UK and Global Insurance Responses to Flood Hazard

Abstract

This paper explores the question of whether it is possible to arrange sustainable flood insurance coverage for domestic properties in Canada and elsewhere and whether it should be public or private insurance. It considers the essential requirements for a sustainable insurance market, including the importance of adverse selection and the vicious circle, with particular regard to flood risks. Based on a critical overview of the different private and public insurance solutions to flood risks around the world, the conclusion is drawn that the “bundled” system of private insurance would have the best prospects of success and would provide the best value for money for the community. However, for private flood insurance to be sustainable, the State would need to make a conscious decision not to provide any further compensation to flood victims. Instead it should concentrate on renewing infrastructure and working in partnership with insurers on issues such as building codes and planning matters. Some suggestions are made about how such a private insurance system might be established. Support for a private insurance system could be a potentially sensitive political risk for the government, if its citizens regard the provision of flood compensation as a social duty. Some consideration is therefore given to ways in which the insurance industry has demonstrated social responsibility in connection with other issues, such as climate change and the United Nations Environment Program. Insurers can bring data, expertise on risk management, risk transfer, and claims handling expertise to the table. The State can establish the conditions for a sustainable market in the face of a growing risk. The key to success is partnerships.