Swenja Surminski

The Role of Insurance in Reducing Direct Risk - The Case of Flood Insurance

The provision of flood insurance is a patchwork, with countries showing varying degrees of penetration, coverage types, demand levels, and design structures. This article explores the current understanding of flood insurance with a specific focus on the ability of flood insurance to contribute to direct risk reduction. The starting point is a consideration of the existing provision of flood insurance, both in established insurance markets and in developing countries. A review of efforts to analyse and explain the use and design of flood insurance highlights how the understanding of supply and demand determinants is steadily growing, while clear gaps also emerge. Particularly the question of utilizing flood insurance in the context of climate change and as a lever for physical risk reduction would benefit from further empirical and theoretical analysis. The article concludes with a reflection on current efforts to reform and design flood insurance and offers some pointers for future research.

Reflections on the Current Debate on How to Link Flood Insurance and Disaster Risk Reduction in the European Union

Flood insurance differs widely in scope and form across Europe. Against the backdrop of rising flood losses, a debate about the role of EU policy in shaping the future of this compensation mechanism is led by policy-makers and industry. While the question of supply and demand is at the core of the debate, we argue that another key dimension is often overlooked: how to use insurance as a lever for risk reduction and prevention efforts. We investigate whether and how current EU policies influence flood insurance and how this interplays with the national policy level. First, we consider affordability, availability, and risk reduction linkages in an EU context, and then gather insights from two contrasting cases of flood insurance: the UK, where flood insurance provision is widely available, but subject to ongoing reform; and the Netherlands, where several efforts to introduce broader flood insurance coverage have failed. This is followed by an analysis of how EU policy could help address the challenges at member state level, based on a stakeholder workshop discussion. We conclude that there is wide agreement that a complete harmonization of flood insurance offering across the EU is unlikely to be effective. However, there is clear scope for EU policymakers to play a greater role in linking risk transfer and prevention, beyond existing channels, to ensure an integrated approach to flood risk management across the EU.

Flood insurance in England – an assessment of the current and newly proposed insurance scheme in the context of rising flood risk

Flooding is the largest natural disaster risk in England and it is expected to rise even further with a changing climate. Agreeing on how we pay for this now and in the future is a challenge, with competing drivers such as fairness, economic efficiency, political feasibility and public acceptance all playing their part. We investigate this in the context of recent efforts to reform the provision of flood insurance, which have been debated between government and industry over the last three years. Recognising the challenge of rising losses and increasing costs we are particularly interested in how the existing arrangement and the new flood insurance proposal (Flood Re) reflect on the need for physical risk reduction. By applying our analytical framework we find an absence of formal incentive mechanisms for risk reduction in the existing and proposed Flood Re scheme. We identify the barriers for applying insurance to risk reduction and point to some possible modifications in the Flood Re proposal to deliver a greater link between risk transfer and risk reduction. Our investigation offers some insights into the challenges of designing and implementing flood insurance schemes – a task that is currently being considered in a range of countries, including several developing countries, who hope to apply flood insurance as a tool to increase their climate resilience.

Assessing surface water flood risk and management strategies under future climate change: Insights from an Agent-Based Model

Climate change and increasing urbanization are projected to result in an increase in surface water flooding and consequential damages in the future. In this paper, we present insights from a novel Agent Based Model (ABM), applied to a London case study of surface water flood risk, designed to assess the interplay between different adaptation options; how risk reduction could be achieved by homeowners and government; and the role of flood insurance and the new flood insurance pool, Flood Re, in the context of climate change. The analysis highlights that while combined investment in property-level flood protection and sustainable urban drainage systems reduce surface water flood risk, the benefits can be outweighed by continued development in high risk areas and the effects of climate change. In our simulations, Flood Re is beneficial in its function to provide affordable insurance, even under climate change. However, the scheme does face increasing financial pressure due to rising surface water flood damages. If the intended transition to risk-based pricing is to take place then a determined and coordinated strategy will be needed to manage flood risk, which utilises insurance incentives, limits new development, and supports resilience measures. Our modelling approach and findings are highly relevant for the ongoing regulatory and political approval process for Flood Re as well as for wider discussions on the potential of insurance schemes to incentivise flood risk management and climate adaptation in the UK and internationally.

Concept of loss and damage of climate change – a new challenge for climate decision-making? A climate science perspective

Loss and damage (L&D) of climate change is a relatively new work stream of the international climate change regime. Lacking a clear official definition, L&D has triggered a debate about framing the topic, incorporating technical aspects of disaster risk reduction (DRR) and climate change adaptation as well as political considerations such as the idea of compensation for vulnerable countries. This paper reviews the implications of L&D for decision-making with a special focus on the role of climate science. We identify three broad policy goals embedded in the discussion: creating awareness about the sensitivity of human and natural systems to climate change; developing risk reduction and risk management approaches to enhance adaptation, reduce vulnerability and build resilience and informing compensation mechanisms. For all of these, an understanding of the current and future climate-related L&D is needed. Existing decision-making frameworks can help deal with uncertainties and avoid a ‘wait and see’ mentality for most L&D decisions. The compensation component of L&D, however, offers a different dimension to the climate change discussion. While recognizing the political and moral reasons driving the debate around compensation, an increased focus on the complex and possibly unsolvable attribution question might put on hold efforts to integrate adaptation to climate change with wider development aims and DRR, blocking necessary action.

Integrating human behaviour dynamics into flood disaster risk assessment

The behaviour of individuals, businesses, and government entities before, during, and immediately after a disaster can dramatically affect the impact and recovery time. However, existing risk-assessment methods rarely include this critical factor. In this Perspective, we show why this is a concern, and demonstrate that although initial efforts have inevitably represented human behaviour in limited terms, innovations in flood-risk assessment that integrate societal behaviour and behavioural adaptation dynamics into such quantifications may lead to more accurate characterization of risks and improved assessment of the effectiveness of risk-management strategies and investments. Such multidisciplinary approaches can inform flood-risk management policy development.Flood impact and recovery is influenced by behavioural responses. This Perspective describes how integrating human behaviour and risk perception into flood-risk assessment models may improve identification of effective risk-management strategies.

Strengthening insurance partnerships in the face of climate change – insights from an agent-based model of flood insurance in the UK

Multisectoral partnerships are increasingly cited as a mechanism to deliver and improve disaster risk management. Yet, partnerships are not a panacea and more research is required to understand the role that they can play in disaster risk management and particularly disaster risk reduction. This paper investigates how partnerships can incentivise flood risk reduction by focusing on the UK public-private partnership on flood insurance. Developing the right flood insurance arrangements to incentivise flood risk reduction and adaptation to climate change is a key challenge. In the face of rising flood risks due to climate change and socio-economic development insurance partnerships can no longer afford to focus only on the risk transfer function. However, while expectations of the insurance industry have traditionally been high when it comes to flood risk management, the insurance industry alone will not provide the solution to the challenge of rising risks. The case of flood insurance in the UK illustrates this: even national government and industry together cannot fully address these risks and other actors need to be involved to create strong incentives for risk reduction. Using an agent-based model focused on surface water flood risk in London we analyse how other partners could strengthen the insurance partnership by reducing flood risk and thus helping to maintain affordable insurance premiums. Our findings are relevant for wider discussions on the potential of insurance schemes to incentivise flood risk management and climate adaptation in the UK and also internationally.

Promoting flood risk reduction: The role of insurance in Germany and England

Improving societys ability to prepare for, respond to and recover from flooding requires integrated, anticipatory flood risk management (FRM) . However, most countries still focus their efforts on responding to flooding events if and when they occur rather than addressing their current and future vulnerability to flooding. Flood insurance is one mechanism that could a more ex-ante approach to risk by supporting risk reduction activities. This paper uses an adapted version of Eastons System Theory to investigate the role of insurance for FRM in Germany and England. We introduce an anticipatory FRM framework, which allows to consider flood insurance as part of a broader policy field. We analyse if and how flood insurance can catalyse a change towards a more anticipatory approach to FRM. In particular we consider insurances role in influencing five key components of an anticipatory FRM: risk knowledge, prevention through better planning, property-level protection measures, structural protection and preparedness (for response). We find that in both countries FRM is still a reactive, event-driven process, while anticipatory FRM remains underdeveloped. However, collaboration between insurers and FRM decision-makers has already been successful, for example in improving risk knowledge and awareness, while in other areas insurance acts as a disincentive for more risk reduction action. In both countries there is evidence that insurance can play a significant role in encouraging anticipatory FRM, but this remains underutilized. Effective collaboration between insurers and government, should not be seen as a cost, but as an investment to secure future insurability through flood resilience.

Policy Indexes as Tools for Decision Makers: The Case of Climate Policy

The last two decades have witnessed an explosion in the publication of country indexes that measure and rank the relative national policy performances of governments. To illustrate the challenges of using and applying these tools we focus on those four indexes that have been specifically designed in response to the emergence of the relatively new policy area of climate change. We investigate if and how these tools provide information about the evolving landscape of climate policy in the BRIC (Brazil, Russia, India and China) countries, widely considered the future battleground of climate policy. We find that even for this relatively narrow area different methodologies exist. Interpreting and applying climate policy indexes across countries therefore requires a solid understanding of underlying objectives and data used for each index. A clear gap is the underrepresentation of adaptation policy in all four indexes. Our investigation concludes with a reflection on how climate policy indexes are currently applied, including business planning. These tools provide informative pointers that can be of use for stakeholders, nevertheless they should not be considered in isolation, but need to be complemented by a broader view on what is driving particular responses to climate change in a country.

Assessing climate risks across different business sectors and industries: An investigation of methodological challenges at national scale for the UK

Climate change poses severe risks for businesses, which companies as well as governments need to understand in order to take appropriate steps to manage those. This, however, represents a significant challenge as climate change risk assessment is itself a complex, dynamic and geographically diverse process. A wide range of factors including the nature of production processes and value chains, the location of business sites as well as relationships and interdependencies with customers and suppliers play a role in determining if and how companies are impacted by climate risks. This research explores the methodological challenges for a national-scale assessment of climate risks through the lens of the UK Climate Change Risk Assessment (UKCCRA) process and compares the approaches adopted in the first and second UKCCRA (2011, 2016), while also reflecting on international experiences elsewhere. A review of these issues is presented, drawing on a wide body of contemporary evidence from a range of sources including the research disciplines, grey literature and government policy. The study reveals the methodological challenges and highlights six broad themes, namely scale, evidence base, adaptation responses, scope, interdependencies and public policy. The paper concludes by identifying suitable lessons for future national climate risk assessments, which should guide the next phase of research in preparation for UKCCRA3 and those of national-level risk assessments elsewhere. This article is part of the theme issue ‘Advances in risk assessment for climate change adaptation policy’.