The Protection Gap is a Policy Gap – Why insurers need a seat at the adaptation table

The Climate Change Committee estimates that 29% of the UK’s natural-catastrophe losses went uninsured in 2024. Without sufficient adaptation, it warns that homes and businesses could struggle to access affordable cover as risks increase.

That turns a technical insurance issue into something much bigger. If a home becomes difficult to insure, it may become difficult to mortgage or sell. For a small business without adequate cover, one flood can be enough to close it. Where private protection falls away, the cost does not disappear but lands with households, businesses and eventually, the Government.

The bill for inaction lands somewhere

This all matters for a government focused heavily on the cost of living. Since entering Downing Street, Andy Burnham has promised to give families more breathing space, from cutting VAT on electricity bills to restoring the £2 bus fare cap. Insurance premiums are unlikely to make the same political headlines as energy bills, but for households feeling squeezed, the direction of travel matters.

There is little breathing space in a family budget if the cost of protecting the family home keeps rising because the physical risks around it have not been addressed. The same is true of Burnham’s promise of good growth in every postcode. A place cannot easily attract investment, build homes or support thriving high streets if the assets within it become progressively more expensive to insure.

A test of the preventative state

There is an even more obvious fit with another phrase from Burnham’s first speech as Prime Minister: building a more preventative state that invests before it has to pay for failure. Climate adaptation is a clearer test of that philosophy. The Government already has the pieces. £10.5 billion is being invested in flood defences between 2024 and 2036. Work towards the next National Adaptation Programme is planning on the basis of at least 2 degrees of warming by 2025. Meanwhile, the Financial Services Growth and Competitiveness Strategy identifies insurance and reinsurance as a UK priority growth opportunity.

The awkward question is whether these agendas are joined up enough. A government cannot aspire to host a world-leading insurance market while ignoring the long-term insurability of the economy that market serves. Better modelling can tell an insurer that a property is becoming riskier. It cannot make the drainage system work.

Insurers need to get upstream

This is where the insurance sector has an opportunity. Burnham has promised businesses a stronger voice in shaping policy. Insurers should take him at his word but arrive with solutions rather than a request for government to absorb risks the private market no longer wants. Claims data can show where damage is already concentrating. Risk models can identify problems before they become crises and insurers are able to demonstrate which property-level measures reduce losses and how resilience can be rewarded through products and pricing.

The audience should be wider than the Treasury or the PRA. DEFRA is developing the next phase of adaptation policy; combined authorities are being given a greater role in local climate resilience and Burnham’s devolution agenda is putting more decisions about housing, infrastructure and local growth in the hands of mayors and local leaders.

Flood Re’s scheduled exit in 2039 should sharpen minds too. Thirteen years sound like an eternity in politics. In infrastructure, housing and climate adaptation, it really is not. The firms that engage now can help shape how government measures the protection gap, where resilience investment is targeted and what a sustainable market after Flood Re should look like.

By the time a postcode becomes difficult to insure, the policy failure may have happened years earlier. The sector that sees those risks first should have a seat at the table where the decisions that shape them are made. For a government promising lower household costs and growth in every region, the insurance protection gap is not a niche financial services issue, but one that sits right at the point where all three meet.