Download - Surminski oxford talk april 2016
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Flood insurance – fit for the future?
Dr. Swenja Surminski, 05/04/2016
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Overview
• Flood insurance in the UK• The role of Flood Re• Is flood insurance “fit for the future”?
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The story• We have a problem: flood losses are rising (for a variety
of reasons). • We have different views on who should pay for flood
damage: solidarity versus risk-based concept. • There are growing concerns about affordability and
availability of flood insurance. • We can’t avoid flooding, but need to manage it. It is often
unclear who can actually deliver flood risk management. • In order to be fit for the future: any insurance scheme
that wants to remain viable needs to deliver two results – risk transfer and risk management.
• What is the role of insurance?
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Insured flood risk losses
Bank of England/ PRA, 2015
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The UK situation
• Underwriting is provided by the private sector, while government maintains a role in terms of flood risk information and flood management through partnership approach
• Enshrined in the Statement of Principles between government and industry
• High rate of market penetration (91% buildings/75% contents), but not compulsory
• Move to new system ‘Flood Re’ in April 2016
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UK flood insurance
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Who pays for whom?
Quelle: Defra, 2013
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Flood Re starts in April 2016
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“Fit for the Future?”
• What will be the impact of Flood Re? • How will the insurance market respond?• Are we going to continue building in flood risk areas?• Will we have a better understanding of all types of flood
risk? • Will flood risk management efforts be sufficient?• Will we see more resilience?
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Climate change impacts • Flood losses across the EU are expected to increase from €4.2bn
per year (2000-2012) to €23.5bn by 2050. • Insured losses are expected to increase from €1.6bn per year
(2000-2012) to €4.6bn by 2050.
Present and projected flood losses for return periods across the EU form Jongman et al. (2014)
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Pricing and Climate Change
Based on Jenkins et.al. (2016), cited in Prudential Regulation Authority and Bank of England. The impact of climate change on the UK insurance sector (2015)
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How to design flood insurance fit for the future?
Source: Defra (2011) ‘Principles for flood insurance’
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Encouraging flood risk management?
Surminski and Eldridge, 2014
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Flood Re: what levers for flood risk management?
Resilient Repair?
Risk Information?
Incentivising flood protection, planning
policy ?
Incentives for resilience
measures?
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The risk reduction and resilience angle
Insurance is widely considered as an economic incentive for prevention and risk reduction. The practical evidence for this is limited, barriers are well-known.
→ What is needed to proceed? Some examples: • Advice and information for clients (flood alert)• The WIND-advice service from Provinzial in Germany • Resilient repairs
→ Does it work???
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Some recommendations• More transparency and data sharing – why is Flood Re ‘hidden’
from those who are covered?• A clear transition plan for Flood Re, including FRM investment
levels and how risk reflective pricing will be achieved particularly with the expected impacts of climate change.
• More incentives and information needed for policyholders to minimise their risk through property resilience measures e.g. improved terms, reduced premiums, community strategy.
• A clear message to national and local government that flood risk needs to be addressed.
• Use of resilient reinstatement when paying claims. • Bring mortgage providers and developers to the table.