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Business Prof Is Co-Author of Cover Story in Nature Climate Change Journal

McShane and HornMike McShane and Diane Horn

An article about changes in the flood insurance system in the United Kingtom, co-authored by Old Dominion University business professor Michael McShane, is a cover story in this month's edition of the academic journal Nature Climate Change.

The article - co-authored by Diane Horn, professor with the Department of Geography, Environment and Development Studies at the University of London's Birkbeck College, and McShane, associate professor of finance and co-director of the Emergent Risk Initiative at ODU - stems from work the researchers did at the university last spring during Horn's time as a visiting scholar, which was funded by ODU's Climate Change and Sea Level Rise Initiative.

The work at ODU focused on comparing flood insurance practices in the United States and United Kingdom, two countries with quite different, yet both ineffective, flood insurance systems.

The research grew into the paper for Nature Climate Change, titled "Flood Insurance: Who Will Pay." It focuses on the seismic changes taking place in the UK flood insurance system. The paper was published Monday, Oct. 28.

"Both systems are changing dramatically this year. Both are trying to change to pricing policies that reflect the real value of risk in flood insurance," Horn said.

As part of their design, financially sound flood insurance policies can help protect flood-prone regions by acting as a deterrent to development through charging risk-based rates. However, the abrupt shift to proper valuation of flood insurance policies in Britain can have the opposite effect - the sudden spike in rates could dissuade people from purchasing flood insurance policies, undermining the economics of the entire system.

"This paper was written to make scientists studying the issue of climate change and sea level rise aware of what changes are happening in the UK system," McShane said. "Everyone imagines flood insurance as something that will cause adaptive behavior. However, the UK's brand-new flood insurance system does not include any measures to encourage adaptation."

Horn and McShane will appear on a panel at the "Access EU" sea level rise conference hosted by ODU Oct. 30-31. The conference, which features European and U.S. experts on the issue of climate change and sea level rise, seeks to find adaptations that move beyond the threat and into possible solutions to the issue of rising sea levels.

The new flood insurance scheme being negotiated between the Association of British Insurers and the UK government, known as Flood RE, has no precedents and is likely to attract attention once it is fully enacted.

Horn and McShane say the scientific community will need to better understand how the new system works before they can start investigation of the role it will play, if any, in encouraging adaptation to climate change.

Nature Climate Change is a monthly journal dedicated to publishing the most significant and cutting-edge research on the science of climate change, its impacts and wider implications for the economy, society and policy. Produced by Macmillan Publishers Limited, Nature Climate Change was ranked first in 2012 in academic citations among all journals in the category of environmental sciences.