Flood Re misses opportunities for long term flood risk reduction say experts

This summer the Flood Reinsurance Scheme (Flood Re) will become operational, offering affordable insurance cover to properties at a high risk of flooding.The Association of British Insurers, which is implementing the scheme, estimates that without it 300,000 to 500,000 homes would struggle to get insurance in the face of rising flood risk.

“It is better than having no insurance but it is really a missed opportunity,” says Dr Swenja Surminski a leading researcher on climate change adaptation and natural disasters at the London School of Economics, and formerly climate change adviser at the Association of British Insurers (ABI).Going forward if we want to have private insurance cover it is only going to work if we do enough to manage the underlying risk. Flood Re is there to provide insurance but it doesn’t have any mechanisms that would enhance underlying risk management.”

Introduced by Defra in June 2013, Flood Re is intended to provide cover to households at high flood risk over a 25 year period as part of a gradual transition towards more risk-reflective prices. These high risk homes will be covered by insurance companies who in the event of a claim will be able to turn to the ‘not-for-profit’ Flood Re fund, which is financed through both flood insurance premiums and a levy on home insurance. However experts are concerned that long term risk reduction will not be achievable without additional measures being implemented.

"Going forward if we want to have private insurance cover it is only going to work if we do enough to manage the underlying risk. Flood Re is there to provide insurance but it doesn’t have any mechanisms that would enhance underlying risk management.”

Last month Professor Lord Krebs, chair of the Adaptation Sub-Committee for the Committee on Climate Change wrote to Flood Re chief executive Brendan McCafferty urging him to do more to ensure flood risk reduction.

“Flood Re should form the centrepiece of a twenty five year strategy that seeks to counter the increasing risk of flooding and reduce the number of households at high risk,” stated his letter, explaining that the scheme was not currently configured to achieve this.

Krebs pointed to several measures that would support risk reduction including ensuring that flood risk information provided by Flood Re to insurance companies is passed on to householders; supporting additional flood mitigation measures in high risk homes; placing flood risk reduction at the heart of the transition plan; targeting the benefits of Flood Re more keenly and calling on insurers to retain some risk as an incentive for claim costs to be managed.

Surminski too has called for risk reduction mechanisms to be incorporated into Flood Re starting with making risk reduction the main objective.

In a paper published in January 2014 she called for households to be made aware of their flood risk and the measures in place to protect them. She also called for homeowners to be informed that they are benefitting from subsidised insurance. “It might be that a homeowner has no idea whether they fall under Flood Re or not. Unless people understand where they are with regard to flood risk how can you expect them to take action?”

Flood Re says that information provided to insurers will be used to help customers reduce the impact of flooding on their properties. “The information that Flood Re will provide for insurers to distribute to their customers will include details on what they can do to help reduce the impact of flooding on them,” said a spokesperson.

“As Flood Re builds an evidence base of claims data in its first five years, we will be able to assess how many of the households covered by Flood Re suffer repeatedly from flooding. Using this evidence, we can then work with insurers and Government on the best way to encourage action among these customers.”

The organisation also says that ongoing investment in flood defences and sensible building development is required to address the UK’s rising flood threat. “Managing and wherever possible reducing flood risk is crucial. As part of the agreement to develop Flood Re, Government are committed to increasing flood defence spending for 2015/16, and to ensure adherence to planning guidance to avoid developments in areas at risk of flooding,” says the spokesperson.

Following implementation of Flood Re in summer the scheme will be required to publish a transition plan on the long term move to risk reflective pricing and this will undergo five year reviews. In its response to a consultation on the scheme published in December the government stated that Flood Re would be required to set out clear proposals on how it will create incentives for policyholders to take ownership and invest in resilience measures, including through financial incentives.

“We expect the review process to provide the appropriate opportunity for Flood Re to assess the potential impact of underwriting approaches and its wider communications strategy on incentivising resilience measures,” it said.


June 2013: Flood Re announced as preferred approach to address availability and affordability of flood insurance

Sept 2013: Draft flood insurance clauses made available for comment

Nov 2013: Summary of 149 responses published

May 2014: Water Act 2014 receives Royal Assent containing legislation for Flood Re in Part V

July 2014: Consultation on regulations for Flood Re opens

Sept 2014: Consultation closes receiving 80 responses

November 2014: Brendan McCafferty appointed CEO of Flood Re

Dec 2014: Government publishes responses and clarifies some details over cover

Jan 2015: Clauses in the Water Act that establish Flood Re come into effect

February 2015: Managing agent Capita appointed

Summer 2015: Flood Re to come into effect



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