Climate and Catastrophe Risk: Flood Resilience Under Pressure
Rising Exposure to Catastrophes
The increasing frequency and severity of climate-driven events—such as floods, storms, and wildfires—are escalating loss ratios across the insurance sector. This trend is intensifying claims volatility and placing significant strain on re/insurers’ underwriting capacity.
Flood Re Under Strain
Flood Re, the UK’s reinsurance scheme designed to improve the affordability and availability of flood insurance, is facing growing pressure. As climate risks escalate, the scheme’s financial sustainability is being questioned, particularly as reinsurance markets approach capacity limits. There is a real risk that premiums for at-risk properties could rise sharply in the coming years.
Investor and Capacity Constraints
With catastrophe losses mounting, institutional investors are increasingly cautious, limiting capital allocation to catastrophe bonds and insurance-linked securities (ILS). This contributes to capacity constraints and may limit the market’s ability to absorb future flood risk.
Parametric Insurance on the Rise
As traditional indemnity models struggle to price and manage systemic flood risk, parametric products are gaining popularity. These policies pay out based on measurable events (e.g., rainfall levels or river height), enabling faster claims processing and offering better risk management tools for governments, corporates, and communities.
