Role of Insurance in Reducing Flood Risk
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Role of Insurance in Reducing Flood Risk David Crichton* Benfield UCL, Hazard Research Centre, University College London, Gower Street, London WCIE 6BT, U.K. E-mail: [email protected]
This paper considers the problems of flood risk management in the context of public and private insurance. It demonstrates the important role of insurance in reducing flood risk with examples from the U.K. and France. It includes a brief description of the summer 2007 floods in England. The Geneva Papers (2008) 33, 117–132. doi:10.1057/palgrave.gpp.2510151 Keywords: climate; flooding; insurance; planning
Introduction Over 90 per cent of all deaths from natural disasters are water related,1 and 99 per cent of deaths from flood from 1975 to 2001 (over 250,000 people) were from low-income groups. In richer countries, total disaster losses are generally less than 2 per cent of GDP, while in poorer countries the figure is nearly 14 per cent. Architects have an important role to play in helping society to become more resilient2 but so do insurance companies.3 Some of the leading insurance companies have considered climate change adaptation very seriously,4 especially following Hurricane Katrina. Summers will generally be drier with drought and subsidence problems, but there will still be extreme rainfall leading to flooding as was demonstrated in England in the summer of 2007. Winters will be wetter, again leading to more flooding. There is a growing realisation that civil engineering solutions are not enough. For flood management to be sustainable other, more natural flood management is needed. The insurance industry will have an increasingly important role in helping society to adapt and become more resilient.5 Some ways in which insurers can help are: 1. 2. 3. 4.
Assistance with identifying areas at risk. Catastrophe modelling. Economic incentives to discourage construction in the flood plain. Collection of data on the costs of flood damage to feed into benefit cost appraisals for flood management schemes. *
1 2 3 4 5
This paper reflects the author’s personal views. United Nations (2004). Roaf et al. (2005). Crichton (2005a). Lloyds of London et al. (2006), Allianz et al. (2006). Crichton (2007a).
The Geneva Papers on Risk and Insurance — Issues and Practice
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5. Promotion of resilient reinstatement techniques. 6. Promotion of temporary defence solutions. The extent to which insurers can help society depends very much on how flood insurance cover is arranged and this varies depending on the country. It also depends on how sophisticated the country’s insurers are in mapping flood risks and how much the insurers are regulated by government. The more the regulation, the less the insurers can use market forces to manage the risk.
How insurance operates around the world for residential properties There are many different approaches to insurance in different countries around the world.6 Where private flood insurance cover is available (and it is not available in all countries, for example Holland) such different approaches can
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