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The outgoing chair of the UK flood reinsurance scheme has urged ministers to take stronger and faster action in response to the growing challenges posed by climate change. Mark Hoban stated that the government’s current pledge of £5.2 billion for flood defences by 2027 will need to be increased further to combat the worsening flood risk caused by climate change. Hoban emphasized that to return to a free market for flood insurance by 2039, additional funding and measures taken by homeowners to improve the resilience of their properties are essential. Flood Re, the public-private initiative led by Hoban, is set to end in 2039.
Hoban stated, “If you think that climate change is exacerbating risk over time, we need to go further and faster in order to see flood risk reduce.” He added that affordable premiums for homeowners can only be maintained when Flood Re ends if there is momentum in taking action.
Over 250,000 people rely on Flood Re for flood component coverage in their home insurance policies. Flood Re, launched in 2016 and partly financed through an industry levy, is designed to support the market until flood risks are better managed and insurers can independently underwrite these risks again.
Flood Re will present its latest transition plan, outlining proposals to enhance UK flood resilience by 2039. These proposals include a ban on building new homes in flood-prone areas and increased investment in maintaining existing flood defences and drainage systems.
According to Bank of England projections, approximately 2 million homes may become uninsurable in 30 years’ time if no additional action is taken against global warming under the most extreme climate-change scenario.
Hoban urged banks to be proactive and allow homeowners to borrow through their mortgages to fund resilience measures such as flood doors and elevating electrical sockets in their homes. He also called on insurers to adopt the “Build Back Better” scheme, which provides additional funds to improve resilience when customers’ homes are flooded.
Hoban stated that if Flood Re had to continue beyond 2039, it would be a sign of failure for the entire system. He emphasized the need for everyone to work together to address this issue successfully.
In the year ending March 2023, Flood Re paid out £46 million in claims, while receiving £52 million in premiums and £135 million in levy income, according to its latest accounts. Hoban stressed the importance of Flood Re being well-capitalized for future extreme weather events.
When questioned by the House of Commons Treasury select committee, Cristina Nestares, UK head of Admiral, stated that the challenge of underwriting flood risk would persist and that Flood Re was a positive initiative that insurers wanted to continue. Charlotte Clark, director of regulation at the Association of British Insurers, expressed that the 2039 end date relies on the assumption that flood defences will be effectively managed and that construction on flood plains will cease.
The government highlighted that over 500,000 homes have benefited since the launch of Flood Re and reassured that they will continue to work closely with Flood Re and the industry to ensure access to affordable insurance after the scheme ends in 2039.
UK Finance, representing the banking sector, confirmed that lenders can provide additional borrowing to support homeowners in financing flood resilience measures, contingent on an assessment of their affordability. They recommended that customers explore various borrowing options, in addition to increasing their mortgages, when considering funding home improvements.
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