The Guardian headline is blunt, Towns may have to be abandoned due to floods with millions more homes in Great Britain at risk. Insurers are sounding the alarm.
Aviva’s report on which the article is based is clear on where we could be by 2050:
- The number of homes at risk from flooding in England could rise to 8 million properties
- A further 1.4 million properties could be at risk from subsidence
- Hotter summers could mean increasing risks for both people’s health, and properties
- Adaptation is becoming increasingly difficult as climate effects compound.
The result is that homes and communities could become uninsurable. We’re already seeing this elsewhere, in some areas in Australia, New Zealand, the U.S. and Canada, where costs of premiums for many are unaffordable. In some areas, insurance for flood or fire is simply unavailable. Non-renewals rates are increasing. There’s a mix of reasons, not least of all climate hazards, inflation, reinsurance costs, and re/build costs.
Paying attention to insurance signals
Insurance provides important signals about risk. It also has a critical role in supporting financial and social resilience. This is not just about buildings and homes, this is about individuals, communities, businesses, and our wider financial and social systems.
This is a complex and challenging issue and needs to be addressed at the systems level.
First, development planning and land use. While we have a housing crisis and there’s a current mantra of #BuildBabyBuild, this needs to be done while also looking decades ahead. Building new homes in areas where we know there is current or future risk in order to hit targets is simply kicking the can down the road.
Second, we need to be strategic in mitigation and adaptation. This takes a variety of forms such as ensuring retrofits across real assets are fit for purpose. While much of the focus has been on warm homes in terms of residential, we need to also consider our homes, buildings, and infrastructure, with a view to hotter and longer summers. It’s not just floods hitting towns, subsidence is proving an increasingly expensive problem.
Third, we need to get better at connecting risk and property values. Insurance pricing only tells part of the story. Flood Re, the joint initiative between UK government and insurers to provide flood insurance where it wouldn’t otherwise be available, has been critical for many households who would otherwise not be able to access it. The challenge with schemes such as this however, is they dampen those pricing signals. But, the alternative of leaving it to the market to decide is not an option.
Fourth, we need a plan, and a plan that extends out well beyond financial and political cycles. There is no short term fix. This isn’t just about individual assets but the wider ecosystem within which they sit.
Fifth, we need to have appropriate financial mechanisms in place to support communities, households, and wider asset owners, to derisk assets. Some of this we are seeing for instance in Australia, with some able to access cheaper insurance with evidence of home hardening against fire or flood. This approach though remains largely piecemeal. We also need to be able to make the case at portfolio level.
Derisking homes and assets
Underpinning all of this is the urgent need to have some difficult conversations. A core priority must be keeping people out of harm’s way. In some areas, the worst case may include compulsory buyouts where the risk is so great, that some homes, streets, and businesses (and infrastructure), are no longer viable. For others, it will be derisking homes and assets, and infrastructure, in the face of growing climate hazards. At the moment, there’s a mismatch between conversations at government and business levels, and at community level.
The challenge of affordability and availability of insurance is by no means a challenge for all households and asset owners. But, for those directly impacted, it can be devastating. We need to be proactive in policy, financial, and on the ground community responses to support social equity and a more resilient built environment.
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Note: I’m currently researching the intersection of climate change, insurance markets, and real estate for an upcoming book. If you’re developing innovative adaptation strategies, working on resilience financing mechanisms, or observing creative approaches to climate risk management in your market, I welcome the opportunity to connect. These conversations are essential to shaping how we build insurability into a climate-changed world.
You can get in touch via my contact page.