Protect against floods or risk market instability, warns outgoing Flood Re Chair

Mark Hoban, former City Minister and outgoing Chair of Flood Re, has warned that the UK must urgently adapt to climate change and prepare for an increased risk of flooding.

• Flood Re’s ‘Transition Plan’ looks at flood risk over the next 20 years, and what this means for access to insurance and other financial products. Analysis included in latest Plan calls for the UK to do more to fully prepare and adapt to the risk of flooding by 2039 when it exits the market.
• Climate change-related damages cost the UK approximately 1.1% of UK GDP at present. This is forecast to rise to 3.3% of GDP by 2050.
• Global reinsurance costs spike by 40 per cent as climate change increases extreme weather around the world.

Flood Re’s new Transition Plan sets out the actions the UK needs to take to make sure it is flood resilient by 2039. This includes:

• Making sure flood risk and climate change are included as central principles in planning and environmental policy – ensuring the right homes are built in the right places. Research from AXA found that between 70,000 and 120,000 homes were built in flood-prone areas in England from 2009 to 2020.
• Maintaining and increasing investment in civil flood defences, which disproportionately benefit poorer households.

Mark Hoban, Chair of Flood Re since its inception in 2016, said:

“We’ve been largely fortunate in recent years and escaped the widespread flooding that will inevitably return and become more persistent in the UK as the climate gets wetter and warmer.

“Today, Flood Re is here to pool the risk and make sure people can access affordable flood insurance, but we’re a medium-term solution that will end by law in 2039. While we can be proud of what has been achieved, we need to go much further as climate change-related damages grow.

“This is not just about a small number of homes by a river or on the coast – over three million homes in urban areas are now at risk of flash flooding. If significant numbers of homes are left unprotected when we leave the market in 2039, both the insurance and £1.3 trillion mortgage sectors could find themselves facing instability.”

Flood Re was created as a public-private partnership between the government and the insurance industry in 2016, when fewer than 1 in 10 homes with a previous flood claim could get flood insurance quotes from two or more insurers; whereas today 99% of householders at high risk of flooding are able to obtain quotes from 15 or more insurers. By statute it will exit the market in 2039 and is mandated to provide plans for the UK to become flood resilient and have a risk-reflective market by then.

As part of its latest Transition Plan, Flood Re commits to:

• Supporting research and working with partners to create a comprehensive scoring methodology for property flood resilience(PFR) adaptations (e.g. flood doors and non-return valves) – better enabling the insurance market to assess how the risk and damage of flooding is mitigated by adaptations, and in the future allowing premiums to reflect improved resilience.
• Introducing Flood Performance Certificates so that current and future homeowners can see how well protected against floods their properties are – allowing the benefit of adaptations to be reflected in house prices.
• Creating a Centre of Excellence to drive innovation and adaptation in how the UK responds to flooding.

PFR measures are proven to reduce the damage caused by floods and reduce the amount of time families need to spend out of home in the event of a flood. The Transition Plan suggests the size of the economic opportunity associated with growing this sector is significant.

In 2022 Flood Re launched Build Back Better, the first betterment scheme in any sector of the UK’s insurance industry, which enables participating insurers to offer customers up to £10,000 over and above what is needed to repair damage after a flood to install PFR measures.