What is the future of flood insurance?



A Bank of England report has revealed that insurance premiums covering the cost of flood risks could rise indefinitely over the next 30 years if climate action is not undertaken.

Published in May, the Climate Biennial Exploratory Scenario (CBES) indicated that a hefty loss of £334 billion could be incurred by the UK’s largest insurers and banks if global temperatures and sea levels continue to rise.

With the government reinsurance scheme FloodRe set to conclude in 2039, the high price of flood insurance policies could leave some unprotected against the financial damages caused by flooding.

As the cost of flood damage cover threatens to rise in the shadow of the climate crisis, what does the future look like for homeowners and insurers?


What did the Bank of England study reveal about the future of flood insurance?

The Bank of England report used three scenarios to analyse risks arising from the transition of a carbon-intensive economy to a net-zero one as well as the physical consequences of taking no action against rising global temperatures.

These were:

  • Early Action scenario
  • Late Action scenario
  • No Additional Action scenario

If banks and insurers did not take action to mitigate the impact of climate change, they could potentially incur profitability drags of 10-15 percent each year.

This would have a knock-on effect on those living and working in areas with a high flood risk.

“Ultimately, in a ‘no action’ scenario, we would see a reduction in access to lending and insurance for so-called ‘climate vulnerable’ sectors and households,” said Sam Woods, the Bank of England’s Deputy Governor for Prudential Regulation, in a post-study speech.

“To give an example of what this means, homes at risk of flooding would likely become prohibitively expensive to insure or borrow against.”

He also warned there is evidence that homes located in areas particularly at risk of flooding, could become completely uninsurable.


Will floods increase in the future?

The Environment Agency has predicted that 2.4 million homes in England alone are at risk of river or coastal flooding, with another three million at risk from surface water flooding.

The International Panel for Climate Change (IPCC) also warned that rising sea levels combined with increased instances of heavy rainfall and storm surges will compound flood risks.

We have seen evidence of this occurring already across the globe; flooding in Australia and Central Europe and wildfires in North and South America demonstrate how damaging climate change is to many of our systems.

Earlier this year, there were reports that flood and cyclone areas in Australia could become uninsurable by 2030, with the cover being too expensive or entirely unavailable.

The warning signs for the future flood events Britain could face are evident now.


How can flood risk assessments help insurers and homeowners?

GeoSmart flood risk assessments are essential for those wanting to understand the flood risks associated with a determined site or property.

From a homeowner’s perspective, a flood risk assessment could lower the cost of insurance premiums by demonstrating the history of flooding in the area, whether flooding will directly affect your property and how flood risks can be mitigated.

With insurance generally needing to be renewed each year, flood risk assessments could prove crucial in keeping down the price of cover.

“As the climate risk rises, so too do the physical risks to people and property and the financial risk to insurers”, said Sir James Bevan, Chief Executive of the Environment Agency.

For insurers, flood risk assessments are beneficial because they establish the potential losses of providing cover for a specific property, thereby enabling them to give customers a more accurate and reliable forecast of future premium costs.

For more information on what GeoSmart flood risk assessments include and the options we offer click here.