The insurance sector has long demonstrated its capacity to operate during times of crisis and the COVID-19 pandemic has proven no exception. Despite nationwide lockdowns, widespread economic uncertainty and stratospheric predicted coronavirus payouts, the industry has continued to shine a spotlight on the key emerging risks facing the sector from climate change to geopolitical uncertainty.
Flooding is an area of risk which remains a critical consideration for many and for Flood Re, the joint initiative between the government and insurers, lockdown has been no reason not to continue its work in evolving the market into one which can move back to risk reflective pricing for flooding while remaining affordable to the end consumer by 2039. Several months after Flood Re first submitted evidence to the inquiry being conducted by the Commons Environment, Farming and Rural Affairs Select Committee (EFRA), Andy Bord (pictured), the CEO of Flood Re, represented the initiative at EFRA’s second oral evidence session into flooding in England.
Speaking with Insurance Business in the run-up to the session, Bord noted that the flood policy statement published by the government in July contained a commitment to £5.2 billion worth of spend over the next six years on flood defences.
“This can be quite a watershed moment in terms of what we can do as a company, which includes Flood Re, which includes the government and which includes the insurance industry, to make sure that we get the benefit of that significant investment in flood defences,” he said.
“But, we’ve also got to do the work on property-level flood resilience and make sure that householders, in particular, understand the importance of knowing what their flood risk is, and also what action they need to take if they are at risk of flooding. This is both when a flood is happening but also in preparation, with the installation of property level flood resilience. These measures can be as simple as air brick covers or non-return valves on toilets, but they can make a fundamental difference by making that property more secure against flooding in the future.”
It is important to recognise how transformational Flood Re has been, Bord said. The initiative has been around about four and a half years and, before Flood Re was formed only 9% of people at risk of flooding received two or more quotes when they went to buy home insurance. Now, 98% of people can get five or more quotes which is an experience comparative to someone not at risk of flooding.
“And equally, from an affordability perspective, if you have been flooded in the past, what we’ve seen again, before and after Flood Re was formed, is that now 79% of people have seen a saving of 50% or more on their home insurance. So, this cover is now massively more available and very significantly more affordable at the same time.”
It’s easy to get lost in the numbers and forget that every one of these is a family or a household that has been flooded, Bord said, noting that when he was in Doncaster after the flooding last November he saw first-hand the impact that flooding can have. Flood Re removes the worry from those who have been flooded and who have a lot to think about, regarding whether or not they will be able to get home insurance in the future.
Looking to the recommendations that Flood Re relayed to the government for its quinquennial review, he noted that part of the government’s statement in July was confirmation of its support of the majority of the proposals the organisations had made. These were in two categories. The first four centred around how the scheme can be made more effective and efficient and these were largely technical changes which ensure the scheme is the right size for the future so that the industry continues to contribute the right amount of financing.
“The secondary set of proposals were centred around how we can evolve the scheme, recognising that climate change, in particular, is making this an ever-increasing challenge that we face,” he said. “So there were two specific things we proposed, both of which government have supported, one of which is ‘build back better’.
“So, right now when a property, say your home, floods and you make your insurance claim, if your insurer wants to put you back into a better state to make you more protected against a future flood, they can’t reinsure that incremental cost with us. With this change, however, that we’ve been proposing and which has now been supported, we will be able to do that. So we will unblock that ability to be able to build back better after a flood.”
The second change which has been accepted is challenging the low awareness of flood risk among householders, he said.
“What we’ve been proposing, that the government has supported, is that we will have two tiers of premium for ceding a policy to Flood Re, one for everybody and then a reduced premium, if you have fitted some form of resilience measures into your home,” he said. “So, there’ll be an added incentive in the form of a reduction in your home insurance costs if you put resilience measures in place.”