Flood risk insurance must adapt in a world of climate change

By Jonathan Jackson
Jonathan Jackson, CEO, Previsico, looks at the changing face of flood risk analysis and insurance as climate change shifts the insrance industry goal posts

In October last year, ahead of the COP26 summit in Glasgow, the UK’s Environment Agency (EA) issued a stark warning about the practical impact of climate change on flooding. Entitled “Adapt or Die”, the statement said that investing in national flood defenses would not be enough on its own to deal with the increased risk of flooding in the UK. 

Due to the impact of climate change, the EA asserted that homeowners and businesses will need to do more to adapt to the risks and impact of flooding as it becomes more extreme and frequent.  

“Some 200 people died in this summer’s flooding in Germany,” said Emma Howard Boyd, the agency’s chair, adding: “That will happen in this country sooner or later, however high we build our flood defenses, unless we also make the places where we live, work, and travel resilient to the effects of the more violent weather the climate emergency is bringing.”

The upshot of all this shift of responsibility is that businesses and homeowners will need to take action to adapt to more severe and increased future flooding. Any support that the insurance industry can give to boost flood risk reliance will benefit all parties. 

Insurers will benefit from reduced future flood claims, while insureds will benefit from reduced disruption, less need to make claims, and, consequently, lower premiums.  

Proactive insurer action

Taking this on board, insurers Zurich and NFU Mutual are examples of those being proactive about flood risk. Both offer to ‘build back better’ and fund flood resilience measures for properties following a flood claim, essentially leaving the property better prepared than it was before the flood. 

Liberty Specialty Markets (LSM) is another innovative insurer, which, in partnership with Previsico, has become the first UK insurer to provide real-time flood warnings to clients (triggered by Internet of Things (IoT) sensors placed in watercourses close to their premises) and surface water flood warnings.

The ground-breaking initiative will see LSM’s flood-affected commercial clients receive personalised warnings and graphical representations of water levels in their immediate area, enabling them to take urgent action to protect their premises, valuables, and vehicles in the event of a flood. 

The EA’s call to focus on adaptation represents an opportunity for more insurers to follow these examples of leadership. The good news is that there are many ways that insurers can be more proactive for the benefit of their clients and themselves.  

How to boost flood resilience

According to the industry’s flood resilience code of practice, preparing for a flood requires a combination of flood resilience measures, a flood plain, and flood warnings. 

While corporates are usually better placed to install flood resilience measures, few homeowners or small businesses are likely to do this without prompting. This is an area where insurers can help, ranging from increasing homeowners awareness through communications around the issues to advising what measures can be taken, to offering reduced premiums for customers who take action. 

Having a flood plan is vital in high-risk areas so that once flood warnings are received, residents can:

a) take extra precautions, such as shutting off gas and electricity; and b) transport any moveable assets and valuables to a safe place. Vehicles can be moved to higher ground. 

Resilience measures include modifications to a property, such as installing flood gates on doors and windows and fitting non-return valves on toilets. 

Climate risk assessments can help at a macro level when viewing future risk, while flood risk assessments can help property owners to understand the potential severity of risk, as well as which resilience measures are most likely to be effective, plus any actions and processes that need to be included in a flood plan. 

Real-time flood alerts mitigate losses

The government and the EA cannot protect the country from flooding without the insurance industry, and the industry and their clients cannot do it without accurate, real-time flood risk data. 

The reason is the increased surface water flooding, which the EA does not provide warnings for, yet Aviva forecasts is a risk to 1 in 5 UK properties. This is why the UK government-backed Previsico, a spin-out based on 20-years of academic research at Loughborough University, delivers accurate flood forecasts and real-time flood alerts to the Cabinet Office in 2019.

Since then, major corporates have jumped on board. BT for instance, in partnership with Previsico and Zurich, can now predict which assets are likely to flood in advance of a major storm. They can then send specialist teams to install emergency flood resilience measures in the right places at the right time.

What's next for the flood risk insurance space?

The scale and risk of flooding are set to increase, with WRI forecasting a cost of US$1.7trn p.a. globally by 2050. However, many flood losses can be prevented if flood warnings, plans, and resilience measures such as IoT and live hyper-accurate flood alerts, such as Previsico’s, are adopted. 

The EA has given its warning and many large corporates are already taking action. It’s now time for insurers to grab the opportunity this presents to provide better service to clients and reduce future flood losses before it’s too late.

About the author: Jonathan Jackson is the CEO, Previsico, a global flood forecasting company that spun out of Loughborough University in 2019. The insurtech's mission is to reduce the impact of flooding globally by delivering flood forecasting technology to those who need it. Previsico’s cutting-edge FloodMap Live technology is underpinned by two decades of research at Loughborough University.


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