Memorandum submitted by The British Insurance
Brokers' Association (FL 92)
1. EXECUTIVE
SUMMARY
1.1 The British Insurance Broker's Association
(BIBA) is delighted to respond to the Environment, Food and Rural
Affairs Select Committee inquiry into flooding.
1.2 BIBA is the UK's leading general insurance
intermediary organisation. We represent the interests of insurance
brokers, intermediaries and their customers and have partner members
from the leading companies in the insurance industry.
1.3 Our members have been actively involved
in helping householders and businesses to submit and pursue insurance
claims in the aftermath of the summer 2007 flooding across various
parts of the country.
1.4 We welcome this inquiry as an opportunity
to review the collective experiences and effectiveness of many
of those involved and to make any recommendations for changes
in the future.
2. THE 2007 FLOODS
2.1 After the June floods in Yorkshire and
Humberside, followed by those in Gloucestershire and surrounding
areas in July, the insurance industry has processed around 50,000
individual claims. These claims cover both domestic and business
properties.
2.2 It is difficult to be precise but we
believe that the average value of each flood claim amounts to
£40,000 for domestic claims and £60,000 for business
claims.
2.3 It is part of our role as brokers to
help insured victims process and pursue their claims. We estimate
that it takes between 3 and 15 months for a straightforward claim
to be processed and paid out. Interim payments are often available
for immediate, emergency expenses and alternative accommodation.
Many of these payments are usually made within days.
2.4 The recent floods were extraordinary
and have been a major test for the insurance industry, just as
they have been for local authorities, the emergency services and
other organisations.
2.5 Given the scale of the flooding, we
believe that brokers have responded well both in the speed of
their response and resources to cope with a claims overload situation.
3. LEARNING FROM
THESE EXPERIENCES
3.1 For many, a major concern for the future
will be the continuing affordability and availability of insurance—particularly
in the areas worst affected by the floods—but also nationwide.
It is our firm view that on this occasion, there is no need for
insurers to substantively raise premiums.
3.2 We are keen to ensure that flood insurance
continues to be readily available even if repeated catastrophe
flooding occurs. It is important that the price of insurance does
not act as a deterrent to ensuring adequate cover.
3.3 However, regular flooding and storms
of this kind would require insurers to invest in additional resources
which would have an inevitable cost burden upon the consumer.
Clearly, the best way to keep premiums down is to keep claims
to a minimum—and that is dependent on good flood defences
and other preventative action.
3.4 We see a number of ways that the Government
and private sector can work together to protect properties from
flooding in the future.
Appropriate insurance cover
3.5 The UK is one of the few member states
in Europe where consumers are able to purchase insurance policies
to cover them in the event of flooding.
3.6 Despite flood cover being available,
we estimate that at present 25% of homeowners and occupiers either
have no contents insurance at all or are significantly under-insured.
In certain areas, this figure could be as high as 40%.
3.7 With the appropriate cover in place,
homeowners and businesses will not be left stranded and dependent
on aid from their local authority or the Government to recover
from a major flooding incident.
3.8 We would call on the Government to raise
awareness of the benefits of insurance, and urge all home owners
and businesses to ensure that they have the appropriate cover
in place to protect themselves against flooding and storms.
Funding for Defences
3.9 It should be a priority for the Government
to increase spending on flood defences at an early date, to safeguard
homes and businesses.
3.10 Regular repetition of incidents such
as the recent flooding will make the pressure for higher premiums
more difficult to withstand. The need for better flood defences
is now—2011 is too far away—so such commitment should
be implemented as a matter of urgency. We would urge the Government
to ensure adequate levels of spending to support the increased
need for flood and sea defences to a level that is generally recognised
as adequate to meet the changing needs of our climate.
3.11 We also support the view of other professionals
who have called for higher levels of maintenance and improvement
of storm water drainage systems so that drains and gullies can
more easily be kept clear and to allow surface water during heavy
rainfall to be channelled away rather than accumulate, leading
to flash flooding.
3.12 Similarly, we urge local authorities
to ensure adequate natural ground drainage in densely populated
areas by not building on all open spaces.
3.13 A significant number of the claims BIBA
members have handled resulted from inadequate drainage.
Building on Flood Plains
3.14 There is a similar vulnerability to
existing housing developments on flood plains. Looking to the
long term, we suggest that further consideration should be given
to planning applications for new housing developments on flood
plains, using flood risk modelling techniques.
3.15 There are also options about the way
we build our houses, for example, to raise living areas above
ground to offer further protection from inundation. We believe
that these must be fully explored.
Meeting Immediate Needs
3.16 When large numbers of homeowners and
occupiers are affected in a single area, there are particular
issues in relation to finding suitable alternative accommodation
both short-term and longer term.
3.17 High levels of demands on contractors
and tradespeople to undertake repairs and reinstatement of their
properties and replacement of home contents also impact on costs
for insurance payments and can extend the period of time it will
take to fix a residence or business.
3.18 We have seen costs escalate in areas
where alternative accommodation was required.
Business Resilience
3.19 Business resilience planning is a core
element of the advice that brokers can offer. It is important
for businesses to understand the need to take out insurance cover
not only for the physical damage incurred but also to cover them
for the period when they are unable to trade from their premises.
3.20 A recent BIBA survey showed that nearly
half of small businesses had no plans in place to deal with the
effects of flooding. We have been campaigning to raise awareness,
particularly amongst SMEs, of the need for adequate business resilience
planning.
3.21 We believe there is a role for the
Government and local authorities to play in helping to raise awareness
of the importance of business resilience planning.
4. CONCLUSION
4.1 In conclusion we believe there are several
steps which can be taken immediately to protect our homes and
businesses in the event of future flooding.
4.2 The Government must recognise the urgent
need for flood and sea defences to be improved to a level considered
adequate to meet the changing needs of our climate. This requires
increased spending to prevent not only catastrophic damage to
property, but also the adverse impact on the economy as a whole,
jobs, and even lives.
4.3 Further to this, we are keen to work
with Government and local authorities to help raise awareness
of the need for homeowners and businesses in vulnerable areas
to be better prepared.
4.4 We hope this document outlines our experience
and that of our members in supporting communities in the wake
of the recent floods, and provides some information on the steps
which must be taken to ensure the insurance industry can continue
to provide affordable flood cover in the future.
4.5 We would be very happy to meet with
the Committee, or facilitate meetings with any of our members,
to provide further information on the areas set out above.
The British Insurance Brokers' Association
September 2007
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