Flood protection gap set to grow, Central Bank warns

One in 20 buildings in Ireland have difficulty accessing flood insurance and this gap is likely to grow in future, new research from the Central Bank has found.

The report also concluded that 54% of that flood protection gap is concentrated in the five counties of Dublin, Cork, Kildare, Clare and Louth, due to the location of flooding and population density.

"This concentration of the protection gap means that in some counties, whole villages or towns may be unable to obtain flood insurance while in other areas it is freely available," the report said.

The report found that the estimated average cost of inland flooding in Ireland is around €101m a year.

Of that, around 89% or €90m is associated with the higher flood risk buildings which have limited or no access to insurance.

"Severe losses can be much higher than this, with a €510m loss expected about once every 25 years," the report said.

"Coastal flooding is excluded from these estimates and could increase that number significantly," it added.

The report also concluded that in the future, Ireland will face more frequent and severe floods as the effects of climate change become ever clearer and will need to adapt to this situation, both in terms of physical defences and also financial solutions.

"Winter rainfall could increase by up to 34% in an extreme climate change scenario," it said.

"This is reflected in our modelling, which shows, for example, that an extreme event costing €2.5 billion becomes twice as likely by 2050, moving from a one in 200 year event to a one in 100 year event," it added.

The study modelled two scenarios for the potential effects of future climate change.

It found in a mid-range scenario, which would involve a 20% increase in rainfall and 0.5 metre increase in sea level, the number of buildings with limited access to flood insurance increases from 4.8% today to 5.4% by 2050.

In such a scenario, average annual losses would increase to €135m, compared to €101m today.

Of this €135m, €123m arises on buildings with limited access to insurance.

For buildings with access to insurance, the average annual losses would increase by 10%, while for those without access to insurance, losses would increase by 37%.

Under a high-end scenario, which would include a 30% increase in rainfall and a one metre increase in sea level, the number of buildings with limited access to flood insurance would rise from 4.8% today to 5.6% by 2050.

The average annual loss would increase to €145m, compared to €101m today and of this, €133m would arise on buildings with limited access to insurance.

For buildings with access to insurance, the losses increase by 12%, while for those in the flood insurance protection gap, the losses increase by 47%.

The research was designed to explore the flood protection gap, which is the shortfall between the cost of flooding in Ireland and the portion of the cost which is insured.

The study looked at the flood risk of each residential and commercial address in the country, down to Eircode level.

It then looked at whether each address was likely to be able to access flood insurance, based on typical underwriting criteria in the market here.

The report says that Ireland has broadly managed flood risk to date, but as with many other aspects of climate change, it cannot be assumed that current approaches will remain viable.

It says meaningful action in this space will require the involvement and perspectives of a broad spectrum of stakeholders.

The study found that of the 2.02 million buildings in Ireland, 89% are residential and 11% are commercial.

Of the total, 14% or 290,855 have some level of exposure to flood risk, it established, and one in 20 or 4.8% have limited access to flood cover.

Almost 68,732 buildings are protected by flood defences, including around 5,000 buildings protected by fixed OPW defences, which are typically taken into account by the insurance industry.

The report said the remaining buildings are afforded some level of protection from other forms of defences, including OPW demountable defences.

But it also found that in general, insurers consider fixed defences when assessing flood risk but do not consider demountable defences.

"This is due to the uncertainty and risks associated with the requirement for human intervention when deploying demountable defences," it said.

The report warned also that increased costs together with decreased ability to cede risk to reinsurers could potentially result in insurers having reduced capacity to provide insurance.

"This could lead to increased premiums for consumers and businesses, and/or changes to insurers' flood risk acceptance criteria, reducing the availability of insurance and further widening the protection gap," it said.

The report also found that the costs to the State from severe floods are likely to climb significantly in future decades.

"As with many other aspects of climate change, it cannot be assumed that current approaches to flood risk management will remain viable," it said.

"There is a serious risk of complacency that must be avoided," it added.