Memorandum submitted by the Association
of British Insurers
I am writing in response to the Committee's
inquiry into the Pre-Budget Report (PBR) and Comprehensive Spending
Review (CSR) 2007, to set out the insurance industry's serious
concerns about the level of flood defence expenditure and the
consequences of this for homeowners and businesses.
The flooding in June and July 2007 was the most
extensive to take place in the UK since flood insurance became
a standard feature of property policies in the 1960s, highlighting
the importance of an adequate flood management system.
The total insurance cost will be in excess of
£3 billion, the largest natural catastrophe insurance loss
ever recorded in the UK. And this is only a proportion of the
economic and social impact. Businesses that were not insured have
faced severe difficulties. In a "just in time" economy
the consequences of disruption are also felt beyond the directly
affected area. At an individual level many people, particularly
those in social housing, have lost possessions that without insurance
they will struggle to replace.
The ABI believes that the financial case for
flood defence expenditure is well made. The Environment Agency
itself calculates that it secures a much higher level of economic
return than most other publicly funded projects. We also strongly
believe that this is an area where the public and private sectors
need to work in partnership. If flood defence expenditure adequately
addresses increasing risk, insurance will remain available and
affordable. Households will buy it and so protect themselves.
If it is not adequate and insurance is less attractive, people
will not be adequately protected and will look to the state for
compensation and protection.
We are therefore very concerned that the floods
have shown up serious shortfalls in spending on flood risk management
at national and local level. Flood defence expenditure has benefits
that greatly outweigh the costs, and yet key projects, including
protection of major city areas and public infrastructure, have
been delayed for want of money.
The flood defence spending announced at the
PBR and CSR— £650 million for 2008, £700 million
for 2009, £800 million for 2010-11—is inadequate. It
does not address major issues, including drainage, that were revealed
over the summer and fails to match the importance of improving
Britain's flood defences.
The recent floods highlighted how vital the
insurance response is to the recovery process. The UK is unique
in having flood cover included as standard in household policies
and in the vast majority of business policies. It is essential
that the Government responds to these floods effectively so that
the insurance industry is able to continue to provide this protection.
The ABI is contributing to the Pitt Review,
which is assessing the lessons to be learnt from the recent floods.
We hope that this Review will enable the Government to assess
how response mechanisms performed and will identify what now needs
to be done to protect homeowners and businesses in the future.
Until the Review is complete and we understand
the full scale of the problem, it is difficult to specify an optimum
figure for flood defence spending. However, it is clear already
that the lessons from this summer will not be addressed within
current funding levels.
It is vital we now have a strategic plan for
investment in defences and surface water management which looks
beyond the usual three year spending cycle. For example, the ABI
identified that £8 billion would be needed over the next
20-25 years to tackle East Coast flooding alone.
In December the ABI will publish our own assessment
of lessons from the summer floods and will send a copy of this
to the Committee. In the mean time, do contact me if you require
any further information on the issues raised in this letter.
November 2007
| 
