Following the UK flooding earlier this year, the recent IPCC report "Climate Change 2014" needs to be understood in terms of the long-term implications for the Insurance sector in finance.

Back in 2007-8, following the Gloucestershire Flooding and the release of the Pitt Review "Learning Lessons from the 2007 floods", I attended a lecture that convinced me that in the lifetime of our children and grandchildren it will in principle be impossible to protect all our coastline from erosion or our low lying areas from flooding. The shape of the UK for our grandchildren may be very different from what we know now.

The relationship between government investment in flood protection and the insurability of homes, farms and businesses will be in my opinion a significant challenge over the next 30 years or more. It was at that very lecture that I first heard the claim that a £1 investment in flood prevention saves £8, a valuable return on investment.

There is another aspect, however, that has attracted less attention so far, but which I suspect may become a greater challenge in the years to come – the role of regulation.

In 2010, as part of the 'bonfire of the regulations', there were many regulations abolished or relaxed, which have impacts on costs and liabilities that in turn will impact the insurance sector and those who seek insurance.

I want to illustrate this with one example – Maize. Farmers were exempted from all soil regulations for growing Maize which is a winter crop. Why is this important?

Imagine that you and I are both farmers, but my farm is upstream from yours. If I use the relaxed regime, it cuts my costs and improves my margins. However, increased soil erosion on my land, supported by the new regulatory regime, contributes to silting of rivers downstream and the likely flooding of your land. So the Environment Agency will face increased calls for more dredging of rivers at more cost. At the same time your land may flood more frequently and severely.

So, my practice may in time make your land and business uninsurable and unusable. That does not sound like (pun intended) a level playing field. Given that this is all understood, could you, people’s homes or businesses have a claim against me for contributory negligence? Could the Environment Agency charge me for their costs?

This is just one example where changes in regulations shift risks, costs and responsibilities (for more information see this article written by George Monbiot). There are many others. The impacts here are long term and complex. They illustrate the interdependencies we all face in tackling these issues.

Industry and government are working together to develop a joint approach on flood insurance. Doing a google search on regulatory reform in this area picks up little of substance.

So, my question is: do we need to look at regulatory reform in the context of climate change and the insurance sector?

Imagine if we build 1000 homes now that become uninsurable because of my farming practice (to go back to my earlier example). Who will be blamed? For me it’s clear, it’s the insurers. The example above shows that they may be as much victim as the home owners, not the villains.

So, can we build an intelligent regulatory framework that does not create the above class of hazard?

It certainly won’t be easy.