APPENDIX 7
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 decisionsfor
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.
ROLE OF
INSURANCE IN
BUILDING SUSTAINABLE
HOMES
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 aimif 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.
GROWTH AREAS
AND FLOOD
RISK
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.
SUSTAINABLE FLOOD
MANAGEMENT IN
THE GROWTH
AREAS
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
KEY CHARACTERISTICS OF DIFFERENT KINDS OF
FLOOD IN GROWTH AREAS
|
Flood Type | Driver
| Water Type | Quality
| Growth Area |
|
Tidal | Sea level and storm surge
| Saltwater | Clean
| Thames Gateway |
River | Rainfall quantity
| Freshwater | Mixed
| Ashford, Milton Keynes, Stansted
|
Urban | Rainfall intensity
| Freshwater | Polluted
| 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 processfrom master-planning to individual
site development.
21. The Environment Agency will soon be releasing high-level
guidance for managing flood risk in the growth areasknown
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.
PLANNING POLICY
AND FLOOD
RISK
22. Guidance on flood risk may not be effective enough
to ensure that the new developments are truly sustainableparticularly
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 reducedfor 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.
QUALITY OF
CONSTRUCTION
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.
BUILDING RESILIENCE
INTO NEW
HOMES
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
billiondouble 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.
BUILDING REGULATIONS
AND RESILIENCE
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.
SOCIAL EXCLUSION
AND AFFORDABLE
HOUSING
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.
CONCLUSION
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, http://www.hm-treasury.gov.uk/consultations_and_legislation/barker Back
4
Planning Policy Guidance 3: Housing, Office of the Deputy Prime
Minister, March 2000, http://www.odpm.gov.uk/stellent/groups/odpm_planning/documents/page/odpm_plan_606933.hcsp Back
5
Planning Policy Guidance 25: Development and flood risk, Office
of the Deputy Prime Minister, December 2001, http://www.odpm.gov.uk/stellent/groups/odpm_planning/documents/page/odpm_plan_606931.hcsp Back
6
Sustainable communities: building for the future, Office of the
Deputy Prime Minister, February 2003, http://www.odpm.gov.uk/stellent/groups/odpm_communities/documents/page/odpm_comm-023261.hcsp 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, http://www.foresight.gov.uk/fcd.html Back
10
Flood and coastal defence project appraisal guidance: overview,
Department for Environment, Food and Rural Affairs, July 2001,
http://www.defra.gov.uk/environ/fcd/pubs/pagn/fcdpag1.pdf Back
11
Climate change scenarios for the United Kingdom, UK Climate Impacts
Programme, April 2002, http://www.ukcip.org.uk/scenarios 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, http://www.london.gov.uk/mayor/strategies/sds/index.jsp Back
14
Planning Policy Statement 1 (PPS1)-Creating Sustainable Communities,
Office of the Deputy Prime Minister, February 2004, http://www.odpm.gov.uk/stellent/groups/odpm_planning/documents/page/odpm_plan_027494.pdf Back
15
The Egan review-skills for sustainable communities, Office of
the Deputy Prime Minister, May 2004, http://www.odpm.gov.uk/stellent/groups/odpm_urbanpolicy/documents/page/odpm_urbpol-028549.hcsp Back
16
High Level Target 12-Development and flood risk, Environment
Agency, August 2003, http://www.environment-agency.gov.uk/subjects/flood/571633 Back
17
Topics-annual review of natural catastrophes, Munich Re (2002),
http://www.munichre.com 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, http://www.odpm.gov.uk/stellent/groups/odpm_buildreg/documents/page/odpm_breg_600451.pdf Back
20
Flood resilient homes, Association of British Insurers, April
2004, http://www.abi.org.uk/Display/File/Child/228/Flood_Resilient_Homes.pdf Back
21
Better buildings-better lives, Sustainable Buildings Taskforce
Report, May 2004, http://www.dti.gov.uk/construction/sustain/EA_Sustainable_Report_41564_2.pdf Back
|