UK Flood Defences Creating Headaches for British Insurers

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How can insurers and insurtechs respond to an increased frequency of floods and a diminished resilience against them?
The quality of the UK's flood defences have hit a "historic low", posing lots of problems for insurers whose customers are set for a rough winter

The UK's flood defence infrastructure has reached its lowest state of repair since records began, raising serious concerns for insurers and property owners as the nation grapples with increasingly severe weather events.

The warning comes amid reports that only US$1.2 billion of a promised US$6.2 billion allocation for flood defences has been spent, leaving critical infrastructure vulnerable during one of the wettest 18-month periods on record.

Storm impact and insurance response

Last winter's devastating sequence of storms—Babet, Ciaran and Henk—resulted in 5,000 flooded properties, though the Environment Agency notes that existing defences protected an additional 250,000 properties. The financial impact has been significant, with Flood Re, the UK's flood reinsurance scheme, reporting that these three storms were the most materially significant events since the scheme's creation in 2016.

Despite these challenges, Flood Re did maintain profitability, posting a US$29.7 million pre-tax profit in the last financial year. The scheme, which effectively pools flood risk – and is funded through insurer levies and premiums – has supported half a million households since its inception.

Floods affected 5,000 properties in the UK over 2023

Future risk projections

The situation has prompted warnings from global insurers about development in high-risk areas. Allianz UK has expressed some major concerns about "high volumes of houses being built in areas at the highest risk of flooding", while forecasting suggests the challenge will intensify. According to the HECC report, the number of people in the UK at risk of flooding is projected to increase by 61% by 2050 under a modest warming scenario (2°C) and 118% under a high warming scenario (4°C).

"It's concerning to see high volumes of houses being built in areas at the highest risk of flooding", said an Allianz UK spokesperson, highlighting the insurance industry's growing unease about sustainable development practices in flood-prone areas.

Allianz has warned developers to stop building on high-risk areas

Commercial impact and innovations

The impact on businesses has been particularly severe. One-third of commercial properties in the UK face flood risk, with an estimated 40% of small and medium-sized businesses never reopening after experiencing significant flood damage. This has led to innovations in the insurtech sector, with companies like Previsico developing flood forecasting technologies to help insurers and property owners alike better assess and manage risk.

Initially spun out of Loughborough University in 2019, Previsico worked closely with the government by feeding live flood warnings into COBRA, and has since expanded its work with brokers and insurers. Jonathan Jackson, CEO of Previsico, says that "both residential and commercial properties in the UK are subject to increasing flood risk due to climate change, which is already affecting insurers' risk appetite and making it increasingly challenging for them to provide affordable flood risk insurance."

Jonathan Jackson (left), CEO of Previsico, stood before a demonstration of the company's water level monitoring technology | Credit: Previsico

Government and industry response

Emma Hardy, the UK Floods Minister, has announced the formation of a Floods Resilience Taskforce to coordinate flood preparation and resilience between local and national government, which is a big step in the right direction. The Environment Agency has increased its maintenance and repair budget to US$292 million, up from US$248 million in the previous year, and has conducted 216,000 checks since last winter.

Emma Hardy, UK Floods Minister | Credit: Gov.uk

Industry experts are also calling for better adoption of resilience measures. Flood Re's Build Back Better scheme, which provides funding for flood-resilient repairs, has seen limited uptake despite its potential to reduce future claims. Mervyn Skeet, director of general insurance policy at the Association of British Insurers, said improving properties' flood resilience was "vital" and the group had "consistently called for increased investment in flood defences".

Andy Bord, outgoing CEO of Flood Re, emphasises the urgent need for increased investment. "Even with the current investment we are seeing flood risk rise, and we need to see flood risk reduce," he says. "There needs to be a step-up in quantum and there needs to be a longer-term commitment to that investment".

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