Reinsurance
This means that for many reinsurers, flood insurance is still a bit uncertain and the more uncertain a risk is, the more cautious the reinsurer, or insurer has to be.

Reinsurers operate by spreading risks across the world. If flooding was taken as a peril in isolation, there is not sufficient spread for reinsurers because most of the risks arise from Britain . In practice, the flood risk is usually spread across other reinsured perils, which helps to avoid the need to charge the full reinsurance rate technically required. Similarly the primary insurers can spread the flood premium across other perils in the package household policy, as well as across the spread of policyholders in general.

It could be argued that if reinsurers were to charge separately for the flood exposure, and if insurers were to charge the full technical rate for flood, then customers may not be willing to pay the full price, because many will perceive the risk to be too remote. There is a real danger that if insurance becomes unavailable or unaffordable for large numbers of people, the volume of business may fall below critical mass and lead to spiralling premium increases and a vicious circle situation.

In the meantime, it is likely that reinsurance costs are going to increase dramatically as the market becomes harder following the terrorist attacks on September 11th 2001 . There is even the suggestion that reinsurers might revise the "hours clause" for flood from the current 72 hours to a lower figure so that they in effect limit their exposure to damage from major flood events.

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