“I’ve stepped in the middle of seven forests; I’ve been out in front of a dozen dead oceans; I heard the roar of a wave that could drown the whole world” 

When Bob Dylan first performed his song “A hard rain’s a-gonna fall” in 1962, who would have imagined that his lyrics would continue to resonate some 50 years later. 

The release of the draft Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report strengthened the degree of certainty that fossil fuel burning and other human activities are responsible for the warming of the earth which, in turn, is resulting in the increased incidence of extreme weather. The devastating flooding in the Balkans is the latest example of such an extreme and suggests that for many Dylan’s lyrics are more than simply apocryphal. 

Extreme weather events resulted in huge insurance losses across Europe last year and some $4.1 billion of those losses related to flooding in Central Europe. In the UK alone the estimate is that the recent flooding will cost the UK insurance industry over £500 million. 

The magnitude of these losses and the huge human suffering has pushed the creation of Flood Re in the UK up the respective agendas of the Government and the ABI. 

However, despite current assurances that affordable insurance continues to be available to consumers and businesses which will fall outside the Flood Re umbrella, there is a growing concern about the long-term sustainability of flood insurance in the UK triggered by increasing losses and rising risk levels. 

Accordingly it is in the interest of the Government to take a more holistic approach to the increasing risk of flooding which has, traditionally, been focussed upon a combination of pressurising the insurance industry to insure the uninsurable or undesirable and the (somewhat inadequate) funding of engineered responses such as the building of flood walls, dykes and culverts. 

This approach is, however fundamentally flawed and is not the panacea to the future increase in flood risk. 

Following the Queensland floods in January 2011, Dr George Walker, Adjunct Professor at James Cook University in Queensland, is reported to have stated that you cannot have sustainable flood insurance without sustainable flood management. Moreover, he said 

“… I would also say that it is not possible to have sustainable flood management without sustainable flood insurance” 

Many experts, including the highly respected Chartered Insurance Practitioner David Crichton, support the view that sustainable flood insurance and sustainable flood management have a symbiotic relationship. 

Instead of an engineered response to the increased flood risk the Government needs to become committed to sustainable flood risk management. 

There is empirical evidence that those countries such as Scotland and Canada, who are committed to flood risk management, have substantially reduced their flood risk. 

Mr Crichton has identified the following as some of the current thinking behind the basis of sustainable flood management:

  • Planning control of land use
  • Provision of drainage land to contain any flooding near exiting or future housing
  • Planting of trees
  • Restoration of flood plains
  • Relocation of high risk properties
  • Use of insurance as a behavioural driver

Insurance is often regarded as simply a vehicle for pure financial risk transfer, but its availability and cost when linked to incentive risk prevention requirements can play an important role in sustainable flood risk management through the delivery of changed behaviours. 

It has been shown through the much more developed health and safety arena that insurance has, along with legislation, played an important role in changing behaviours and reducing risk. 

It is the use of insurance as a surrogate regulatory tool that is currently being ignored in the Flood Re discussions with the Government, which appears more concerned with its own fiscal restraints in considering how to manage the effects of the increased flood risk. 

There is no doubt that without sustainable flood management there cannot be long term sustainable flood insurance. 

As well as the direct sociological and economic impact of failing to meet the increased flood risk of the future, there will also be an unwelcome explosion of satellite litigation with individuals and insurers seeking to offset the increasing burden of flood losses. 

Ironically, in many cases this will only serve to create an indirect liability to the public purse with recovery actions being brought against the Environmental Agency where they have assumed responsibility for the maintenance of flood defence systems or schemes, as well as against publicly funded authorities as significant landowners. 

It is settled law that owners of land alongside a natural watercourse such as a river, stream or ditch have a duty to take reasonable steps to mitigate any hazard arising on his land, which would extend to keeping any culvert or water course in good repair. Furthermore there is a duty upon a land owner not to artificially alter his land so as to mitigate water flowing onto his land if this results in concentrating such water flow onto neighbouring land. 

As individuals seek to prevent the devastating effects of flooding or alternatively look (alongside their insurers) for compensation/indemnity for their losses, it is inevitable that there will be an increase in litigation. 

Insurers have been reluctant in the past to scrutinise and pursue subrogated opportunities. However, the increased losses and risks will undoubtedly change that behaviour especially if premiums and the principles of the free market are shackled.