Our built environment is being bombarded with challenges and it appears woefully ill-prepared to meet them.
Increased flood risk has been high on the insurance industry’s agenda for many years and a looming crisis in the availability and affordability of cover resulted in the establishment of Flood Re in 2016. This pooled scheme has solved one problem, at least for the time-being, but 2022 has forced two other crucial issues into the spotlight: energy efficiency and resilience to high temperatures. The UK’s homes, offices and factories are not in a good place on either count.
The soaring costs of energy in the wake of the war in Ukraine and the disruption to oil and gas supplies has forced government, builders and owners to focus on energy efficiency. What they have found is depressing.
Most of our homes are poorly insulated and many older office buildings are little better. The investment in better energy sources, such as heat pumps and solar panels, has been woefully inadequate. This winter is going to be a huge challenge financially to many families and business-owners as the spikes in oil and gas prices show few signs of easing.
Just as everyone was starting to worry about how they might heat their buildings during the winter, we have been challenged to find ways of keeping them cool in the face of relentlessly rising temperatures.
If all that wasn’t depressing enough, the Bank of England reminded us that when Flood Re ends in 2039 the threat from flooding will be even greater, and many properties will be uninsurable unless the scheme is extended.
Solutions to these three profound challenges will be hard to find and certainly won’t be found unless there is close collaboration between government and a wide range of stakeholders, including the insurance industry.
Whichever aspect you look at insurers have skin in the game.
With flooding it is already obvious and the creation of Flood Re is a constructive response to that challenge, reinforced by its Build Back Better scheme to improve the resilience of homes hit by flooding. The collective decision of the insurers backing Flood Re to offer home owners flood-friendly reinstatement options even when they cost more is long overdue. It is a collective investment in resilience that should reduce the cost of future claims. It may also be a model for facing up to some of the other challenges bearing down on the built environment.
High temperatures may not have the immediate dramatic impact on buildings of floods but they are still very costly, especially to insurers.
The UK’s Climate Change Committee recently estimated that more than 570,000 residences have been built since 2016 that are not resilient to high temperatures. A further 1.5m due to be built over the next five years are also ill-equipped to cope with the sort of temperatures we have seen recently. Just a glance up at the huge amounts of glass used in new blocks of flats and office buildings shows how little attention has been paid to this problem.
Heat poses a serious threat to the structural integrity of buildings as the ground dries out, causing walls to crack. In 2018 – the joint hottest UK summer so far alongside 1976, 2003 and 2006 – there was a spike in subsidence as the soil below buildings dried out and contracted, with more than 10,000 households making insurance claims worth £64m in the wake of the heatwave.
The Build Back Better scheme shows there is now a willingness in the insurance industry to invest in enhancing the resilience of the built environment. Can that fresh thinking be carried over into the new discussions about how to improve energy efficiency and heat resilience?
To discuss how Research in Finance can help you with your market research and insight in the insurance sector please do reach out to Karen Scott.