Tag Archives: actuaries and flood risk

Flood Risk in the U.K.: What Does Mr. Market Think? (Part 2 An Actuary’s Nightmare)

In my previous post, I noted that strange things were happening in the flood insurance market. In short, the insurance industry no longer wants to extend the status quo (here):

The current agreement under which insurers continue to offer flood insurance to their existing customers will expire on 30 June 2013. The insurance industry has proposed a new a scheme to ensure customers can still buy affordable flood insurance, after this date. We are currently in talks with the Government about taking this forward.

In truth, they want to move some flood risk from one actor in the market to another. But before I look at that issue, I want to ask the question “why do they want to change the status quo?”

To do this, we need to take a quick detour through the theory of insurance. There is a nice little eight-minute youtube video that explains the theory of insurance here:

The core message in the video is the same as the core message of this blog: risk is the probability of an event times the cost of the event. Continue reading