Memorandum submitted by the Association
of British Insurers (ABI) (FL 114)
ISSUES RAISED BY THE RECENT FLOODING IN ENGLAND
AND WALES
SUMMARY
1. Prolonged heavy rainfall led to extensive
flooding in June and July 2007 in the Rother, Don, Trent, Great
Ouse, Warwickshire Avon, Severn and Thames catchments. The inability
of drainage systems to cope with intense rainfall contributed
significantly to the floods, which were the most extensive since
flood insurance became a standard feature of property policies
in the 1960s. We estimate that the total insurance cost will be
in excess of £3 billion, the largest natural catastrophe
insurance loss ever recorded in the UK.
2. The insurance industry has responded
quickly and well to the floods. 20% of household claims and 10%
of business claims were settled by the end of August. In total
the industry is handling some 60,000 claims (45,000 household,
15,000 businesses). This is equivalent to four years of normal
claims experience. Building services will be in short supply,
and repair will often not be simple. Some properties were flooded
for long periods and will take months to dry out. Complete reinstatement
is therefore likely to take 12 months or more in many cases.
3. This insurance response is a vital part
of the recovery process. The UK is unique in having flood cover
included as standard in household policies and 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 alternative would
be substantial and irresistible demands for taxpayer-funded assistance—to
date the UK Government's contribution has been just £46 million,
a small proportion of the £3 billion to be paid by the industry.
But the floods have shown that there is scope and a need to promote
insurance so that take up is more extensive and the exposure of
the taxpayer is further reduced. We particularly find the under
insurance of some public authorities hard to understand.
4. The floods have shown up serious shortcomings
in spending on flood risk management at national and local level.
Flood defence expenditure has a very high payback and yet key
projects, including protection of major city areas and public
infrastructure, have been delayed for want of money. Maintenance
of existing facilities has also been neglected. The ABI is calling
for the Government's commitment of £800 million for 2010
to apply from 2008 and for £150 million to be spent in addition
on the backlog identified by the NAO.
5. The floods also demonstrated the need
for flood risk management to be properly coordinated, including
those responsible for surface drainage. Too many bodies deal with
the issue without adequate coordination. Previous "lessons
learnt" reviews led to the development of a comprehensive
government strategy, Making Space for Water, in 2005, but
as well as not being funded, the necessary organisational changes
have not been made.
6. Throughout the recent flooding, it has
been apparent that risk awareness and contingency planning are
frequently inadequate, particularly in local authorities and businesses.
The provisions of the Civil Contingencies Act 2004 and duties
on Local Resilience Forums have not led to improved preparedness
or resilience across the country. Critical infrastructure remains
woefully exposed, despite the lessons of previous flood events,
resulting in social and economic impacts far beyond directly affected
areas (for example, loss of electricity and water supplies).
7. The assessment of risk is in some respects
inadequate or inconsistent. The inadequacy of data in particular
makes it hard for insurers to assess risk. The Environment Agency
and the industry need better data on the likelihood of flooding
in particular areas and on the impact of new schemes, so that
the industry can price more accurately for its customers. We also
need greater consistency in decisions on what level of risk is
appropriate in different locations: 1 in a 100 year river defences
sit alongside 1 in 30 year drainage systems.
8. The floods also showed the folly of building
in high-risk areas. The insurance industry will oppose such developments
in future and make clear the implications for insurance cover
and premiums both for new and adjoining properties.
9. The UK's approach to flood defence is
inherently short term. Money is found in three-year tranches even
though some projects have much longer lead times. And climate
change is eroding the level of defence provided by new projects
at such a rate that we need a new approach to flood defence investment.
It is nonsense to adopt a design for a defence to protect against
a 1 in 100 year flood if it will only protect against a 1 in a
50 year flood in 20 years time and will need early rebuilding.
We have proposed that our approach to adaptation becomes genuinely
long term and strategic. The Climate Change Bill needs to be strengthened
by giving an equal weighting in the Bill to mitigation, as part
of a single process.
INTRODUCTION
10. The Association of British Insurers
(ABI) is the trade association for Britain's insurance industry.
Our 400 member companies provide over 94% of insurance business
in the UK. We represent insurance companies to Government, regulatory
and other institutions and are an influential voice on public
policy and financial services issues.
11. The insurance industry has played a
major role in promoting understanding and pressing for improvements
in public policy on climate change in the UK and, in particular,
the risk from flooding—both inland and coastal. In our evidence
to this Committee's enquiry into the draft Climate Change Bill
earlier this year, we said that the science shows that some climate
change is already inevitable: it is built into our world. Urgent
action is needed to manage better the current risk of flooding
and to prepare for the impacts of climate change. The reports
on previous floods showed us what to do to protect our economic
and social interest. Few, if any, new lessons have emerged from
the latest beyond the need to implement these earlier reports.
THE EVENTS
12. The Flooding occurred in Northern Ireland
and Kent in mid-June, followed by dramatic flooding in parts of
Yorkshire, the west and east Midlands and Wales on 24-25 June.
Further flooding occurred across many areas of the UK (England,
Wales, Scotland and Northern Ireland) in mid to late July, with
particularly deep flooding experienced in the Severn valley.
13. The Environment Agency has reported
two defence failures, neither of which affected urban areas, but
river defences were overtopped at many locations as design standards
proved inadequate for the task. There were widespread failures
of urban drainage systems. At some locations these difficulties
were exacerbated by failures of pumping stations, due to direct
flooding or flooding of power supplies, or by an inability to
discharge into river courses due to high river flows. Local blockages
also contributed.
INSURERS' RESPONSE
14. The scale of the flooding across the
UK was massive, exceeding all events since flood cover was introduced
as a standard feature of property policies in the early 1960s.
The industry has responded to around 60,000 claims in all, with
around 45,000 household claims and 15,000 commercial claims requiring
specialist responses. The cost to insurers will exceed £3
billion, the largest natural catastrophe insurance loss ever recorded
in the UK.
15. The insurance industry responded well,
both in mobilising the initial response and the re-housing and
re-instatement challenges which were greater than those faced
by the emergency services or any social housing provider. Thousands
of additional staff were brought in from across the UK and overseas
to handle claims calls and visit customers' premises. Equipment
was also bought in from abroad. Loss adjustors visited all claimants,
including the most complex cases, within two weeks of notification.
By the end of August many less complex claims had been settled,
representing 20% of household and 10% of commercial claims.
16. Rapid deployment of additional equipment
and specialist drying and decontamination services has ensured
work started on as many properties as possible, as early as possible.
Mobilisation of insurer repair networks has ensured the availability
of the additional resources necessary to deal with such widespread
damage, together with quality and financial assurance measures
needed for extensive and complex reinstatements. In view of the
very high numbers of claims normal procedures were adapted: for
example customers being allowed to use their own builders, and
in some cases competitive estimates not being required.
ACTION NEEDED
FROM THE
PUBLIC AUTHORITIES
17. Two types of measure are needed to minimise
social and economic losses from flooding: action in anticipation,
such as flood defence investment; and, action in response, such
as emergency rescue and implementation of contingency plans. Both
have been considered extensively in previous Lessons Learnt reviews.
18. The ABI has consistently pressed for
the following immediate measures in anticipation:
Increased funding
Increased investment in flood defences, rising
to £800 million in 2010-11, must start in April 2008. The
Environment Agency have a back-log of planned schemes that can
be implemented quickly. The defence maintenance programme identified
as necessary following the Autumn 2000 floods, but still outstanding[1]
needs to be funded in addition to this and completed as a matter
of urgency.
Integrated flood risk management
Flood risk management needs to combine measures
to manage coastal and river flooding with surface water and drainage
management. Properly integrated catchment plans are required,
as well as changes to the CAP so that farmers can be funded for
contributions to catchment management and attenuation and temporary
storage measures for rivers and urban drainage systems.
Protection of critical infrastructure
Around 13,000 homes were without electricity
in Sheffield and people without water supplies in Gloucestershire
as a result of flooding of key infrastructure sites. Humberside
Police Headquarters was flooded, along with numerous schools,
leisure centres (some intended as evacuation centres), and key
transport routes. On the east coast 15% of fire and ambulance
stations, 40% of electricity sub-stations and 15% of petrol stations
are at risk of flooding in a storm surge[2]
and similar exposures may well occur inland. Full risk mapping
and contingency planning is needed, nationally and locally, considering
all forms of flooding, the likely impact on local communities
and the regional and national economy.
Land use planning and building standards
While current planning policies[3]
and recent guidance on building standards for flood risk areas[4]
set out a generally acceptable approach to further development
in relation to flood risk, it is not clear that the former will
be implemented effectively, or the latter at all. The Code for
Sustainable Homes is voluntary and developers need not address
risk reduction measures at all to qualify for the designation.
19. In addition, there is a need for long-term
commitments on:
Further development in flood risk areas
National and regional spatial strategies need
to take account of the long-term development of climate risks.
Housing allocations, regeneration funding and flood risk management
strategies need to be aligned.
Long-term flood risk investment strategy
Investment and funding needs over at least a
25 year period need to be set out, for example, £8 billion
needs to be invested over 25 years on east coast defences. Those
areas where decisions have been made not to maintain existing
defences, or where these will be deliberately removed for strategic
risk management reasons, must receive early indications, with
this information being included in Home Information Packs and/or
via solicitors' and conveyancers' searches.
A statutory duty on flood protection
The Environment Agency and water and sewage
utilities should be given statutory duties to reduce flood risk
to people and property. This could be achieved through the proposed
Climate Change Bill. The Environment Agency should be given an
overarching strategic role across all flood risks[5].
This should include risk mapping, and could require the Agency
to convene local drainage boards to address identified problems[6].
20. The recent flood events have highlighted
the need for improvements in the arrangements for large-scale
emergencies. These should include clarification on the respective
roles of response agencies (fire, police, local authorities, Environment
Agency and utilities companies); co-ordination of responses at
regional or national level, including regional rescue service
control centres; full implementation of local authorities' duties
under the Civil Contingencies Act to promote business continuity
planning and the role of insurance within these plans; implementation
of protocols to bring in the assistance of non-statutory partners[7].
21. Many businesses, particularly small
and medium enterprises, did not have adequate flooding or business
interruption insurance in place prior to the floods. Clearly there
is much the insurance industry itself can do to promote this,
but Regional Development Agencies and other public agencies which
promote business and enterprise also have an important role in
ensuring business takes responsibility for its own risks and does
not look for taxpayer support where it has failed to take adequate
precautions.
22. Similarly, local authorities need to
ensure that their own contingency plans deal realistically with
flood risk and that their insurable risks are covered adequately.
Neither the Bellwin scheme nor the EU Solidarity Fund should be
used to pass insurable costs onto taxpayers.
CONCLUSION
23. While the public services provided much
of the immediate response to the flooding, the Government funding
of post-flooding reinstatement and repair has been limited to
£46 million[8]
to date, compared with in excess of £3 billion of insured
repairs. Taxpayer funding is most effectively used in investing
in risk reduction measures which protect communities and the economy,
as well as people and properties. In a recent YouGov survey commissioned
by the ABI, 84% of people agreed that the Government should be
responsible for protecting the UK from the effects of climate
change. In the same survey 64% of people thought local authorities
should also be responsible for protecting them against the impacts
of climate change.
24. Adequate investment in and management
of flood risk measures would enable flood insurance to continue
to be widely available, as envisaged under the Statement of Principles
for the Continuation of Flood Cover[9].
Insurers need to see significantly greater commitment from the
Government, or substantial areas of the country will face much
higher premiums and deductibles in the near term, and become uninsurable
over the longer term.
ABI
September 2007
1 Building and maintaining river and coastal defences
in England. Report by the Comptroller and Auditor General, June
2007 Back
2
Coastal Flood Risk-Thinking for tomorrow, acting today. Summary
Report. ABI, November 2006 Back
3
Planning Policy Statement 25: Development and Flood Risk. Communities
and Local Government. [December 2006] Back
4
Improving the Flood Performance of New Buildings: Flood Resilient
Construction. Communities and Local Government, May 2007 Back
5
Making Space for Water: Taking forward a new Government strategy
for flood and coastal erosion risk management in England. HM Treasury
et al. March 2005 Back
6
The June 2007 floods in Hull, Interim Report by the Independent
Review Body, 24 August 2007 Back
7
ACPO/CFOA/ABI/CILA/LGA protocol for dealing with emergencies,
launched 20 September 2007 Back
8
UK Government submission to the EU Commission for funding under
the EU Solidarity Fund, 20 August 2007 Back
9
www.abi.org.uk/Display/File/Child/553/statementofprinciples2005.pdf Back
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