Evaluation of multi-sectoral partnerships (MSPs): flood risk management and climate change in London
Adaptation by societies and economies alone is not considered to be sufficient to address the complexity, range and magnitude of risks and opportunities associated with climate change (EEA, 2014).
Can flood insurance schemes help prevent flooding and address the underlying risk of flooding? Watch the interview with Swenja Surminski, Senior Research Fellow, London School of Economics.
Flooding is the costliest natural disaster worldwide, and the effective management of long-term flood risk is an increasingly critical issue for many governments across the world, especially in light of climate change. In England flooding is recognised as one of the most common and costliest natural disasters and is listed as a major risk on the National Risk Register. The consequences of surface water flooding were brought to the forefront by the summer floods of 2007, which caused the country’s largest peacetime emergency since World War II. The total economic cost of the floods was estimated to be £3.2 billion (2007 prices), with £2.5 billion borne by households at a cost of £1.8 billion to insurers.
The combination of biophysical and human factors influencing surface water flood risk means that it is extremely challenging to predict the occurrence and extent of events, limiting the ability to warn and plan for future risks. This and the large number of stakeholders involved make managing surface water flooding a very complex issue that requires multi-sectoral collaboration. One area where this is particularly apparent is flood insurance.
A unique aspect of cross-sectoral involvement in flood management in the UK is the public-private partnership on flood insurance between the government and insurance industry known as the Statement of Principles (SoP). Flood insurance in England (and across the United Kingdom) is unique amongst most other national schemes as it is purely underwritten by the private market, while the government commits to flood risk management activities.
In 2008, the SoP was extended for a final five-year period until 2013 and committed the government and insurance industry to a transition to a free market for flood insurance. However, sparked by concern about rising risk costs, the frequency of high loss events and the belief by the insurance industry that a free market might leave around 200,000 high risk homes struggling to afford cover a modified version of the partnership was agreed in 2013 with the creation of Flood Re, which started operations in 2016. Designed to secure affordable cover for properties at high risk of flooding, Flood Re complements the current insurance market, where private insurers are offering cover against flood damage as part of standard home insurance policies. Households under low to normal flood risk will still be provided with insurance as standard, whilst the flood element of the home insurance policy for the 1-2% of highest risk properties can be passed to Flood Re by insurers (Figure 16.1). The proposed Flood Re scheme is designed by Government and industry as a transitional solution, with an anticipated run time of 20-25 years. It aims to help smooth the transition to more risk-based pricing in a competitive insurance market in the future, while securing future affordability and availability of flood insurance.
The proposed Flood Re system. Details taken from the Environment, Flood and Rural AffairsCommittee on 26th February 2013 for the Flood Re insurance proposal and Flood Re MoU (Source: Defra and ABI, 2013).
While the change in the flood insurance scheme has been triggered by concerns of insurers about rising flood losses and concerns of at risk homeowners over future affordability, it remains unclear if and how Flood Re will be able to cope with future risks and fulfil its tasks. Rising losses and increased volatility can affect the fine balance between affordability and profitability for insurers. In extreme cases this could lead to insurers withdrawing from certain markets and regions, as highlighted by the UK’s insurance regulator PRA. While the recent flood loss trends in the UK are largely due to socio-economic factors, such as more development in exposed areas, climate change is expected to exacerbate these impacts. One important aspect therefore is if and how the insurance partnership can be integrated into overall risk management and climate change adaptation efforts, and how insurers can collaborate with other stakeholders to achieve greater resilience and ensure future insurability.
In this analysis we investigate this through a local lens: we focus on a case study of Greater London for evaluating existing and potential new partnerships for surface water flood risk management. Floods are a major issue for London, as it is vulnerable to tidal, fluvial, surface water, sewer and groundwater flooding. Surface water flooding is considered to be the most likely cause of flood events in London, and one of the greatest short-term climate risks. Around 680,000 properties are estimated to be at risk with 140,000 Londoners at high risk, and another 230,000 at medium risk.
We investigated the existing public-private flood insurance partnership and the proposed new insurance scheme Flood Re, and explored how this could influence London’s resilience to surface water flood risks today and in the future. The case study combined qualitative analysis in the form of relationships, governance and risk levels, and the development and application of a quantitative oriented agent-based model (ABM) to capture and model the dynamics of surface water flooding, changing surface water flood risk, and how adaptation and insurance decisions could affect future surface water flood risk in that dynamic.
- Flood Resilience Portal
- Committee on Climate Change: UK Climate Change Risk Assessment 2017.
- European Commission, Green Paper on the Insurance of Natural and Man-made Disasters, Strasbourg, 16.4.2013 COM(2013) 213 final.
- Flood Re
- Golnaraghi, M, Surminski, S. and Schanz, K.-U., An Integrated Approach to Managing Extreme Events and Climate Risks Towards a Concerted Public-Private Approach, Geneva Association, 2016.
- Institute and Faculty of Actuaries, The future of UK flood policy: Policy summary, 2016.
- Prudential Regulation Authority (PRA) / Bank of England, The impact of climate change on the UK insurance sector, A Climate Change Adaptation Report, Sep 2015.
- Surminski, Swenja, Strengthening the UK’s flood insurance partnership in the face of rising risks: what role for property developers?, Commentary, 6 July, 2016.
- Surminski, Swenja, Flood Re: a missed opportunity for sustainable flood risk management?, Commentary, 8 April, 2016.
- Surminski, Swenja, Taking a risk on the weather, Financial World, Feb/Mar 2016.