Five lessons from the floods
Dr Celine Herweijer, a partner in PwC's sustainability and climate change team, leads the firm’s climate policy & international development teams. She is a specialist in climate risk modelling, and reflects on the experiences of flooding in the UK.
1. The world can’t insure its way out of climate change. Insurance does not reduce total risk, it just helps us deal with the financial cost of the impact of that risk. The only way to reduce risk is through investment in adaptation and risk-informed development planning. Without the latter two, the long term affordability and availability of insurance could be under threat.
2. Strategies exist for adapting our homes and infrastructure to flood risk. Robust and enforced building codes that take into account present and future risk are 'no regret' strategies. Limiting development in high risk areas, and repairing damaged properties to make them more resilient to extreme weather events present no downside. Even in the face of higher storm surges and more intense rain events, the right adaptation investments, including flood defences, elevated buildings, engineered foundations and reinforced cladding, can reduce future risk below present day levels. For example, studies have shown that adaptation could reduce annual losses from storm surges for individual properties in high risk coastal communities in the 2030s to below present-day levels(3).
3. Insurance and the housing market must foster action to reduce risk. It is incumbent on those insured to take all reasonable steps to minimise loss. Just as it is the responsibility of motorists to ensure that their cars are roadworthy, otherwise they may not recover the full amount of their claim because of contributory negligence, the obligation is the same for home owners exposed to flood or any other risk.
4. Property owners and investors need the right support and incentives to act. Alongside government investment in hard defences and better and tougher planning controls, we need financial incentives for home owners and property developers in higher risk areas. Whether tax rebates, loans, or insurance premium reductions that reward action, people in high risk areas need help to make the right short term investment decisions. With climate change increasing risk levels over the long term in the UK’s coastal and riverine floodplains, those most at risk need help transitioning to better buildings and at the most extreme, to better locations. Gradual support is far better than waking up one day and to find your property is uninsurable, and un-sellable.
5.It’s not just a rainy day problem.Year to year we are experiencing record breaking extremes and weather events in many areas – headlines of the record-breaking US drought, Australian open heatwave, and wettest UK winter all in the past few months. Whilst here in the UK we may be consumed with the devastation of floods today, it won’t be long before the UK experiences another record breaking summer extreme of prolonged drought and water bans, and/or heatwaves or cold spells, crippling our transport systems and the business interruption and price volatility that will ensue. We are loading the dice all around on extreme weather events, and the story is the same for all perils – plan and invest for the risks of the future, not for the risks of the past.
PwC estimated the cost of continuing UK Floods to the insurance industry at up to £500m for the January and December weather impacts, and the economic damage at £630m.
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1. In the US, private insurers have largely refused to offer policies to cover flood damage to homeowners since the 1920s, after recognising the risk of large correlated losses from events, which ultimately led to the National Flood Insurance Programme in 1968.
2. In France, property insurance includes a mandatory extension to cover damage by natural hazards, including some extreme weather events. Insurers can purchase reinsurance from a publically funded reinsurer - the Caisse Centrale de Reassurance (CCR) - which the Government provides an unlimited guarantee to, to meet claims that exceed the capital reserves of the CCR.
3. In a 2008 study by Lloyds of London and Risk Management Solutions (RMS) co-authored by Dr Herweijer, it was shown that adaptation could reduce average annual losses from storm surges for individual properties in high risk coastal communities in the 2030s, to below present-day levels. Coastal Communities & Climate Change: Maintaining future insurability: Lloyds.com