03Transition

The latest statistics show that in England 7% of new residential addresses were in Flood Zone 3, which is described as “the Environment Agency’s best estimate of the areas of land at risk of flooding, when the presence of flood defences are ignored and covers land with a 1 in 100 (1%) or greater chance of flooding each year from Rivers; or with a 1 in 200 (0.5%) or greater chance of flooding each year from the Sea.”

The National Infrastructure Commission has recommended the Government update planning guidance to “require planning authorities to ensure that from 2026 all new development is resilient to flooding from rivers with an annual likelihood of 0.5 per cent for its lifetime and does not increase risk elsewhere”.

In 2023, world temperatures were – across the year – 1.5⁰C higher than pre-industrial times for the first time. Alongside this, atmospheric CO2 concentrations reached a new peak in 2023 and are projected to continue to rise in 2024. Emissions globally are currently trending slightly above the RCP 2.6 pathway (which would mean achievement of the Paris Climate Change Agreement to limit global warming to 1.5⁰C) and the RCP 4.5 (which would mean missing them), but there is still time to implement policies to avert the worst implications of climate change. But limiting warming to even 2°C at this stage will require rapid, deep and in most cases immediate greenhouse emission reductions which are not being seen globally. Global temperature rises above 1.5⁰C would make it significantly more difficult – and expensive – for the UK to adapt to global warming.

The third National Adaptation Programme was published in July of 2023, representing the Government’s overarching national adaptation strategy, which is updated every five years. The assessment of the Office for Environmental Protection in its 2024 annual progress report is that: “The Third National Adaptation Programme published in 2023 represents some progress on previous plans, however many actions can be found in previous strategies and there is very little new funding, indicating a lack of ambition to keep pace with growing climate risks”. Overall they rated progress in this area as ‘Limited’ (Red).

Build Back Better went live in 2023/24, significantly increasing the demand for flood resilience products in the UK. The Environment Agency launched its second PFR framework this year (see Indicator 5), which embedded mechanisms for property evaluation and assurance of installation.  These helped to sustain the market for flood resilience products after years in which a limited market saw companies leaving the market. No new products achieved certification to the British Standard in the last year, and although there were no reports of product shortages, a tight market for PFR products gave rise to higher reported costs.

The updated Environment Agency PFR Framework anticipates a doubling of PFR installations over the coming 3-year framework, from 300-500 to approximately 1000+ homes per year over the cycle (although this is dependent on decisions by regional EA offices and Local Authorities). The new framework envisages spending of up to £125M, compared to £25M under the previous framework.

In the last 12 months, Build Back Better has been formally launched with insurers committing to the program and commencing delivery, 75% of the insurance market now offer BBB. Overall, the number of homes receiving PFR went from around 500 last year, to upwards of 1250 this year, showing a positive upwards trajectory.

A greater number of initiatives this year aimed to make householders aware of risks, and a high number of floods garnered considerable media attention. Flood Re partnered with the EA to launch a ‘Be Flood Smart’ campaign aimed at educating householders about how they could reduce their flood risk. The campaign used innovative approaches to inform people about what they could do and achieved over 12m social media impressions. The Environment Agency has also increased engaged, their 2023 update stated that they expanded flood alerts to an additional 180 communities and 110,000 homes, and recent storms drove significant further sign-ups. But a poll undertaken for Flood Re to inform the ‘Be Flood Smart’ campaign identified the underlying levels of flood risk knowledge with just 24% of respondents at ‘high’ flood risk correctly identifying their risk.

The cost of reinstating a home after flooding is dependent on the costs of material, labour and alternative accommodation. In 2023, the costs of the rebuild levelled off after a 20% rise in 2022, but record increases in the costs of rented accommodation, meant that overall flood claims continue to rise.

Taken together, the rebuild cost rises that occurred during 2021, and the continuing increases in rental costs, mean there has been a significant rise in the overall cost of flood claims. Flood Re has seen a 44% increase in the average cost of a claim between Storms Ciara and Denis in 2021 and Storm Babet in 2023¹, awaiting final cost figure from discussion with ABI/actuaries. Analysis undertaken by Flood Re and Verisk estimates that UK insurers will pay out £2bn to repair flooded homes in the UK over the next five years. This – and the rising premium costs noted in the next bucket – show insurers need to be doing more to contain costs.

¹ Note this figure is reflecting of properties ceded to Flood Re and will be influenced by the types of homes flooded in each storm.

A scoping exercise undertaken to inform Flood Re’s ‘Homes, Floods, and Insurance Hub’ found that the UK is generally seen as a world leader in flood modelling and mapping. Yet more needs to be done to ensure timely updates and inclusion of flood defences in commercial flood maps and models, to reflect the current state of risks. The next year should see a major step forward in terms of publicly available integrated flood modelling for England through the long-awaited NAFRA2/National Flood Risk Assessment 2, due to be published late 2024. This map should combine surface water with other risk types, and enable significantly more detailed information, including on projected depth, to be available to householders. Flood Re is not aware of plans to publish equivalent detail in Scotland, Wales or Northern Ireland.

Flood Re continues to ensure the widespread availability and affordability of insurance: 99% of flood risk sample continue to able to get 15+ quotes from price comparison websites, and 98% of those with recent flood claims were able to get 5+ quotes. Inflation in the insurance market was significant over the last year, with premium quote inflation for buildings & contents policies surging by roughly 40% during the year, and the ABI’s figures showing the average premium price in Q1-2024 up by 19% over a year prior, to £375. Flood Re’s tracking of flood risk properties shows proportionate but very slightly lower price increases for flood risk properties.

There has been a considerable rise in the cost of insurance premiums this year (as noted under Indicator 9). This appears to be driving some households to cancel their home insurance – ABI figures show 3-5% fewer policies written in 2023/24 compared to the year prior. There has also been some evidence of households moving to ‘essentials’ products, meaning that householders may have thinner coverage than previously. However, ‘essentials’ products for home insurance have not been found to lack important coverage elements, and, crucially, there is no evidence of insurers seeking to unbundle cover to remove flood protection, as has been seen in other countries.

The implementation of the Consumer Duty has increased the requirements on insurers to be clear and transparent with their consumers about their insurance cover, which will also present future opportunities for engagement on PFR via BBB. Flood Re has undertaken several initiatives to raise awareness about flood risk, as noted in Indicator 6 – but most householders continue to be unaware of their levels of flood risk.

The number of insurers offering Build Back Better (BBB) continues to grow, with more insurers coming on-stream over the next few months as well as the first Managing General Agent – Prestige Underwriting – committing to offering BBB. There was strong insurer engagement within COP 28, especially on adaptation and resilience. The ABI have launched an investment delivery forum to invest in clean energy and infrastructure assets utilising the freedoms expected to be created by Solvency UK, with £100B commitment from insurers.

Global trends in reinsurance markets have given rise to concerns. Reinsurance costs have soared over the past two years, owing to inflation and the growing prevalence of climate-related disasters. This has led Flood Re to need to increase the levy charged to the insurance industry to £160m from £135m per annum. But were Flood Re not in existence, the tightening reinsurance market would have added pressure directly to insurers offering flood cover in the UK.