How Can Insurance Providers Gain More Flood Risk Insight?

This article first appeared in Insurance Edge and is reproduced with consent.

Despite climate change impacting the frequency and severity of surface water flooding in the UK, the growing UK population, projected to reach 71 million by 2045, means that homes need to be built and flood plains have been in the sights of property developers. This is, in turn exposing home insurance providers and their customers to flood risk and the devastating losses and costs.

According to the National Housing Federation 340,000 homes need to be supplied in England alone every year to match population growth. While government policy is not to build on the most high risk flood plains unless it’s unavoidable, analysis by the Environment Agency indicates that there could be a large increase – of up to 50% – in the number of houses built on flood plains over the next 50 years.

Furthermore, according to analysis by LV= in 2021, over 5,000 homes in England achieved approval to be built in areas at the highest risk of flooding.

Evidently, developers are not paying heed to Flood Re’s 2009 cut off, where properties built after this date are not protected. This is leaving insurance providers completely exposed where new builds on flood plains are concerned. The obvious problem is that high claims costs inevitably lead to higher premiums and the risk of homeowners and renters choosing to forego insurance altogether.

Many of the government’s flood defences such as embankments, weirs and piers also need updating. New physical defences need to be built but funding appears to be lacking on that front with just 1% of infrastructure spending in England allocated to this area. Flood defences are vital and the challenge is made more complex by the fact that many are in private ownership, including private landowners, Network Rail or the Crown Estate. February 2022 witnessed three named storms clustered in just one week, where the Environment Agency flood defences protected over 40,000 homes and businesses from flooding.

So how can we, as insurance professionals play our part in helping to protect customers, as far as we can, from both the emotional and financial losses of flood, when properties have been built on a flood plain?

Insurance providers are already able to access real-time data at the point of quote to assess environmental risk including flood, using historical data from the Environment Agency as well as live flood data in flood events. The key is to ensure that level of data is available for the individual property not just the postcode and that the risk can be understood based on a whole range of intelligence at the point of quote such as the elevation of the property, its proximity to water, the construction type, the purchase value, the number of bedrooms, bathrooms, roof-type and so on. This provides insurance providers with an immediate picture of the flood risk. Moreover, it puts them in a position to enlighten potential home purchasers about the flood risk.

Many new builds provide a tempting opportunity to purchasers attracted by the idea of a ‘blank canvas’ with little anticipated up-front costs to modify or upgrade. However, from the perspective of a potential home buyer, doing their due diligence, the quote process may flag previously unknown information on the flood risk of their property. This may influence their purchase decision, or could also reassure them that the right defences are in place and an affordable policy is easily attainable.

Geospatial data can play a far greater role than pricing a policy in a fair and accurate manner. Geospatial data visualisation of floods can allow insurance providers to demonstrate where water would go in a particular flood event as well as the number of homes and businesses that could be impacted. Early flood alerts can now be used to support customers and reduce losses, forewarning them of an extreme weather event, allowing them to protect their properties and get themselves, their vehicles and their possessions out of harm’s way.

The government has given the Environment Agency a record £5.2 billion capital programme to deliver flood resilience in England. As sea levels rise, surge intensity increases and with experts predicting increases in summer rainfall, will this investment be enough? After all, 61% of people now live at flood risk according to the latest data. While developers will naturally argue the case for development on brownfield floodplains, the issue remains of building on as yet, greenfield, unbuilt floodplains.

There’s no getting away from the increasing population, and despite our best efforts, climate change continues apace. But one thing we can do is help ensure customers are adequately informed of the risks and can access the insurance protection they need. Geospatial data intelligence at point of quote, property characteristics data and geospatial data visualisation through tools such as LexisNexis® Map View can play a key role in both detecting and protecting customers from the flood risks of homes built on flood plains.

Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.