Issue Brief

What Can the United States Learn from the United Kingdom’s New Flood Reinsurance Pool?

Feb 15, 2017 | Swenja Surminski

Summary

The UK’s new Flood Re program has supported the private flood insurance market, but also demonstrates that flood insurance cannot be kept affordable without a concerted effort to reduce the underlying risk.

Key Findings

  • Flood Re is a new not-for-profit reinsurance pool in the UK. Operated by the insurance industry, it is designed to be a transitional arrangement to support the private insurance market and secure affordability of flood insurance through premium subsidies.
  • The UK government has approved Flood Re despite not meeting cost-benefit targets, justifying it due to wider benefits to property markets and mortgage lending.
  • Since its launch in April 2016, Flood Re has been supporting the commercial market in providing affordable insurance, but it has not yet been tested by a major flood event.
  • Flood Re is likely to come under pressure in the face of rising flood risk, since it fails to incentivize flood risk management and risk reduction efforts.
  • Flood Re demonstrates that flood insurance cannot be kept affordable without a concerted effort to reduce the underlying risk.