Select Committee on Environmental Audit Written Evidence


Memorandum from the Association of British Insurers

  The Government's plans to tackle the country's profound housing shortage are necessary, but should not be pursued at any cost. Insurers would like to see long-term risks, such as flooding and climate change, built into the design and planning of new developments at the earliest stage, so that effective financial protection for flooding and other risks can continue to be offered to residents and businesses.

  The proposals set out in the Barker Review to double the rate of house-building are necessary to stabilise house prices and promote a strong economy. However, this approach will only be successful and sustainable for the future, if it is accompanied by a stronger, more transparent planning system and tighter building regulations.

  Policies to minimise long-term risks will have the effect of reducing the costs of insurance to the customer, and therefore promote economic development. At the same time, sustainable development can be achieved by taking into account the social and environmental impacts of planning decisions—for example, avoiding social exclusion by reducing risks to property for lower income groups so that affordable financial risk protection is available.

  1.  The Association of British Insurers (ABI) is the trade association for insurance companies operating in the UK. It represents over 400 members who, between them, transact around 95% of UK insurance business.


  2.  Kate Barker's report to the Government in March this year[3] highlighted the depth of the housing shortage in this country, and the knock-on effect for spiralling house prices. House-building rates need to almost double from 140,000 to 260,000 a year to stabilise increases in real house prices at 1.1%—in line with average EU levels.

  3.  This is a phenomenal challenge for any Government, but clearly an important aim—if we are to achieve economic stability and reduce social exclusion in the poorest communities.

  4.  There are two key strands to the Government's policy to bring about a step-change in house-building rates.

    —  Making more land available for development, particularly in the South East where housing shortage is most acute.

    —  Promoting innovative construction techniques to speed up rates of house-building and reduce costs.

  5.  The insurance industry is central to the operation of UK's housing market, because lenders will usually only offer a mortgage on a property with adequate building insurance. As a result, insurers have a strong interest in a thriving and sustainable housing market.

  6.  In today's competitive UK insurance market, insurers are increasingly using an assessment of risk to price their products, particularly as reinsurers are placing greater emphasis on this approach. If the risks to new developments are not managed for the future, affordable financial protection may not remain readily available.

  7.  The insurance industry would like to see that the Government has conducted a proper assessment of the sustainability of proposals to address the country's housing shortage, including implications for the availability and affordability of insurance.

  8.  Sustainability should be a central consideration for any large-scale plans for re-development. New infrastructure is typically designed to be in place for many decades, and so planners should always take a long-term view. Infrastructure decisions leave a substantial legacy. The built environment turns over at a rate of around 1% each year, and so is slow to respond to external factors.

  9.  Furthermore, large-scale regeneration projects often attract considerable investment in service infrastructure (transport, utilities, schools, hospitals), leading to a commitment to continued development of that area in the future. For example, transport investment in the Government's flagship Thames Gateway project is expected to exceed £600 million, compared to the £450 million of directly targeted resource from the Office of the Deputy Prime Minister (ODPM) to deliver new homes in Thames Gateway.


  10.  The Barker report recognises the critical role that land availability plays in promoting house-building. Suitable sites need to be made available to encourage speculative developers to build more houses.

  11.  Pro-active policies need to be put in place to free up land, as there is currently a severe shortage, particularly in the South East. The Barker report estimates that if all the new homes (120,000 per year) were built in the South East, they would occupy a significant 0.75% of additional land per year.

  12.  Current Government policy (Planning Policy Guidance 3)[4] aims to re-develop brownfield sites first, before looking at greenfield options. Similarly, according to Planning Policy Guidance 25 (PPG25)[5], previously developed areas in high flood risk locations should be given preference over undeveloped or sparsely-developed areas, which are generally not suitable for new development in the floodplain. The Barker report further speculates on the limitations of this approach of always developing brownfield over greenfield, and whether broader sustainability criteria should be applied to land use decisions.

  13.  Brownfield sites are certainly a target of the Government's push for new housing in the South East, laid out in last year's Communities Plan.[6] Much of the land for the 200,000 additional homes in the South East by 2016 will come from former commercial and industrial use. Parts of these areas are in flood risk locations, representing additional properties currently at risk of flooding.

    —  Many of the homes will be located in the Thames Estuary floodplain, potentially vulnerable to a large-scale storm surge event.

    —  Ashford in Kent, and parts of the Milton Keynes and Stansted-Cambridge corridors, are on river floodplains and thus vulnerable to inland flooding risk.

    —  The high housing densities proposed could increase sewer flooding, if the capacity of the existing drainage system is compromised.


  14.  Developing on the floodplain is not sustainable, because it puts new and existing properties at higher risk of flooding. In addition, it typically involves greater investment in flood defences, leading to greater net cost. For example, the Environment Agency estimates that developing in the Thames Gateway will cost at least an extra £4,000—£7,000 per property to pay for the additional flood defences required.[7]

  15.  Large-scale new development in the floodplain will substantially increase insurers' exposure to flooding. If flood risk is not managed sustainably, the insurance industry will be unable to provide affordable cover for development in the most vulnerable parts of the floodplain.

  16.  The consequences of flooding will be determined by the physical characteristics of the flood (see Table 1). However, the impacts could be minimised by sustainable approaches to flood risk management, including:

    —  the nature of the flood defence to reduce accumulated exposure to flood risk;

    —  the location of development in relation to the flood defence and local topography; and

    —  the types of properties and their resilience to flooding.

  17.  Even well-developed areas of the floodplain need to consider flood risk. While flood defences can reduce the risk of flooding, they cannot eliminate it. Defences can always be overtopped by an extreme event, or breached, if their condition is not maintained. Even if Thames Gateway sites continue to be defended to the current very high standard (0.1 % annual probability), increased development could potentially increase exposure to tidal flood risk considerably, adding £1 billion to the potential flood damage.[8]

Table 1


Flood Type
Water Type
Growth Area

Sea level and storm surge
Thames Gateway
Rainfall quantity
Ashford, Milton Keynes, Stansted
Rainfall intensity
All, but particularly high density developments

  18.  A precautionary approach is needed to ensure the sustainability of new housing in the growth areas.

    —  Climate change will increase flood risk in the future. The recent Foresight report[9] suggested that annual average damages could increase from £1 billion to between £2 billion and £21 billion if we take no action to manage the increased risk. Government guidance[10] for coastal defence projects already includes an allowance of 4-6mm for climate change over the lifetime of the project, and a 20% sensitivity test for peak river flows for inland flood defence projects. However, there is still considerable uncertainty over the impacts of climate change on storm surge in the future, even though this could have the largest influence on extreme high sea levels in the future. UKCIP scenarios[11] suggest that by the 2080s, climate change could add more than 1 metre to present-day storm surge heights along parts of the coast.

    —  Strategic flood management plans for the growth areas, most noticeably Thames Gateway, will not be ready until at least 2009-10. Given that many new developments will be built before these plans are completed, new developments should not compromise the range of flood management options in any way, and nor take place in locations whose effective flood defence depends on one particular flood management option (which may end up not being chosen).

  19.  Flood risk needs to be carefully and cautiously managed, so that the chance of flooding as well as the consequences are minimised. The Environment Agency has been developing creative options for managing flood risk in Thames Gateway in the long term.[12] Regional strategic plans for Thames Gateway, such as the London Plan,[13] recommend that developments are set back from the river's edge to allow for the replacement and upgrading of defences in the future.

  20.  However, clear and consistent messages on all these flood issues need to be passed to planners and developers, so that sustainable approaches to flood protection can be incorporated into all stages of the process—from master-planning to individual site development.

  21.  The Environment Agency will soon be releasing high-level guidance for managing flood risk in the growth areas—known as the "Strategy Envelope". To complement this, the ABI will be launching its own guidance, setting out the key considerations that should be addressed to prevent flood risk increasing to a level where insurance could be unavailable or unaffordable.


  22.  Guidance on flood risk may not be effective enough to ensure that the new developments are truly sustainable—particularly with regard to flood risk. The Government should put in place a clear policy framework for successful delivery of their Communities Plan.

  23. The Barker Review recommends that the planning system becomes more responsive to market signals. Insurance can provide a useful mechanism by which risks are costed directly into the price of the land and housing. Higher risk locations might attract higher insurance premiums. However, currently the planning system does not recognise these external costs in its assessment of the suitability of new locations for development.

  24.  A strong planning system is required to ensure that a long-term sustainable view is taken. The ABI welcomes the emphasis of the new Planning Policy Statement 1 on sustainable development.[14] This is the only way that the legacy of development decisions can incorporate both current and future risks. However, the ABI would like to see the policy strengthened so that the sustainability of planning decisions is more transparent and accountable.

  25.  The Egan Review[15] recently recommended that "planning authorities need to review their planning application processes to maximise transparency and efficiency."

  26.  While PPS1 does cover some of the broad principles to which planners should adhere, there is currently little accountability or monitoring of planning decisions. Incorporating a sustainability template or checklist for planning authorities to make publicly available (perhaps a national website) would make planning decisions more transparent.

  27.  Without this accountability, local-level decisions could be taken that work against national goals of sustainability. For example, the Environment Agency's High-Level Target 12 Report[16] shows that there is still inappropriate development taking place on the floodplain, despite Government guidance discouraging this approach. In England and Wales, at least 21% of planning applications in 2002-03 were permitted, despite formal objections by the Environment Agency on the grounds of flood risk. The actual number of developments going ahead in flood risk locations could be up to twice as high, because the Agency is only consulted in about half of all planning applications.

  28.  Since land use planning plays such a key role in the sustainable management of flood risk in the long term, particularly with the added pressure of climate change, ABI would like to see the specific Government guidance on development planning and flood risk (PPG25) strengthened. The sequential test set out in PPG25 is a useful tool for planning authorities, but it mostly focuses on the probability of flooding (particularly the standard of defence).

  29.  New development on previously-developed land is generally permitted, provided the defences will provide the minimum indicative standard of defence over the lifetime of the development. However, unchecked development in the floodplain increases the consequences of flood (should it occur), and will certainly increase the insurers' exposure to flood damage. PPG25 principle aim should be to ensure that new development does not cause any net increase in flood risk for the area. This means that aggregations of risk should be reduced—for example, by subdividing developments with embayments and defences set back from the water's edge. The standard of defence could also be increased to a degree to offset the increase on potential exposure.

  30.  Stronger planning policy would increase the chance that the growth areas develop sustainably, with due regard to risks of flooding and other hazards, so that financial protection could continue to be offered in the short term and for the foreseeable future.


  31.  Innovative construction techniques offer another key mechanism to speed up rates of house-building and reduce costs. The Housing Corporation itself has a target that at least 25% of grant-funded homes from 2004 will be built using modern methods of construction. In fact, based on Housing Associations' bids, the actual proportion of new homes built using modern methods on construction will be closer to 50% in the growth areas.

  32.  However, this approach could prove to be a double-edged sword. As with all new technological approaches, there are some risks and uncertainties that need to be carefully managed.

  33.  For developers, off-site modular homes have the potential to offer considerable cost-savings during construction, as modern methods of construction can reduce project time and individual components can be imported from outside the UK at reasonable prices. But it is important that we understand more about the longevity of homes constructed using modern methods, and their resilience to flooding and other weather hazards in the long-term.

  34.  Insurers and lenders are now supporting development of an independent certification scheme for modern methods of construction, in order to provide recognised reassurance on designs that we have little experience of in the UK. This scheme could provide a market mechanism for dealing with these new risks.


  35.  Developments should be resilient to natural and man-made hazards, such as flooding, windstorm and driving rain, if they are to be considered truly sustainable. The costs of weather damage and subsequent repair will be reduced if developments are designed and constructed to be resilient.

  36.  Climate change is likely to increase the frequency of damaging weather events, making it even more important that resilience is incorporated into the design and construction of new buildings. Buildings constructed today will typically still be in place in coming decades when the impacts of climate change are felt more intensely.

  37.  Globally, we have already seen that economic losses due to natural weather catastrophes have increased ten-fold in the last 40 years.[17] Losses caused by natural disasters worldwide in the last 15 years have totalled $1,000 billion, about three-quarters of which are directly linked to climate and weather events. Over the past six years in the UK, storm and flood losses have totalled £6 billion—double that of previous years (Figure 1).

  38.  The most cost-effective and sustainable approach is to build resilience in at an early stage. For example, climate-proofing new buildings in southern England against subsidence may only total £32 million, compared to a possible annual cost of £200-400 million from damage claims if we take no action.[18]

  39.  The Government already has comprehensive guidance on making buildings resilient to flooding.[19] Furthermore, the ABI has recently published its own factsheet on ways that homeowners can limit the damage caused by floodwater once it enters a property[20] eg, concrete floors, lime-based plaster, electrical sockets and service meters located above the likely flood level. The report examines the additional cost of installing flood resilient measures during renovation against the costs saved the next time the property floods. All the measures highlighted pay for themselves after a single flood.


  40.  In a similar way to locating new developments away from high risk sites, the resilience of buildings can only be assured through changes in regulation. Currently, the building regulations are primarily concerned with health and safety issues, although this has been broadened recently with the introduction of energy efficiency standards for buildings.

  41.  The ABI would like to see the building regulations expanded further to consider issues of resilience and durability. There should be a minimum level of durability for all new homes to ensure that damage and repair costs do not escalate over time, so that maintenance of buildings is affordable and sustainable over their lifetime. A move towards low-quality housing could mean higher insurance costs, if insurers believe the risks and costs of damage to be increasing.

  42.  The Sustainable Buildings Taskforce[21] recently recommended that building regulations should require modern standards of flood resistance and resilience for all construction within areas of flood risk.


  43.  50% of new homes in the growth areas will be affordable, and targeted at key worker schemes. We have already seen that, without careful planning, these new developments could face higher risks than other parts of the country, due to their exposure to flood damage, and the potential vulnerability of their construction.

  44.  The insurance implications of new developments or large-scale regeneration projects should be considered at the planning stage. Developments exposed to higher risks should not necessarily be targeted for lower income groups, eg large quantity of social housing in the indicative floodplain. Otherwise, this kind of development planning could reduce the availability and affordability of insurance for those on lower incomes. Because adequate buildings insurance is a prerequisite for obtaining a mortgage, insurance availability could affect someone's "right to buy" a property after renting.


  45.  The insurance industry has an active role to play in working with the Government to solve the housing shortage in this country. If long-term considerations, such as flooding and climate change, are incorporated into the plans at an early stage, creating truly sustainable communities can be a very real goal.

May 2004

3   Delivering stability: securing our future housing needs, Kate Barker Review on Housing Supply, March 2004, Back

4   Planning Policy Guidance 3: Housing, Office of the Deputy Prime Minister, March 2000, Back

5   Planning Policy Guidance 25: Development and flood risk, Office of the Deputy Prime Minister, December 2001, Back

6   Sustainable communities: building for the future, Office of the Deputy Prime Minister, February 2003, Back

7   Thames Gateway and Flood Risk Management-A Preliminary Assessment, Environment Agency, May 2003. Back

8   Thames Gateway and Flood Risk Management-A Preliminary Assessment, Environment Agency, May 2003. Back

9   Foresight Flood and Coastal Defence Project, Office of Science and Technology, April 2004, Back

10   Flood and coastal defence project appraisal guidance: overview, Department for Environment, Food and Rural Affairs, July 2001, Back

11   Climate change scenarios for the United Kingdom, UK Climate Impacts Programme, April 2002, Back

12   Thames Gateway and Flood Risk Management-A Preliminary Assessment, Environment Agency, May 2003. Back

13   The London Plan-the Mayor's Spatial Development Strategy, Greater London Authority, February 2004, Back

14   Planning Policy Statement 1 (PPS1)-Creating Sustainable Communities, Office of the Deputy Prime Minister, February 2004, Back

15   The Egan review-skills for sustainable communities, Office of the Deputy Prime Minister, May 2004, Back

16   High Level Target 12-Development and flood risk, Environment Agency, August 2003, Back

17   Topics-annual review of natural catastrophes, Munich Re (2002), Back

18   Potential implications of climate change in the built environment, Building Research Establishment (2000). Back

19   Preparing for floods, Office of the Deputy Prime Minister, October 2003, Back

20   Flood resilient homes, Association of British Insurers, April 2004, Back

21   Better buildings-better lives, Sustainable Buildings Taskforce Report, May 2004, Back

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