Strengthening insurance partnerships in the face of climate change – insights from an agent-based model of flood insurance in the UK

Florence Crick, Katie Jenkins and Swenja Surminski

No 241, GRI Working Papers from Grantham Research Institute on Climate Change and the Environment

Abstract: Multisectoral partnerships are increasingly being mentioned as a mechanism to deliver and improve disaster risk management. Yet, partnerships are not a panacea and more research is required to understand the role that they can play in disaster risk management and particularly in disaster risk reduction. In this paper, we investigate how partnerships can incentivise flood risk reduction by focusing on the UK public-private partnership on flood insurance. Developing the right flood insurance arrangements to incentivise flood risk reduction and adaptation to climate change is a key challenge. While expectations of the insurance industry have traditionally been high when it comes to flood risk management, the insurance industry alone will not provide the solution to the management of rising flood risks due to climate change and socio-economic development. In addition, faced with these risks insurance partnerships can no longer afford to focus only on the risk transfer function. The case of flood insurance in the UK illustrates these challenges: even national government and industry together cannot fully address these risks and other actors need to be involved to create strong incentives for risk reduction. Our paper investigates this for the specific issue of surface water flood risk in London. Using an agent-based model we investigate how other agents could strengthen the insurance partnership by maintaining affordable insurance premiums and reducing flood risk and test this for the new Flood Re scheme. Our findings are relevant for wider discussions on the potential of insurance schemes to incentivise flood risk management and climate adaptation not just in the UK but also internationally.

Date: 2016-06
New Economics Papers: this item is included in nep-agr, nep-env, nep-ger, nep-ias, nep-ppm and nep-rmg
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Citations: View citations in EconPapers (2)

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