But the flood re-scheme is a temporary fix due to expire in 2039, on the assumption that flood risk will subside and the market can return to pricing more reflective of risk. As financial experts, we are concerned that the UK cannot adapt its infrastructure and systems quickly enough to climate change.
The success of a flood re-scheme depends on a joint agreement between the government, home owners and insurers. Government has to mitigate risks through investment and delivery. Homeowners minimize damage by rebuilding better and avoiding preventable exposures. And insurers should raise premium prices to better represent climate risk, but not so quickly that cover becomes unaffordable.
If premiums rise too quickly, fewer households will be insured and the ability to socialize risks into a larger pool will not be possible.
The scale of the challenge is already clear. Flood Re was designed when a 1.5°C increase in global temperature still felt achievable and a 2°C increase should be a hard limit.
Since then climate change has accelerated. By 2050, around eight million properties in England, nearly one in four, could be at risk of flooding.
The House of Commons Public Accounts Committee has warned that a breakdown in current defenses has left around 203,000 properties without reliable protection, while the Government aims to protect a further 200,000 by 2027. Labour’s target of delivering 1.5 million new homes in England by 2029 increases the risk of affordable development by putting pressure on affordable land development.
Many countries intervene to provide insurance support for disasters such as floods and hurricanes, but few set a deadline for this support. For example, the US National Flood Insurance Program (NFIP) was created to provide affordable flood insurance and reduce future damage by discouraging development in high-risk flood plains.
In practice, repeated severe weather has put the NFIP in debt and subsidized premiums have weakened incentives to avoid construction in flood-prone areas. Although the NFIP is regularly renewed by the US Congress, its long-term sustainability is uncertain.
France’s catastrofes naturelles scheme (CAT-NAT) covers losses from natural disasters that private insurers struggle to price, financed by a national surcharge. Rising losses from more frequent and severe disasters are putting pressure on the model, so the surcharge rises from 12% to 20% in January 2025. This raises a difficult question: How can the system remain fair as the cost of disasters increases?
Preparation after 2039
Our ongoing research suggests that flood-related volatility can increase financial stress and uncertainty. The choice is not simply between keeping Flood Re in perpetuity or scrapping the scheme. The real question is whether the UK can use the time Flood Re is buying to reduce risk quickly enough to enable a just transition to 2039.
This is why progress in the five areas must be visible and measurable.
First, as recent updates in England and Wales show, flood maps and modeling must reflect current conditions and future climate risk, with updates that keep pace with changes in flood risk drivers, whether from heavy rainfall or from rivers and seas.
Second, governance should be linked to clear responsibilities and minimum coordination standards across agencies for rivers, surface water, drainage and sewers. Better cooperation will help clear misunderstandings among risk management authorities in major capital programs.
Third, drainage and surface water management should be strengthened with clear rules and long-term maintenance so that new development does not increase the risk of flooding and runoff.
In addition, every tool in the box should be used to increase investment in flood risk reduction and maintenance. Flood protection benefits should be made transparent to insurers and fed into disaster models.
Finally, a clear flood re-future must be created together by planners, insurers and flood authorities. This will help establish common standards for flood risk management.
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Top photo: Residents wade through floodwaters in Loughborough, Leicestershire, after rain and strong winds from Storm Hank lashed large parts of the UK on Wednesday, January 3, 2024. (Callum Parke/PA via AP)
This article is republished from The Conversation under a Creative Commons license. The Conversation is an independent, nonprofit source of news, analysis, and commentary from academic experts. The original article can be accessed here.
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