Recent events highlight a troubling trend: increased flooding across Britain is reshaping the insurance landscape. From overflowing rivers to blocked drains, insurers are pulling back from providing coverage. This article delves into the implications of these changes, particularly for commercial properties and residential landlords.

The Current Flooding Situation

Increased Flood Frequency

In recent weeks, cities like London have experienced severe flash floods due to torrential summer rain. Meanwhile, Tropical Storm Debby has inundated southeastern U.S. states, underscoring the rising risks associated with climate change and urbanization.

Impact on Insurance Coverage

The increase in flood events is prompting insurers to reassess their risk management strategies. Many are responding with higher premiums and reduced coverage, especially for properties considered high-risk.

The Role of Flood Re

Overview of Flood Re

Flood Re is a joint initiative between the UK government and insurers designed to provide affordable flood insurance to homeowners. Since its inception in 2016, Flood Re has played a crucial role in mitigating the impact of flooding on insurance coverage.

Recent Claims Data

According to Flood Re, a third of its claims since 2016 were made in 2023/2024, influenced by winter storms Babet, Ciaran, and Henk. Major UK broker Howden reported a threefold increase in UK home flood claims since September 2023 compared to the previous year.

Insurer Reactions to Increased Flood Risks

Rising Premiums and Reduced Coverage

Insurers are adjusting their strategies in response to increased claims. Many are raising premiums and limiting coverage, particularly for commercial properties and privately rented homes not covered by Flood Re.

High-Risk Properties and Excess Charges

For properties deemed high-risk, insurance excesses can be significantly higher. For example, a landlord-owned property might face an excess of £2,500 ($3,175.25) instead of the usual £250.

Underwriting Challenges

The Impact of Climate Change

Amanda Blanc, CEO of Aviva, highlights that climate change is a major challenge for property insurance. Insurers are increasingly reluctant to cover properties prone to repeated flooding.

Difficulties in Securing Coverage

Jason McClean from The Property Insurer notes that residential landlords often struggle to secure insurance, as lack of coverage can hinder financing options.

Future Flood Risks and Insurance Strategies

Increasing Flood Frequency

Forecasts suggest that the frequency of severe floods will rise. For instance, the annual likelihood of a 1-in-100-year flood in Medway is expected to increase to 1.5% during the 2020s, a 50% increase from historical norms.

Localized Underwriting Approaches

Insurers are adopting a granular approach to underwriting, assessing risk on a case-by-case basis. This involves detailed analysis of individual properties and their flood risks.

Innovative Insurance Solutions

Parametric Insurance Products

Parametric insurance products are emerging as a solution for high-risk properties. These policies activate when specific conditions are met, such as reaching a pre-determined water level.

High-Premium and Excess Coverage

As traditional coverage becomes scarce, some insurers, like FloodFlash, are providing high-premium or high-excess options for properties that other insurers are unwilling to cover.

The Role of Urban Development

Building on Flood Plains

Building on flood plains has exacerbated flooding issues. Over 100,000 homes have been constructed on flood plains in England in the last decade, a trend that Flood Re does not cover.

Urbanization and Surface Water Management

The shift from farmland to urban areas has worsened drainage problems. Malcolm Roberts from FM points out that the increase in impermeable surfaces like concrete and roads has led to significant issues with surface water drainage.

Conclusion

The rise in flooding events is creating substantial challenges for property insurance in the UK. With increased premiums, reduced coverage, and innovative insurance solutions, both homeowners and insurers must navigate a complex landscape shaped by climate change and urban development.

FAQs

1. What is Flood Re and how does it work? Flood Re is a UK government-insurer partnership providing affordable flood insurance to homeowners. It supports policies for properties at high risk of flooding.
2. Why are insurers raising premiums for flood coverage? Insurers are raising premiums due to increased claims and higher risks associated with climate change and frequent flooding events.
3. What are parametric insurance products? Parametric insurance products provide coverage triggered by specific conditions, such as reaching a predetermined water level, offering an alternative for high-risk properties.
4. How has urban development affected flood risks? Urban development, particularly building on flood plains, has increased flood risks by reducing natural drainage and increasing surface water runoff.
5. What can landlords do if they can’t get flood insurance? Landlords might explore parametric insurance products or high-premium options. It is crucial to assess all available insurance solutions to protect their properties.