Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 5 MAY 2004
MS JANE
MILNE, MR
PETER DOWER
AND MR
SEBASTIAN CATOVSKY
Q140 Mr Wiggin: So what you said
earlier, that existing clients will still be covered but others
will not, means that you then put yourself into an exclusive monopoly
position because only your company will be able to insure that
house? No-one can compete with you because, of course, you cannot
get house cover without flood risk. You said that about existing
clients a few moments ago, did you not?
Ms Milne: Across the market as
a whole that is the product that is offered. Any customer can
go to a variety of providers and get competitive quotes on that
basis.
Q141 Mr Wiggin: But not without flood
cover, so if, for example, my house flooded I could not then insure
my house with a different company but without flood cover, so
there is no competition once you have had the crisis?
Ms Milne: First of all, it is
standard for that cover to be renewed.
Q142 Mr Wiggin: But there is no competition
at that point.
Ms Milne: Why would you choose
not to have the cover there if you have a flood risk?
Q143 Mr Wiggin: Because you might
put the premiums up.
Ms Milne: Yes, but in certain
circumstances what insurers are prepared to do in the very difficult
to insure areas is to continue cover for the other perils but
in that specific circumstance without the flood cover. That is
an exception rather than the general approach.
Q144 Mr Wiggin: Exactly. That is
entirely understandable, that a floods policy may have other risks
attached to it. It may or it may not, but it flies in the face
of what Peter has just been saying about you being in the business
to make money. Why is your industry not interested in offering
cover without flood risk? Why will nobody do it?
Ms Milne: Because the mortgage
providers tell us that it is one of the standard perils that they
would like contained within cover.
Q145 Mr Wiggin: So it is all or nothing?
That is the dilemma, is it not?
Ms Milne: Most people would be
in breach of their mortgage if they did not have that cover in
place.
Q146 Mr Wiggin: But some people cannot
get it.
Mr Dower: If you are in a high
flood risk area but everything else is acceptable we would offer
a product and then exclude the flood risk.
Q147 Mr Wiggin: You would?
Mr Dower: Yes, we would.
Q148 Mr Wiggin: One of the things
we had with care homes was that the premiums went up by about
700%. At that point insurance companies ceased to offer the product
at all instead of continuing to put a market price on the actual
risk and so there is a real fault in the insurance market, that
it will not price itself in when there is a real difficulty. For
example, if I had a house that continually flooded and I did all
the things that you said—I put a concrete floor in, I moved
the plugs up—I could not necessarily get insurance even
if I had done all those things because you look at my postcode
and you say, "Ah! You flood. Forget it". He is nodding
his head.
Ms Milne: That would be true of
the broad market but there are always specialist insurers who
will be prepared to deal.
Q149 Mr Wiggin: Not always.
Ms Milne: Within the Lloyds market
if there is a need that emerges then there will be insurers who
will cater for that need.
Q150 Mr Wiggin: At a price.
Ms Milne: At a price.
Mr Dower: As I said earlier, if
you are relying on what the broker is doing with you with the
software houses, and that sort of information will only be down
to postcode level, then most companies—and ours I can only
speak for directly—have a referral system where you try
and get down to the address level and assess the flood risk. Yes,
we could say, "The flood risk is not acceptable but we will
offer you everything else and exclude that", or very often
we will just offer a high deductible which will pay for the limited
damage that might be done by a regular event.
Q151 Mr Wiggin: So the excess would
cover it?
Mr Dower: Yes.
Q152 Mr Drew: You have already had
a discussion on public policy with David Taylor so I do not really
want to go back over that ground, but I would be interested for
you to lay out the guidelines on where you think the Government
needs to move fairly quickly in terms of public policy. You were
saying in your introduction what sorts of things you anticipate.
Can you give us some flavouring on where you think the Government
is deficient at the moment and needs to get its act together?
Ms Milne: We are very pleased
that we have made a lot of progress in terms of the amount of
investment going into flood defences and the uplift that we got
within expenditure plans in the last Spending Round, and of course
we are quite anxious to see that that is maintained in the current
Spending Round that the Government is considering at the moment
because we think this is one of the things that we have to be
in for the long haul on; we cannot just have short term spikes
that will solve the problem. What we are anxious about is that
when looking at flood defence projects we think about the climate
change consequences, we do not just build them for today's climate.
We are also pleased that there has been a certain amount of streamlining
brought into the system that delivers that. We are quite concerned
that with the drainage related flooding that we have seen just
last week, in fact in the part of London that I live in, the decision
will be made in the periodic review by Ofwat that pricing for
the water companies should enable them to move from a Victorian
system to one that is going to cope with the events of the late
21st century. We are concerned that our land use planning is done
in a sensible way to make sure that we are not storing up problems
for future generations by making decisions now that will be difficult
to live with in 50 or 80 years' time, and we are particularly
concerned about the way houses are built, whether they are standard
construction or whether they use the novel methods of construction
that are being increasingly adopted, to make sure those properties
are sufficiently resilient.
Q153 David Taylor: What sorts of
novel systems do you have in mind?
Ms Milne: There are a number of
system-built housing techniques now.
Q154 David Taylor: Timber framed,
are you talking about?
Ms Milne: It could be timber framed
or it could be steel framed with standard components or the pod
type constructions that go on. There are about 800 different ways
of doing this so it is quite difficult to generalise but some
of those, as far as we can see, could be quite resilient and some
of them could be quite vulnerable to future weather, whether the
issue is flooding or indeed the sort of storm damage and water
penetration that we might see in the future.
Mr Dower: There is a real mixture
of products out there. At the worst end you see panels which are
made up of two pieces of chipboard with a bit of polystyrene in
between, which is great because if it gets wet it falls apart,
it burns readily and it gives off toxic fumes. You would not want
that sort of stuff used in prefabricated buildings. At the other
end of the spectrum there is some very good stuff around. It is
just making sure that the right stuff is used in these areas,
especially where you want flood resilience, because the combination
of the two, a high propensity to flood and a building that is
less resilient, is just the sort of thing that insurers do not
want to see.
Q155 David Taylor: In the first example
you gave, are there houses that have been built or are being built
with that sort of material?
Mr Dower: I am not aware of any
that have been built as yet and I sincerely hope there will not
be in the future, but there is an overseas producer of these panels
that we saw an example of. I think that is all I can say.
Q156 Mr Drew: Can I be absolutely
clear about this, because in the earlier exchange you were talking
to Mr Taylor about who bears the cost? In terms of improved flood
defences do you see there being any role for the individual other
than in the normal insurance policies they will have to take out
in preparing for the cost of those flood defences or is this a
straight state responsibility?
Ms Milne: No. I think we all have
to accept some responsibility for dealing with the threats to
our property, whether you are in a high crime area and taking
measures to improve the security of your home or looking at flood
resilience. Traditional flood defences of course are massive engineering
projects and only the state can undertake those kinds of projects,
but there are a number of measures now coming out where either
small communities banding together could take some measures with
temporary defences, or indeed, for certain types of flooding like
the sudden urban flash flood, some of the flood protection products,
particularly the kite mark products, could be very useful in protecting
yourself.
Q157 Patrick Hall: I would like to
turn to the section in your evidence regarding planning policy,
which I found very interesting, and it is in paragraph 20.[23]
You refer there to guidance that you have produced. Can I ask
who that guidance is intended for?
Ms Milne: It is really intended
for planning authorities and we have sent it to all planning authorities
but anybody else with an interest is welcome to see it and it
is on our website for anybody to peruse.
Q158 Patrick Hall: So it is to reinforce,
is it, and add to the guidance that the Environment Agency will
pursue on their local plan or on any individual planning proposal
on a flood plain?
Ms Milne: Yes. It was written
to read alongside PPG25, so it is structured the same way that
the ODPM's guidance is.
Mr Catovsky: There is a section
in PPG25 where it specifically says, "You may wish to consult
the insurance industry on the planning decision" and this
was produced in response to that paragraph.
Mr Dower: We also, wearing the
Thames Gateway hat for a moment, want to produce something similar
for developers in Thames Gateway just to give a little bit more
guidance on the sorts of things that need to be considered and
discussed.
Q159 Patrick Hall: How much confidence
do you and the industry have in the estimates of existing flood
risk contained in particular in PPG25 which, as you say in your
evidence, is based supposedly on present-day risk, but actually
present-day risk is based only on past performance so present-day
risk estimates may be wrong already? Do you want that changed
to estimates of future risk? How can we get clarity on this, because
the present day risk may be wrong because it is based on events
as estimated or understood and recorded in the past? How can we
get a more realistic assessment based on events that have not
yet occurred?
Ms Milne: Clearly your estimate
is only as good as your model and your records, and whilst in
some parts of the country there is a very long run of historical
records of several hundred years, in other parts of the country
it is only a few decades, therefore the model is likely to be
much less reliable. The Environment Agency, in particular, is
investing significantly in improving its modelling and getting
better information; indeed it is working with one of our members,
Norwich Union, who have done a lot of work on digital terrain
mapping, to improve various aspects of the model. There are a
number of other providers that insurers go to for information
who, likewise, are improving their models all the time. It is
one of these situations where, you are right, there is a degree
of uncertainty over even today's estimates, let alone post-climate
change estimates, but that modelling is getting better all the
time.
Mr Catovsky: Certainly when it
comes to looking at the flood risk without flood defences there,
in terms of planning policy and PPG25 you can do a sensitivity
analysis where you look at how close the banding is for, say,
a one in 100-year, a one in 200-year and a one in a thousand.
In some areas where the flood plain is very well defined, they
almost sit on top of each other because you have got very steep
banks, so those different flood limits are actually quite close
together. I think you can have more confidence certainly in those
areas in terms of the maps. I think in some more flat areas where
the bands may be spread out, it may be worth looking a bit more
carefully at the risks there, but I think you can do some kind
of truthing there.
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