Key points
- The UK’s insurance protection gap stands at 29%. Flood Re, the mechanism that has kept flood insurance affordable for high-risk households, ends in 2039. The policy architecture to replace it does not yet exist.
- The financial chain running from flood risk to insurance withdrawal to mortgage constraint to home value is direct, and most of it is not yet priced into the assets it affects.
- The question of who bears the cost of climate risk in the housing market is a political and democratic question, not only a technical one. It requires a structured national conversation, and a citizens’ jury specifically on cost distribution is the right mechanism to have it.
The UK’s insurance protection gap stands at 29%.
Flood Re, the public-private reinsurance scheme that has kept flood insurance affordable for the highest-risk households since 2016, ends in 2039. Without it, that gap will grow. The Climate Change Committee is explicit on this in its Fourth Independent Assessment of UK Climate Risk. What is less explicit, in the report and in the policy conversation surrounding it, is who pays for what comes next.
That question is overdue. And the longer it goes unanswered, the fewer the options and the harder the politics.
The financial chain nobody is following to its conclusion
Start with the numbers. There are currently 6.3 million properties in flood risk areas in England alone. Under a 2°C warming scenario by 2050, 27% more homes are projected to be at risk of flooding and coastal erosion than today. Annual flood damages across the UK, currently estimated at £3.3 billion, could reach £4.5 billion under that scenario. Under a high-end 4°C pathway, the figure rises to between £4.1 and £7.5 billion.
Those are not abstract projections. They are the aggregate of individual properties, individual mortgage books, and individual communities whose financial position is being quietly rewritten by a risk that is not yet consistently disclosed or priced.
The chain of consequence is direct. As flood and coastal erosion risk increases, residual risks become harder to pool across policyholders. Premiums rise for high-risk properties. In some cases, coverage is withdrawn.
Flood Re currently contains the worst of that dynamic for residential properties, but it was designed as a transitional mechanism, not as permanent. The assumption embedded in its design was that adaptation investment would reduce risk fast enough to make the scheme unnecessary by 2039. That assumption is not holding.
When insurance becomes unaffordable or unavailable, lending follows. The CCC is direct on this: banks face higher default rates on mortgages in flood-affected areas as insurability declines. A property that cannot be insured at an affordable premium is a property that cannot be mortgaged on standard terms. A property that cannot be mortgaged on standard terms has a constrained buyer pool. A constrained buyer pool means reduced liquidity. Reduced liquidity means valuation pressure.
Thirty percent of England’s currently defended coastline is projected to become financially unviable to protect. This is what potentially happens to asset values when the defence infrastructure that underwrites them can no longer be justified on cost grounds. The communities in those areas are not being told this clearly or consistently. The households for whom the family home is the primary asset are the ones who will feel the repricing most directly, and the ones least positioned to absorb it.
The complexity the policy framework has not yet faced
Flood Re has worked. It pools flood risk across all policyholders and subsidises premiums for the highest-risk properties. It is transparent, ringfenced, and has provided genuine certainty for households who would otherwise face unaffordable premiums or no coverage at all.
But the climate risk environment it was designed for has changed. Surface water flooding is projected to account for a large and growing share of future flood damage. The CCC notes that this will be most acutely felt in urban areas where paved surfaces accelerate runoff. Surface water risk does not map neatly onto the postcode-level risk models that Flood Re was built around. The scheme’s sunset in 2039 arrives into a risk landscape its architects did not fully anticipate.
What replaces it involves genuinely difficult distributional choices.
- Should lower-risk households continue to cross-subsidise the highest-risk ones, and if so, on what basis and up to what level?
- Should means-testing apply?
- Should households receiving support through any successor scheme be required to implement flood resilience measures in return?
- Should some properties, those on coastlines projected to become indefensible, those in areas of acute surface water risk, be treated differently from the rest of the market?
These are not technical questions with optimal solutions that the right modelling will eventually surface. They are political and democratic questions about how a society distributes the cost of a shared risk that has been unevenly accumulated over decades of planning decisions, infrastructure investment, and development in places that are now, demonstrably, too exposed.
The case for a citizens’ jury
The CCC convened a citizens’ panel as part of its Fourth Assessment to understand how the public thinks about flood risk and adaptation. The findings are instructive. Flooding of homes was consistently identified as the most concerning climate impact. Panel members expressed clear support for Flood Re continuing, but with reservations about the distributional logic — some advocating for means-testing, others for a direct link between receiving premium support and taking up flood resilience measures. There was no consensus on the right answer, but there was serious, informed engagement with the trade-offs.
That is precisely the kind of deliberation that a citizens’ jury is designed to enable and that normal policy process consistently fails to create.
My recommendation is that the UK government commissions a citizens’ jury specifically on the question of climate risk cost distribution in the housing market. Not a consultation. Not a panel of industry representatives producing a report that gets noted and filed. A structured, adequately resourced deliberative process in which a representative cross-section of the public engages with the evidence, examines the trade-offs, and produces recommendations on who bears what cost, and on what basis.
The questions it would need to address are specific: what is the social contract around flood insurance beyond 2039, who subsidises whom and under what conditions, what obligations attach to receiving that support, and how are the communities whose assets are becoming undefendable, and whose homes are therefore becoming uninsurable and unmortgageable, supported through a transition that the market alone will not manage?
These are not questions that government, industry, or technical experts can answer on behalf of the people most affected by them. The distribution of climate risk costs is a question of democratic legitimacy, not only of actuarial modelling. A citizens’ jury is not a soft option. It is the appropriate mechanism for a decision of this scale and consequence.
What needs to happen, and when
The CCC has proposed a specific target: the UK insurance protection gap should not grow due to climate change through to 2050. Meeting that target will require significant adaptation in the built environment, new risk pooling mechanisms, continued government involvement in insurance markets, and a clear-eyed account of which properties and communities sit outside what any insurance market can sustain.
The 2039 deadline is not far away. Flood Re’s successor needs to be designed, tested, and in place before the scheme ends, and the design process needs to begin with the hardest question, not defer it. Every year of delay narrows the options and increases the likelihood that the cost distribution question gets answered not by deliberate policy but by market withdrawal, political crisis, and the households left holding assets the system has quietly abandoned.
The financial chain from flood risk to insurance to lending to value is already in motion. The question is whether the policy framework catches up to it before the repricing does.
Keyah advises commercial real estate and residential-at-scale leadership teams on climate risk, insurability, and portfolio financial exposure. If this research reflects conversations you are having internally, or ones you know your board should be having, book a call.