Memorandum submitted by Association of British Insurers (FW 05)



The second reading debate of the Flood and Water Management Bill on 15 December 2009 highlighted some key concerns MPs have regarding insurance.


The ABI has produced a short submission for Members to address some of the key issues that were raised:


The increase in excesses makes flood insurance unattainable for many, and therefore, they are not really insured at all?


If a property is likely to flood regularly, insurers have three options with regard to its future insurability: to set higher premiums to cover likely losses; to raise the excess to introduce an element of sharing the risk with the customer and reduce the need for higher premiums; or to decline to insure the property at all. Insurers want to offer the option of insurance to as many customers as possible and so may offer higher premiums or higher excesses to customers at very high flood risk. By using excesses for this purpose, people are still able to afford flood cover.


It is a common misconception that people have to pay these excesses up front. In reality, if a person has a 5,000 excess and they are flooded, this amount of money will be subtracted from the total cost of the repair work. Therefore, the customer can discuss with their insurer how the work can be done in a more economical way, for example, by using cheaper fittings or by the customer painting the walls themselves once plastered. These are among many options customers have.


Insurers' perception of risk doesn't match the actual risk in my area?


At the moment, there is no all-encompassing government assessment of flood risk in any area. While the Environment Agency produces high-level maps to show the risk of river or coastal flooding, maps to show the risk of surface water flooding are at a very early stage of development and often unavailable. Furthermore, the Environment Agency's river and coastal flood risk maps average flood risk over fairly large areas and only determine whether an area is in one of three flood categories and not its precise risk level. The ABI has regularly called for a more joined up approach to the sharing of flood risk information to improve flood risk maps and has offered to provide industry-level flood claims data to the Environment Agency to help us mutually assess flood risk. In the interim, each insurer relies on a variety of sources to collect their flood risk data that often produces more accurate results than the Environment Agency's maps. More accurate assessment helps more people find appropriate cover.


If an area has built flood defences, shouldn't the premium come down?


We appreciate that there has been significant investment in flood defences in some areas, and that these have proved to be effective in protecting properties from flood, for example in the Carlisle area.  As mentioned above, insurers draw from a variety of sources, including the Environment Agency's flood maps, to assess the level of flood risk to a property.  We would expect insurers to take into account appropriate flood defences in place, and for the reduced risk to be reflected in premiums and excesses accordingly, once the Environment Agency have provided insurers with this information or once customers are able to do so (whichever comes first). 


Insurance companies are benefitting from significantly increasing excesses, especially in areas where flood defences have been installed?


Flood cover is often discounted so that premiums and excesses can be lower than the actual level of risk.  Similarly, the agreement we reached with the Government in 2008 (often called the renewed 'Statement of Principles') requires insurers to offer insurance to some properties at very high flood risk that they would not necessarily otherwise have insured. Neither of these scenarios are beneficial to insurers.


ABI research shows that the cost of an average flood claim is approximately 25,000[1], still significantly less than the premium itself.


If customers feel their excess does not fairly reflect recent local flood defences, they should contact their insurer to discuss this. If MPs are contacted by constituents with problems on this issue, the ABI is happy to follow this up with the insurer on their behalf.


Only one insurer will offer cover in certain areas, so customers have no choice but to use them?


This occurs where people are at 'significant' risk or greater than 1 in 75 risk, and therefore the only insurance they can get may be through their current insurer who is bound by the Statement of Principles.  Some insurers will still cover people outside of the flood agreement.  In some cases people whose property has flooded previously might find it difficult to obtain quotes through comparison websites, but it may help if they contact the insurer directly, and the insurer can consider their individual circumstances. 


It should be easier for people to obtain affordable flood cover where there are flood defences in place and a demonstrable reduction in the flood risk.



December 2009

[1] ABi Research Paper, Resilient Repair, The costs of flood resilient reinstatement of domestic properties,, p.21