The Insurtech Sector's Response to the UK's Flooding Problem

Black clouds may been looming over the UK this winter as reports emerge that the nation's flood defences are in the worst state of repair for decades.
Despite promises of a significant £4.7bn (US$6.2bn) investment under the previous government, it has emerged that the vast majority of those funds have been allocated. According to reports, only £924m (US$1.2bn) has been spent on rejuvenating the nation's flood prevention schemes - a rather worrying sign for insurers and property owners with a stake in particularly high-risk areas.
The recent performance of the UK's flood defences
Last winter, the UK was battered by storms Babet, Ciaran and Henk, all in quick succession. Whilst existing flood defences shielded around 250,000 properties, more than 5,000 buildings were flooded. The financial toll of these events has been considerable, attracting attention from Flood Re, the UK's flood reinsurance scheme.
Remarkably, despite these challenges, Flood Re recorded a £22.8m (US$29.7m) pre-tax profit last fiscal year. Since its establishment in 2016, the reinsurance scheme with its pooling of flood risk, underpinned by insurer levies and premiums, has provided essential support to half a million households.
Rising flood risks and sustainable development concerns
A lack of investment in flood defences would be alarming at the best of times, but as climate change threatens to increase the amount of extreme weather events across the region, it seems downright dangerous.
Projections are stark, with forecasts indicating that, under a modest warming scenario of 2°C, the number of UK residents at risk of flooding could soar by 61% by 2050. This risk is predicted to more than double to 118% under a severe warming scenario of 4°C.
The areas that will be most vulnerable to these changes in climate would obviously be areas already classified as high risks. An Allianz UK spokesperson articulated concerns about housing developers' continued construction projects in these areas, saying, "It's concerning to see high volumes of houses being built in areas at the highest risk of flooding."
It poses the question: can building on flood plains ever be sustainable?
A looming spectre for vulnerable businesses
Flood risks pose a substantial threat to the business sector as well, with one in every three commercial properties in the UK classified as vulnerable to flooding.
When businesses are flooded, the damage is often so severe that 40% of all small and medium-sized enterprises affected will close their doors forever. So, what can businesses do to guard against this impending doom?
As they say, necessity is the mother of invention, and the insurtech sector is coming up with some exciting and innovative solutions to these problems.
Companies like Previsico are at the forefront of developing advanced flood forecasting technologies. These tools are crucial for helping insurers and property owners alike to better evaluate and mitigate risk. Previsico, which was founded at Loughborough University in 2019, has been integral in integrating live flood warnings into COBRA, working alongside the government and expanding collaborations with brokers and insurers.
Jonathan Jackson, CEO of Previsico, explained the escalating challenges posed by climate change, stating 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."
How to coordinate responses against flooding
The new UK government is determined to address these escalating challenges.
Emma Hardy, the UK Floods Minister, has announced the creation of a Floods Resilience Taskforce. This initiative aims to enhance coordination of flood preparation and resilience efforts across local and national levels.
Furthermore, the Environment Agency has boosted its maintenance and repair budget to £224m (US$292m), a substantial increase from the previous allotment of £190m (US$248m). Over the last winter alone, 216,000 checks were carried out to assess and bolster the nation’s flood defences.
Similarly, the insurance industry is advocating strongly for greater adoption of resilience measures. Mervyn Skeet, Director of General Insurance Policy at the Association of British Insurers, stressed the importance of enhancing property flood resilience, noting the consistent calls for increased investment in flood defences.
Highlighting the urgency, Andy Bord, the outgoing CEO of Flood Re, called for an increase in investment to manage and hopefully reduce flood risk, stating, "Even with the current investment we are seeing flood risk rise, and we need to see flood risk reduce. 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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