EXCLUSIVE: Mass-scale flooding: Is the World becoming uninsurable?

by Aniqah Majid, FF News

When a storm brews, or the ice caps melt, or even when it rains heavily, water can inundate dry land and cause a flood. Australia’s Climate Council found that by 2030, 1 in 25 homes will be affected by extreme weather and climate change, rendering them uninsurable. Among the extreme types of weather bound to cause the most damage, riverine flooding poses the biggest threat. 

Nikki Hutley, Climate Councillor and former Partner at Deloitte Access Economics said, “It is clear that Australia is fast becoming an uninsurable nation. Skyrocketing costs or flat out insurance ineligibility are becoming more and more widespread under climate change.” 

Expert analysis is not necessary when considering the massive increase in flooding occurring all over the world. Whether it be storms in the UK, or monsoons in India. Here are some examples.

The effects of large-scale floods covers everything from personal property to transport. The fallout from Storm Dudley, Eunice, and Franklin will find insurers paying out nearly £500 million in dealing with 177,000 insurance claims, according to ABI. 169,500 of these claims relate to property damage. The response to the recent storms have been slow, with immediate payouts only totalling to £13 million. 

West of the border, Ireland has seen its fair share of rainfall, the phenomena causing catastrophic effects on its cultural heritage and infrastructure. Due to Storm Desmond and Storm Franklin, the precipitation in winter 2015/16 averaged at around 600mm. 

Learning from past experiences, the Irish Government readied itself by committing €106 million to repair transport infrastructure. This effort was implemented to help blunt the effects damaged infrastructure has on people’s lives, as poor cladding and materials makes rescue missions more difficult and delivering goods and services near impossible. 

According to a study from the University of Bristol, annual flood losses in the US will increase by 26.4% to $40.6 billion in less than 30 years.

The study saw that apart from the effects brought about by climate change, population change was also a major factor in flooding. Globally, floods have cost the world around $115 billion in the last 50 years.  Looking at the damning price tag of flooding, with a heavy prediction of more to come, the insurance sector must become more steadfast in its response. The UK Government, specifically, is becoming more robust in their approach to flood protection.

FloodRe is a government scheme in partnership with UK insurers to help protect homes from flood risk. Through a levy, home insurers invest in the scheme, giving FloodRe around £180 million to use to cover homes. When they accept a flood risk, the organisation charges a fixed premium to the insurer based on a homeowner’s council tax band. Since its inception in 2013, Flood Re has amassed the backing from insurers like Aviva, Ageas and Lloyds Bank.

Earlier last month, the organisation launched its ‘Build Back Better’ scheme, where insurers like Aviva will offer reimbursement costs of up to £10,000 to homeowners to repair flood damage as well as install flood resilience measures that will prevent more damage occurring in the future. Examples of these measures include raising electrical sockets above flood level and replacing flooring with waterproof tiling and grout. 

The government also plans to publish a Property Flood Resilience (PFR) roadmap for insurers on what measures should further be put in place to strengthen homes in flood resilience.

Andy Bord, the CEO of Flood Re said, “In the UK, since 1998 we have seen six of the wettest years on record, with 5.2 million homes and businesses at risk of flooding. The trajectory will only continue to worsen without urgent, collective action – there is no time to waste. We must encourage and incentivise adaptation among homeowners.”

Like many niches in the insurance and insurtech industry, there is an increased focus on mitigation and the prevention of risk.

ICEYE is a company which specialises in SAR satellite data and natural catastrophe monitoring, recording and mapping events from Australian floods, to Indonesian volcano eruptions. The insurtech is in collaboration with the likes of SwissRe, Tokio Marine, and most recently the insurtech Neptune Flood, providing their in-depth datasets for insurers to build their products around. In their collaboration, Tokio Marine will use ICEYE’s “Daily Coherent Ground Track Repeat” technology to build products better in step with the changing climate. 

Stephen Lathrope, the Global Head of Insurance for ICEYE told FF News, “A shifting climate and the increase in assets at risk is driving up the frequency and severity of flood events globally. The insurance industry however is hampered in its ability to respond due to the limited access to reliable data as a flood event is unfolding and in the immediate aftermath. 

“Satellite technology, and in particular the use of synthetic aperture radar (SAR) imagery which allows images to be captured at any time of day and through clouds, provides that almost instant view on how the flood is developing and what the impact will be anywhere in the world.” 

With the rapidity of global flooding in constant flux, re/insurers are tasked with the job of building their products and services around the potential risks. The frequency in which these events now happen in the world does provide mapping companies like ICEYE and Fathom the tools to effectively track and make predictions about when and where flooding will occur. 

Hence partnerships for insurers are a necessary step in predictive insurance.

Lathrope goes on: “Advances in satellite technology coupled with the application of AI capabilities and availability of a wider range of data sources are changing the game. They can be combined to provide a transformational level of resolution and speed of access to hazard data. Being able to access granular data not only on the extent of the flood but also the level of inundation in centimetres at the individual building level, within 24 hours, opens up huge potential for enhancements in how carriers tackle flood events.”

The cost of living is a sore spot for the UK population right now, people and businesses cannot afford to lose money, either directly or indirectly due to flooding. From Storm Ciara to Storm Franklin, to more recently, Storm Eunice, people are more conscious of flooding and the effect it has on their livelihoods. How insurers are going to support home and business owners is the next conversation. 

Adam Rimmer, the Co-Founder and CEO of FloodFlash describes the trajectory for flood insurers, “There are lots of great things happening within the flood sector. The recently announced Build Back Better scheme is a great example. That said, the flood community can be quite insular. We often meet with advocates and parliamentarians who are incredibly engaged in the subject of flooding. The challenge is making the wider population aware of the issue and getting them to prepare before flooding strikes.“

The insurtech recently secured $15 million in a Series A funding round, which they managed 3 months after they announced their partnership with Munich Re. They are now looking to expand internationally and further help close the $58 billion flood protection gap. 

Rimmer adds“In that regard, there’s much more that we can do. Once people are aware of the risk and the impact that flooding can have on the long-term value of a property, business or community, it’s much easier to address resilience and insurance solutions.” 

SwissRe’s latest report “Natural catastrophes in 2021” found that insurers paid out $119 in economic losses last year, the fourth-highest on record.

Climate change and urbanisation are the chief causes of the catastrophic spike, but the reinsurers stay vigilant, claiming that flood “is and will remain insurable.” They offer the solution that the data flow and modelling of flood risks must become more rigorous. The documenting and recording of events must be steadfast in its response so that insurers in turn can deliver faster payouts. With the sheer amount of people affected and the rising costs, cheaper flooding insurance is also a priority if insurance companies are to try and close the ever-expanding flood protection gap. 

Rimmer explains, “Many people across the UK who need flood insurance most don’t have access to affordable coverage. Traditional insurance isn’t equipped to deal with the increasing frequency of flood events due to the difficulties of underwriting such low-frequency, high-impact events. 

“FloodFlash removes a lot of the uncertainty from the underwriting equation, passing the savings back onto customers as cheaper premiums. The upshot is that we can offer cover in communities that the traditional market has left behind. The second advantage is the speed with which we settle claims. We broke the record for catastrophe flood claim payment during Storm Franklin earlier this year. One client was paid just 5 hours and 36 minutes after the flooding. It’s a game-changer when it comes to client recovery. Reducing claim value, client stress and ensuring that businesses survive.” 

The flood insurance sector is becoming more experimental with its use of data monitoring and IoT, no less due to the product becoming more essential for average people. Insurers now must be able to move as flexibly as the rising tides in delivering affordable and immediate products so that when floods do occur, people will be ready.