Who should pay for cleaning up climate change disasters?

Oakton Street in Des Plaines, Illinois, during floods April 18th 2013 [2]

Back in April a US insurance company filed claims against local authorities in the Chicago area for failing to prepare for climate change [1]. Thousands of homes were flooded a year earlier when record heavy rainfall overwhelmed the sewers and storm drains. On the worst day, April 18th, 5” of rain fell in 24 hours [2]. Since climate change is making heavy rainfall events more likely, Farmers Insurance Company claim this damage was predictable and could have been prevented. Is this true, and even if it were should the local authorities pay up? What does this mean for the UK?


Perhaps they never intended to go the whole way because Farmers Insurance have since dropped their suit, saying that they have achieved their goal of raising awareness of the issues. Their spokesman Trent Frager said: “We believe our lawsuit brought important issues to the attention of the respective cities and counties, and that our policyholders’ interests will be protected by the local governments going forward,”

If they had not won their suit then the insurance claims would have been paid out of local taxes. Since they have dropped the suit, presumably insurance premiums will go up to reflect the extra risks. Ultimately, either way the householder pays.

It is impossible to say how much climate change contributed to the Chicago floods but there is good evidence that extreme weather events are increasing in the US. Also the nature of the weather is changing: in the decade from 2000 – 2009 there were twice as many record high temperatures as record lows, compared to about even numbers in the 1950s-1970s [3]. It only takes a small change in average conditions to make extreme events much more likely.

Here in the UK, the MET office thinks that our record rainfall and flooding last winter was more likely due to climate change [4]. Modelling by scientists at the MET and Newcastle University suggests that flash flooding could increase by a factor of five by the end of the century [5].

To help householders in flood prone areas who are struggling to pay insurance premiums, the UK government has negotiated with insurance companies a scheme called Flood Re. This caps the insurance premiums due to flooding for homes considered to be at high risk. The scheme is funded by a levy on the insurance companies so the cost is spread across all other households with insurance. Homes built since 2009 are excluded from the scheme, but houses are still being built in flood prone areas, even when the Environment Agency has lodged formal objections. Last year 87 planning applications for a total of 560 homes were approved despite the risk of flooding including one 149-unit development in Essex [6][7]. What happens if the new owners of these homes can’t get insurance at a price they can afford? Insurance works very well for expensive but unlikely risks. It doesn't work very well for expensive but quite likely risks.

Home owners are not the only people who will be affected by rising insurance costs due to climate change. Probably the worst victims are farmers because their crops are so dependent on the weather. They face huge losses due to damage from floods and storms and not all of them have crop insurance because it is too expensive. After this winter’s floods the government set up a Farming Recovery Fund to refund farmers for the cost of restoring land damaged by flooding but not the losses due to damage of crops and livestock [8].

Given the choice of paying to avoid disaster and paying to clean up afterwards it is much better all round to avoid the disaster. However, government cut backs have reduced spending on flood protection. In February we were told that the treasury only allows the Environment Agency to fund projects with a high benefit/cost ratio - the ones were the benefits are at least 8 times the cost [9]. It would make more sense if that was a factor of 1. If we have to pay anyway, we'd rather avoid the pain of the disaster and cleanup.

We pay for flood protection schemes through our taxes and we pay for cleanup through the insurance companies. Either way we pay. Maybe it would be better if the insurance companies funded flood protection as well as clean up. They would be much better motivated to improve and maintain those defences.

There is another way, though, that we can help to protect ourselves at little or no extra cost. We can reduce the impact of climate change by reducing our carbon emissions. Everything we do to reduce our fuel bills also helps to reduce our insurance costs.


[1] Farmers Insurance Drops Climate Change Lawsuits Against Chicago-Area Cities (www.triplepundit.com)
[2] When April showers went on a rampage: Record-breaking floods in the Chicago area (Goddard Earth Sciences Data and Information Services Centre)
[3] Current extreme weather and climate change (www.climatecommunication.org)
[4] A global perspective on the recent storms and floods in the UK (MET)  April 2014
[5] Climate change to boost summer flash floods, says study (BBC) Jun 1 2014.
[6] The Future of Flood Insurance: What you need to know about Flood Re (Association of British Insurers)
[7]  Why do we insist on building on flood plains? (Independent) 13th June 2014
[8] £10 million Farming Flood Recovery Fund to open on Friday (www.gov.uk) 25th Feb. 2014
[9] How Cameron's flood spending pledge could swamp Treasury's targets (Guardian) Feb 13th 2014