Examination of Witnesses (Questions 40-59)
MR NICK
STARLING, MS
JANE MILNE
AND MR
DAVID PITT
14 DECEMBER 2005
Q40 Mr Drew: On that issue, do you
think that if there is sufficient evidence from the mapping and
a local authority agreed to the planning permission—I know
we are going to touch on this in planning, but I think it is connected
to it—that local authority, at least to some extent, would
be liable if that property subsequently flooded?
Mr Pitt: Where we are coming from
as an insurer is that with any new build we believe the Environment
Agency has a key part to play in understanding the risk of flooding.
Presently you can see on the Environment Agency website requests
from local planning authorities and you can see where flood risk
assessments have been requested by the Environment Agency, but
you cannot see where it progresses from there. So as an insurer
we want to see the full line of sight of their involvement and
also the Environment Agency's assessment of the risk before a
property is built.
Mr Starling: Your specific question,
I think, is that if the Environment Agency has advised against
building but nevertheless the local authority has gone ahead,
then you might have a situation where people are then unable to
get insurance. I do not know where liability lies, but clearly
that is a problem for people who have been unable to get insurance.
Q41 Mr Drew: There must be such people?
Mr Starling: There must be. I
do not think we have any data on that.
Ms Milne: No, but we do look at
where the Agency is raising objections and if it is a major development
or if that planning authority is persistently ignoring the Agency's
advice we write and raise an objection in partnership with the
Council of Mortgage Lenders advising the planning authority that
those properties may be uninsurable.
Chairman: We are going to come on to
that.
Q42 Mr Drew: Yes, we are. A final
point from me: the whole point of the maps is that they give information
to the public and obviously through that to the builders, and
so on and so forth, but to what extent do they also give information
to you in terms of the premium? You will insure someone, but clearly
the risk is considerable if you believe the maps are accurate,
so to what extent have we got a premium policy in place now where
if someone comes to you they will have to pay an additional premium?
It may be sizeable because of the additional risk they face. Perhaps
Mr Pitt may want to start with the specific rather than look at
the general?
Mr Pitt: Firstly, we do not use
the Environment Agency map for underwriting, we use our own map
for underwriting. As Jane said earlier, flood is one of the perils
we insure so it is part of the premium. So it would be impossible
to give you a direct answer to that, to say that it is a certain
percentage of the premium, or "This is the increase because
of particular flood risk." Also, we work with individual
customers to review the risk as well and take particular action,
whether that would be agreeing, for example, with a customer in
south-east London who has been flooded five times in a row in
a basement flat to still continue cover on that property. We have
actually agreed to move valuables to shelving to protect the contents
and take particular action, but we still continued cover. So it
would be probably impossible for me to indicate a figure for the
different levels of rating for flood.
Q43 Mr Drew: What about generally?
Are we talking about 25%, 50%, 100% premiums which could be whacked
on when there is a real flood risk?
Ms Milne: Firstly, just to say
that the licensing arrangements by which we get information from
the Agency precludes ABI members from using that as an underwriting
tool. All it does is ensure that they are taking a consistent
approach under the Statement of Principles as to whether cover
should be offered.
Q44 Mr Drew: What does that mean?
That is a legalistic answer.
Ms Milne: The Statement of Principles
sets out the risk levels at which insurers can readily offer cover
under the normal competitive market or situations where it becomes
more difficult for insurers to do that but they are giving a commitment
to stand by their existing customers. That is what we use that
particular tool for. ABI, of course, is the trade association
and does not get involved at all in pricing issues.
Q45 Mr Drew: No, but you have members
who come to you for advice and clearly there is usually someone
who will insure but what takes the strain is the premium? That
is the way insuring and pooling the risk operates, so I am just
getting a feel for it. What is the flood differential? What would
someone expect to pay, because I have got people who really do
face this difficulty? Most, thankfully, are insured but they come
to me when they say, "Our insurance is going to go up by
an amount," which is sometimes quite sizeable.
Ms Milne: Obviously each company
will take its own view, but to illustrate, an average household
premium outside of London will be about £330 a year and an
average flood claim will cost between £15,000 and £30,000.
If you take the higher figure, if you have a flood once in 100
years, that alone is worth about £300 a year in the technical
premium. So that would double your premium.
Mr Starling: It may not just be
a matter of premium, of course. It can be the amount you have
to pay yourself towards a claim, which means the premium can be
lower and the amount of the claim can be less when it is met.
Mr Drew: Yes, of course.
Chairman: I would like to bring in Mr
Hall, if I may.
Q46 Patrick Hall: Mr Pitt, you referred
to the Statement of Principles on flood insurance, that it is
about existing customers and not about new build, and therefore
those new customers, but it is also not about new customers who
would like to buy a house from someone who is an existing customer?
Mr Pitt: Yes.[3]
Q47 Patrick Hall: Jane Milne knows, because
I have had very constructive discussions with her and Barbara
Young and some other people in the Environment Agency, that I
have got an example in my constituency where somebody who is insured
and who has never had a flood in twenty years is unable to sell
because no prospective purchaser can get cover. So it is not just
the new build estates in flood plains that cannot get cover where
there is a difficulty, it is also people who want to buy a house
in an area which the new mapping system reveals as being at risk.
I do not know if there has been an assessment of the potential
numbers of people who could be involved in that, because there
is always a turnover of people wishing to buy and sell homes.
Are you aware of this?
Mr Pitt: I cannot comment on the
individual case, obviously, but under the Statement of Principles
normally what would happen is that the existing insurer, subject
to satisfying themselves of the purchaser's claims experience,
would normally continue with cover for that property. So even
though the seller is moving on to a different property, whoever
purchases that property normally can gain cover from the existing
insurer.
Ms Milne: If it is in an area
about to be protected. Unfortunately, this case is not, that is
the difficulty.
Q48 Patrick Hall: Could I ask maybe
both of you about the Agency's flood map for England and Wales.
Clearly, Ms Milne and I have had some discussions about that,
but it is clear on the Agency's website that it is there for guidance
only. I think there is a sentence in a page on the website, which
is actually called a joint Environment Agency and Association
of British Insurers Flooding Information Sheet, which states that
"Flood probability data is not accurate for individual properties"—that
is the Environment Agency's map—"Insurers will need
to continue to respond to evidence from policyholders about the
risk faced by their property on an individual basis." Could
I ask David Pitt why his company went on to produce its own flood
map? Was it because it felt that the general nature of the Environment
Agency map was not accurate enough and, as I have just read out,
it is not intended to be accurate enough for individual properties?
Is that why you have invested so much money, presumably, in introducing
your own?
Mr Pitt: First of all, the Environment
Agency map is to 100 metres square and our map is to 10 metres
square. We assess the risk of flood every 10 metres square. So
rather than assessing at postcode level, which might include up
to maybe 150 properties, we are assessing the risk of flooding
at an individual property level, which comes back to the earlier
comment that the map is really there for us to understand risk
and take on risk which potentially other insurers might not be
able to because we have that greater degree of understanding.
Q49 Patrick Hall: It does seem a
little confusing for the public to have two sets of maps, and
who knows more? If other insurance companies produce their own
we will be in a very complicated situation. Does your experience
from SunAlliance suggest that perhaps the Environment Agency's
map should be remodelled to a smaller focus? Does the ABI have
any view on that?
Ms Milne: The Agency originally
produced these maps for its strategic planning purposes on deciding
where they should put in additional defences, so I think they
would maintain that they produced it for an entirely different
purpose and we are asking it to do things that it was never designed
to do. Obviously, individual insurers then develop their own tools
to enable them to make those more fine grained decisions. I guess
the Agency would say that is not what they are in business to
do.
Q50 Patrick Hall: The Agency is quite
clear about the nature of its flood map and ABI has signed up
to it on that basis, but one of the issues which emerged in the
case I am dealing with and in the investigations which I and others
have made in Bedford about this is that it would seem that some
of your members, insurance companies, are using the very generalised
nature of the Agency's flood map, entering the postcode of an
enquirer's property and making a decision to insure or not on
that basis. Now, it is not intended to be used like that and yet
there are people in the industry who talk about "flood blight"
not just in areas of flood plain with potential new build but
applying it to areas of existing property, the sorts of people
I am talking about who want to buy and sell property and who would
not notice there is an issue until they come to want to do that.
Is there a case for not just the Environment Agency revisiting
this but also for the industry as well being very careful in not
mis-using the Environment Agency's map as it is in order to make
decisions on the basis of something that the map is absolutely
not designed to do?
Ms Milne: I think we have to be
careful to differentiate between the different sales channels
which are available. Some are more automated than others. For
example, if you go to a broker and you live in a higher flood
risk area and you ask for a quote, that broker may find that different
insurers have got a "Refer to underwriter" flag on them
and it is up to the broker then to pursue that enquiry, having
a dialogue with the insurer and the customer in order to get the
additional information which is needed, and some are better at
doing that than others.
Q51 James Duddridge: The Environment
Agency mapping system cost about £25 million to set up and
£8 million on an ongoing basis. I would like to ask you,
David. You have got a map system for this purpose which you believe
to be superior. How much did it cost and is the taxpayer getting
good value for money out of £25 million, £8 million
ongoing, from the Environment Agency in relation to these maps?
Mr Pitt: I do not have the figures
to hand in terms of the investment. However, we have an ongoing
investment in terms of maintaining the map. We started to develop
this in 1998 and put it into production and use in 2002, and even
since then we are continually changing it. We have made over 600
amendments since we started to use the map. So it is one of these
ongoing investments, but I do not have the figures to say how
much it cost us.
Q52 Lynne Jones: Could I ask, without
wanting to go into commercially sensitive information, if you
could perhaps provide the Committee with a bit more information
so that it would be a useful benchmark on what the private sector
has done in replicating what the public sector is also doing?
Mr Pitt: I am happy to write to
the Chairman and find that information.[4]
Chairman: Thank you very much.
Q53 Lynne Jones: Are there any contradictions
between the information which you have compiled and the map being
produced by the Environment Agency?
Mr Pitt: There will be differences
because our map is looking at more detail. For example, by the
nature that we are looking at 10 metres square for flood risk—
Q54 Lynne Jones: I wondered whether
there are any contradictions. I understand the differences, but
essentially are they saying the same thing?
Mr Pitt: Broadly speaking, the
same results are coming in, but there will potentially be differences
in certain areas. If we have more information or we have reflected
claims experience with our new mapping tool, after every incident
we do check our own mapping tool to make sure it has produced
sound results. So, for example, with Carlisle we would take the
Carlisle incident and play it back through our own mapping tool
to understand how effective the tool had been in looking at the
flood risk in that area.
Q55 Chairman: What did it tell you
when you played it back?
Mr Pitt: Ultimately, you are always
going to have flooding. We did have even areas that we were classifying
as moderate or negligible risk which actually flooded. So our
mapping tool was showing us the extent of the flood had moved
to a certain level where even risks in that area were being affected.
Q56 Lynne Jones: How often do you
update your publicly available information, because one of the
points you have said is that the Environment Agency should update
theirs more regularly? How quickly do you get your information
available to the public?
Mr Pitt: We are continuously updating
our tool. However, we are relying on information on defences and
also the maintenance of defences and if we had more information
available, timely information, on those defences we would certainly
build that into our mapping tool and also the risk rating of flood
in particular at present levels.
Q57 Chairman: You say in paragraph
3.1 of your evidence that you have been calling on Defra and the
Agency to provide this better information. What are the excuses
they give you as to why they cannot give it to you in a more timely
fashion?
Mr Pitt: We have been involved
in discussions obviously through the ABI and also we have had
meetings where we have taken the Environment Agency through our
flood mapping tool and illustrated the necessity that we have
timely information. We have not as yet received dates as to when
that is going to be available, hence the reason why we draw attention
to it in the document.
Q58 Chairman: But to be specific,
have they said, "We will look at it and come back to you,"
or are they committing themselves to, "Yes, we could do better
and this is what we are going to do"? Are you getting stonewalled
or a positive response?
Mr Pitt: We are getting positive
responses. They wish to provide that information, but as yet we
have not had timescales to provide that.
Chairman: Okay. Let us move on.
Q59 Sir Peter Soulsby: This is very
much on the same theme really. I just want to be sure that I have
understood what you are saying to us about the flood mapping.
Am I right that you are saying to us that the Environment Agency
is duplicating what you are doing much better when they do their
flood maps and that that is a waste of money?
Mr Pitt: I think what I would
say in response to that is that for our mapping tool to be effective
we need to understand where the Environment Agency are going to
take action and when action is going to be taken so that we can
build it into our mapping tool. Our tool, as I say, is more granular
in detail and it has consistently been updated with the claims
records, but it is probably only as effective as the information
we have to feed into the tool.
3 Note by witness: A clearer answer is given
in response to Q 47. Back
4
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