Response to public consultation on ‘Securing the future availability and affordability of home insurance in areas of flood risk’


Summary of key points

  • Flooding is the biggest natural disaster risk in England. Flood risk is expected to increase due to climate change and continued development of floodplains for residential and commercial property, which increases the exposure of homes and businesses. Addressing the causes and consequences of flooding is very important and we welcome the recent efforts by the Government and the insurance industry to reform the approach to flood insurance in England.
  • The proposed new scheme, Flood Re, offers some promising, innovative approaches for dealing with affordability and availability, but it has fundamental shortcomings.
  • The design of the Flood Re scheme, which is expected to last until at least 2035, has not taken into account adequately, if at all, how flood risk is being affected by climate change. For this reason, it is likely to be put under increasing pressure and may prove to be unsustainable because the number of properties in future that will be at moderate and high probability of flooding has been significantly underestimated.
  • The Flood Re scheme also does not offer integrated mechanisms for flood insurance to play its part in climate change adaptation. This means that it is unlikely to provide a long-term solution to the growing problem of uninsurable properties.
  • The design and operation of an insurance scheme should have good risk management behaviour in mind, not just by the insured, but also by the Government and local communities. Private flood insurance will only have a future if it is embedded in a comprehensive risk management programme that responds to changes in risk over time, which would also have clear advantages beyond the issue of insurance.
  • Not enough consideration has been given to how the proposed Flood Re system will complement Government action on flood risk management. The existing scheme, governed by the Statement of Principles on the Provision on Flood Insurance, with all its limitations, did provide links between flood insurance and spending on flood defences, improvements in planning regulations, and access to flood risk information. It is not clear whether the new Memorandum of Understanding between the Government and insurance industry will strengthen these links.
  • We welcome the recognition of risk-based pricing as a guiding principle for flood insurance, but it remains unclear whether the Government and insurance industry has taken into account the consequences for affordability of a continued rise in flood risk for many properties.
  • There needs to be more consideration of the roles that other stakeholders, such as developers and mortgage providers, can play. Flood insurance provides significant benefits for these stakeholders, potentially creating moral hazard, while their role in promoting risk reduction is not formalised. If the Government is moving into a new era of flood insurance, as claimed by the consultation document, then this important aspect should be considered.

Swenja Surminski, Florence Crick, Jillian Eldridge and Bob Ward