We should expand Flood Re to pay for flood defences (opinion)

What we spend on flood defences saves us 5 times the amount in avoided damage on average [1]. But the budget for flood defences is set and paid for by central government while the damage is suffered and paid for by affected homes and insurance companies. It is an uncomfortable triangle. Why should other taxpayers (like me, living well above the level of the nearest river on flat land safe from flash floods) pay for defences to protect your property and reduce your insurance costs? It would be more logical for the government to step out of the way and leave the insurance companies to pay for managing the risk.



Central funding works for the health service because we all benefit - but only a few people need flood defences.
Arguably it is fairer if we pay from taxes, according to our ability to pay. This is how it works with the NHS. Everyone gets sick sometimes but the cost of our treatment varies. We could get fixed with a few pills costing £10 or we might need complex therapy costing £100,000. We could all pay health insurance (or not) to get the treatment we need. However, it is generally considered fairer to pay health costs from central government funding because you pay tax according to your income (more or less) but everyone has equal access to treatment. Even if you haven't needed the NHS yet you might do so in the future - and you have the comfort of knowing you will be looked when that happens.

However, flood defences aren't the same because most people aren't affected so get no benefit at all. Only one in six properties are at risk [2]. It is hard for the government to justify expenditure (that we pay for through our taxes) that only benefits a small minority of people.

Insurance companies could ring-fence a budget and finance flood resilience as well as defences.
What if the insurance companies paid for the flood defences instead? The money would be ring fenced for reducing flood risk - not competing with budgets for protecting children from abuse, looking after the sick or educating the next generation of citizens. Since flood damage is both expensive and risky it is to their advantage to take steps to mitigate and adapt to the risk. For example as well as building flood defences they could help with financing for fitting out homes with flood-resilient floors and furniture.

You may say this is way outside the core business of insurance but there are precedents for these sorts of activity. Insurance companies generally provide practical advice on flood resilience and sometimes take an active role in developing flood protection systems. For example, RSA has part funded a community scheme for improving sustainable drainage at Mayesbrook Park, London, and Aviva conducted a flood simulation exercise in the community of Boroughbridge in Yorkshire. These case studies are described in a report by Climate Wise, a global insurance industry leadership group driving action on climate change risk [3].

Flood Re spreads the cost for vulnerable properties through an annual levy on insurance companies. Let's make it pay for flood defences too.

Of course all the insurance company costs are ultimately borne by the homes and businesses that are their customers. As a rule, people at greater risk pay higher premiums. Many of the people affected by floods this year haven't had insurance at all because they can't afford it.

However, the existing Flood Re scheme helps people get insurance for properties at risk by providing a re-insurance service for vulnerable properties. It is paid for by an annual levy on the insurance companies. The premium for homes covered is capped according to their council tax band. This is a step in the right direction but not nearly enough - I propose that this scheme should be enlarged and used to cover flood defences and flood adaption as well.

Flood Re doesn't cover new homes but despite this building on flood plains seems to be the norm rather than the exception. This has to change.
Flood Re doesn't cover new homes, only those built before 2009. This is sensible because we don't want to encourage developers to make the problem worse by building more homes on flood plains. As well as being directly vulnerable, protecting the new homes endangers existing ones. When the rains come there has to be somewhere for the water to go - and directing water onto flood plains protects other areas downstream. According to the National Planning Policy Framework: Inappropriate development in areas at risk of flooding should be avoided by directing development away from areas at highest risk, but where development is necessary, making it safe without increasing flood risk elsewhere [4]. Sadly, this doesn't seem to be working. Nearly half the candidates for new 'flagship housing zones' proposed by local councils are in flood prone areas [5]. Building on flood plains seems to be the norm rather than the exception. This has to change.

View from the A59 at Whalley Arches in Lancashire

The costs of flood defences will be shared between everyone with insurance but not equally - wealthy people in expensive homes pay more.
Adding flood defences to the remit of the Flood Re scheme will mean slightly higher premiums for everyone but not equally. Instead of paying through our taxes we will pay through our insurance. People in comfortable circumstances who pay more taxes generally have bigger homes and have higher insurance premiums too. Plus we can be confident the Flood Re scheme managers will try hard to spend the money wisely because they will be paying for the damage when the floods do get out of hand.

Finally, yes we will pay more but only a little more. Currently our government allocates £0.5 billion/year for flood defences. The total income from UK insurance premiums in 2013 was about £220 billion [6]. Doubling expenditure for flood management would add just 0.5% to our insurance bills.

[1] Government raised bar for funding flood defence schemes (Guardian) Nov 2014
[2] One in six UK homes at risk from flooding, says MPs report (Guardian) Mar 2015
[3] Adapting to the extreme weather impacts of climate change – How can the insurance industry help? (PreventionWeb) 2010
[4] National Planning Policy Framework para.100(Communites and Local Government)
[5] Investigation: Government planning thousands of new homes to be built in flood zones (Greenpeace) Dec 2015
[6] UK Insurance Key Facts 2014 (Association of British Insureres)