The robustness of flood insurance regimes given changing risk resulting from climate change

Lamond, Jessica; Penning-Rowsell, Edmund

Abstract

The changing risk of flooding associated with climate change presents different challenges for the different flood insurance market models in use around the world, which vary in respect of consumer structure and their risk transfer mechanism. A review of international models has been undertaken against three broad criteria for the functioning and sustainability of a flood insurance scheme: knowing the nature of the insurable risk; the availability of an insurable population; and the presence of a solvent insurer. The solvency of insurance markets appears strong, partly because insurers and reinsurers can choose to exclude markets which would give rise to insolvency or can diversify their portfolios to include offsetting perils. Changing risk may threaten solvency if increasing risk is not recognised and adjusted for but insurability of flood risk may be facilitated by the use of market based and hybrid schemes offering greater diversification and more flexibility. While encouragement of mitigation is in theory boosted by risk based pricing, availability and affordability of insurance may be negatively impacted. This threatens the sustainability of an insurable population, therefore the inclusion of the state in partnership is beneficial in ensuring continuity of cover, addressing equity issues and incentivising mitigation. © 2014.

• Journal Article Type: Article
• Acceptance Date: Mar 29, 2014
• Online Publication Date: Mar 29, 2014
• Publication Date: Mar 29, 2014
• Deposit Date: Jul 23, 2014
• Publicly Available Date: Mar 13, 2016
• Journal: Climate Risk Management
• Print ISSN: 2212-0963
• Electronic ISSN: 2212-0963
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 2
• Pages: 1-10
• DOI: https://doi.org/10.1016/j.crm.2014.03.001
• Keywords: insurance and risk, floods/prediction planning, adaptation, climate change, disaster risk reduction
• Public URL: https://uwe-repository.worktribe.com/output/825255
• Publisher URL: http://dx.doi.org/10.1016/j.crm.2014.03.001
• Contract Date: Mar 13, 2016