Rising Flood Risks Force Insurers to Rethink Coverage in the UK

Increased flooding in Britain, driven by climate change and urbanization, has led insurers to reassess their coverage strategies. London and several southeastern U.S. states have recently experienced severe flooding. Insurers are hiking premiums and reducing coverage for high-risk properties, especially those not included in the Flood Re program.

Increasing frequency of flooding in Britain, exacerbated by overflowing rivers and blocked drains, is compelling insurers to reconsider their coverage strategies, particularly for commercial properties and residential landlords, according to industry representatives.

London was one of the cities hit by flash floods last week, following heavy summer rains. Several southeastern U.S. states also faced severe flooding this week due to Tropical Storm Debby, providing stark reminders to insurers of the rising risks posed by climate change and urbanization. Flood Re, a joint initiative between the government and insurance companies, reported that one-third of its claims since 2016 were filed during 2023/2024, following winter storms Babet, Ciaran, and Henk.

Major UK broker Howden revealed a threefold increase in home flood claims since September 2023 compared to the previous year. Amanda Blanc, CEO of Aviva, a FTSE 100 insurer, emphasized that climate change is the primary issue affecting property insurance in their business. The surge in claims is prompting insurers to reassess their risk tolerance, responding with higher premiums and reduced coverage, particularly for commercial properties and around five million privately-rented homes in England that are not covered by the Flood Re program.

A property regarded as high-risk could face an excess of £2,500 before insurance coverage begins, compared to the usual £250, said Steve Barnes, head of broking at Total Landlord Insurance. The lack of flood insurance can make obtaining financing difficult for residential landlords, noted Jason McClean, director at The Property Insurer.

Insurers are willing to work with clients but will not underwrite predictable, high-risk properties. Jason Harris, CEO of QBE International, pointed out that there's no sense in insuring properties that flood consistently. Analysts predict the risks will rise substantially, citing data from S&P Global Sustainable1.

Insurers are adopting a localized, granular methodology to manage their exposure. Adam Winslow, CEO of Direct Line, described the approach as very specific and localized. Parametric insurance products, which activate upon a predefined event, are emerging as one solution, according to Ciana Kenny of FloodFlash.

Malcolm Roberts, CEO of FM, highlighted that increased construction on flood plains is part of the problem, with more than 100,000 homes built in flood-prone areas over the last decade. The inability of surface water to be successfully drained is compounding the issue.

(With inputs from agencies.)