Cost of climate change: Flood Re & working together to insure local communities

Mohammad Khan, PwC's UK general insurance leader

They got there in the end: through compromise and negotiation, 195 countries of the world have now signed up to a meaningful climate change deal.

The Paris Agreement is more ambitious in scale and scope than many people expected; and here in the UK we must learn from the techniques of compromise and negotiation that brought about a successful deal, as we work to mitigate the damaging effects of climate change that face us. The flooding seen across the north of England and other parts of the UK at the beginning of December was the first time the Met Office has directly attributed the level of unprecedented rainfall to climate change. And it has warned Britons to expect more severe and frequent bad weather in the years ahead. 

Flood Re, to be launched in April 2016, between insurers, policyholders and the Government is a good example of what constructive discussion between partners can achieve. When the agreement comes into force, it should enable the majority of households to purchase affordable insurance, covering their homes against flooding. This will come as positive news to many, but not all. Flood Re has its limitations – and insurers, local authorities and other key stakeholders must continue to work together to address these.

Firstly, the deal does not cover houses or flats built after 2009. Local authorities, under pressure to help alleviate the housing shortage, are continuing to build in high-risk areas. Many people living in a new-build property will be locked-out of Flood Re; making it very expensive, or impossible to insure their homes against flooding.

Secondly, small businesses in commercial premises are also excluded from the Flood Re deal. Such businesses often find it difficult to obtain affordable insurance against flooding, while they simultaneously lack the resources to cope when they are hit. Severe weather will threaten their profitability and potentially their economic viability. There will be businesses that feel they have no choice but to move away from their current location.

Local authorities do not want communities of homeowners trapped in properties vulnerable to flooding. Attracting and retaining successful small and medium-sized businesses is crucial as councils aim to build local communities that provide residents with an environment where they can live, work and invest in their local economies. While the cost of investing in flood defences may be significant, the cost of failing to do so may be even higher.

By working with insurers, central and local government can begin to confront some of these difficulties, whether within the remit of Flood Re or through bespoke arrangements for individual householders and small businesses. This partnership approach, of which the Paris agreement is an excellent example, is the UK’s best hope of balancing the need to build more homes, with the increased threat of flooding and the cost of flood defences.

For further details please contact:

Mohammad Khan on +44 (0) 20 7213 1945

[email protected]

Twitter - @Mohammad_S_Khan 

Linkedin - mohammad-khan-8613876