The Flood Hazard Problem

Increasingly, the insurance guarantee has resulted in a subsidy from policyholders in low flood hazard areas to enable low premiums in high hazard areas. This has effectively boosted developers' profit margins, by enabling purchasers to obtain mortgages for these houses despite the dangers. This has significantly increased the insurance industry's exposure to flood hazard. Matters started to come to a head when the Association of British Insurers (ABI) published a research report in October 2000 which predicted that an inland flood could cost insurers over £1 billion. The size of the figure caused many raised eyebrows, but the sceptics were silenced when, within four weeks, England and Wales suffered an inland flood that damaged 11,000 homes and businesses and cost insurers over £1.3 billion. Other financial losses to the economy have been assessed as a further £400m with considerable social and health costs in addition. However, the coastal flood risk is even more significant.

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