Flood insurance in England: an assessment of the current and newly proposed insurance scheme in the context of rising flood risk

Flooding is the largest natural disaster risk in England and it is expected to rise even further with a changing climate. Agreeing on how we pay for this now and in the future is a challenge, with competing drivers such as fairness, economic efficiency, political feasibility and public acceptance all playing their part. We investigate this in the context of recent efforts to reform the provision of flood insurance, which have been debated between government and industry over the last three years. Recognising the challenge of rising losses and increasing costs we are particularly interested in how the existing arrangement and the new flood insurance proposal (Flood Re) reflect on the need for physical risk reduction. By applying our analytical framework we find an absence of formal incentive mechanisms for risk reduction in the existing and proposed Flood Re scheme. We identify the barriers for applying insurance to risk reduction and point to some possible modifications in the Flood Re proposal to deliver a greater link between risk transfer and risk reduction. Our investigation offers some insights into the challenges of designing and implementing flood insurance schemes – a task that is currently being considered in a range of countries, including several developing countries, who hope to apply flood insurance as a tool to increase their climate resilience.