UK must increase flood defense spending, insurance scheme chairman urges [Boss Insurance]

Uk Must Increase Flood Defense Spending, Insurance Scheme Chairman Urges

Receive free updates on the UK insurance industry

Ministers must ‘go further and faster’ on UK flood defense spending as the scale of the challenge from a worsening climate grows, the outgoing chair of the flood reinsurance scheme has warned from the country.

Mark Hoban told the Financial Times that the government, which has pledged a record £5.2bn on tidal barriers and other defenses by 2027, should increase funding further as climate change worsens the risk of flooding.

The former city minister said returning to a free market for flood insurance by 2039 would depend on that extra money and action by homeowners to improve the resilience of their properties. Flood Re, the public-private initiative to support the Hoban-led market, is then expected to come to an end.

“If you think climate change is exacerbating risk over time, we need to go further and faster to reduce flood risk,” said Hoban, who is due to leave office this year.

Only then will homeowner premiums “remain affordable” when Flood Re ends, he said, adding: “We need to build momentum.”

Mark Hoban: “We need to go further and faster to reduce flood risk” © Laszlo Beliczay/EPA/Shutterstock

More than 250,000 people have home insurance policies with the flood component underwritten by Flood Re. Launched in 2016 and funded in part by an annual industry levy, the scheme is only intended to exist until that flood risks are better managed and that insurers are once again able to underwrite these risks on their own.

Flood Re is presenting its latest transition plan this week, detailing proposals to make the UK flood resilient by 2039. These include ensuring no new homes are built in prone areas to flooding and to invest more in the maintenance of existing flood defenses and drainage systems.

According to Bank of England projections, around 2 million homes are at risk of becoming uninsurable in 30 years under the most extreme climate change scenario, in which no further action is taken against global warming.

Arguing that such widespread insurance problems would create market instability of around £1.2bn for UK household mortgage debt, Hogan urged banks to be ‘proactive’ and let people borrow through their mortgage to fund resilience measures such as flood gates and placing electrical outlets higher. in the houses.

He also reiterated a call for insurers to adopt ‘Build Back Better’, a program launched by Flood Re, where customers whose homes are flooded receive extra money to improve resilience when they begin repairs. .

Hoban said it would be “a sign of failure on the part of the whole system if Flood Re were to exist beyond 2039. We have time to get it right, but it forces everyone to put shoulder to wheel”.

A relatively calm year for the floods led to Flood Re paying £46m in claims in the year to March 2023, far exceeded by £52m in premiums received and £135m of levy income, according to its latest accounts.

Over the same period, the scheme’s assets have further increased to £772m. Hoban said Flood Re needed to be “well capitalized” for the next period of severe weather.

Asked by the House of Commons Treasury Select Committee last month whether a private market could realistically replace the scheme in 2039, Cristina Nestares, Britain’s chief admiral, said the challenge of flood risk underwriting “was not going to go away”. She added that Flood Re was “positive, and we want to find a way to continue.”

Charlotte Clark, regulatory director at the Association of British Insurers, said the end date of 2039 reflected “the idea that by then the UK’s flood defenses will be sorted and we no longer build on flood plains”.

“If those things don’t happen, the demand for Flood Re will be there,” she added.

The government said more than 500,000 households have benefited since Flood Re launched. “We will continue to work closely with Flood Re and the industry before the program ends in 2039 to ensure access to insurance. affordable,” he said.

UK Finance, which represents the banking industry, said lenders can provide additional borrowing to help homeowners fund flood resilience measures, subject to an assessment of their ability to afford it.

“When considering financing home renovations, customers should consider a range of borrowing options, in addition to increasing their mortgage,” he added.