What can the United States learn from the United Kingdom’s new flood reinsurance pool?

Summary

The UK’s new Flood Re program has supported the private flood insurance market, but also demonstrates that flood insurance cannot be kept affordable without a concerted effort to reduce the underlying risk.

Key Findings

  • Flood Re is a new not-for-profit reinsurance pool in the UK. Operated by the insurance industry, it is designed to be a transitional arrangement to support the private insurance market and secure affordability of flood insurance through premium subsidies.
  • The UK government has approved Flood Re despite not meeting cost-benefit targets, justifying it due to wider benefits to property markets and mortgage lending.
  • Since its launch in April 2016, Flood Re has been supporting the commercial market in providing affordable insurance, but it has not yet been tested by a major flood event.
  • Flood Re is likely to come under pressure in the face of rising flood risk, since it fails to incentivize flood risk management and risk reduction efforts.
  • Flood Re demonstrates that flood insurance cannot be kept affordable without a concerted effort to reduce the underlying risk.

Surminski, S. (2017). Washington, DC, Resources for the Future.
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