While expectations of the insurance industry have traditionally been high when it comes to flood risk management, insurance alone cannot provide the solution to rising flood risk arising from climate change and local authority planning decisions.

This approach is supported by a working paper published by the Grantham Institute on Climate Change and the Environment at the London School of Economics (LSE).

Around 12% of all new residential developments in England between 2001 and 2014 were made on floodplains, according to a recent report by the Committee on Climate Change. Around 25% of that floodplain development has been in areas at medium or high levels of flood risk.

New homes built after 2009 are excluded from Flood Re. So clearly there is a requirement for local authorities, property developers and other agencies to play a role.

From the insurers’ viewpoint, developing the right flood insurance arrangements to incentivise flood risk reduction and adaptation to climate change is a key challenge. More can be done nationally on the macro-level, meanwhile insurers are doing more on the micro-level, isolating risk down to the individual property with solutions like LexisNexis Map View (rather than assessing risk for blanket postcode areas).

Property developers and planners after all don’t really bear the burden of flood risk, so there is currently little incentive for them to change their approach. Developers are involved early on in the process and there are opportunities to incorporate things like Property Level Protection (PLP), waterproofing technologies, aperture protection and perimeter protection into buildings. From the insurance viewpoint, Map View has the capability to hold PLP measures in the risk score for an individual property, potentially giving an incentive to the home owner in the form of lower premiums.

And yet – as the government’s Environmental Audit Committee has pointed out – there are not usually the right checks in the planning process to ensure individual properties are built in a flood-resilient way. Nor is there much incentive for properties to be built this way currently.

The case of flood insurance in the UK illustrates the huge challenges: even national government and the insurance industry together cannot fully address these risks.

The LSE research looks at different public policy options, new types of partnerships and how they could help to maintain affordable insurance premiums, strengthening the current flood insurance arrangements.

While the Environment Agency is able to oppose developments at high levels of flood risk it is ultimately down to each local authority to make the decision. So while Flood Re is successful for now, in terms of its frame of reference, it represents just a part of the solution.

“We must look at the bigger picture,” the researchers said. “Of the [public policy] solutions we tested, only sustainable drainage systems significantly reduced flood risk and insurance premiums.

“The role of insurers can go beyond providing risk transfer. The insurance industry is the world’s largest institutional investor and could play a role in infrastructure and property investment decisions. As it stands, investment decisions by insurers do not usually consider the climate risk knowledge gained on the underwriting side.

“Far too often property and infrastructure investment decisions go ahead without any reflection on potential climate risks. Closer attention paid to flood resilience at the time investment decisions are made could result in improved flood insurance provision.”

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