Memorandum submitted by the Association
of British Insurers (ABI)
The Association of British Insurers (ABI) is
the voice of the insurance and investment industry. Its members
constitute over 90% of the insurance market in the UK and 20%
across the EU. It controls assets equivalent to a quarter of the
UK's capital. It is the risk manager of the UK's economy and society;
through the ABI, their voice is heard in Government and in public
debate on insurance, savings, and investment matters.
INTRODUCTION
The ABI has promoted adaptation for some time.
We believe the predicted changes in the climate pose a threat
to the economy and to our way of life. In 2007, the summer floods
alone caused more than £3 billion of insured damage and the
total disruption to the economy was far greater. The Stern Review
shows that taking action now will be more cost-effective than
taking action later.
The ABI welcomes the Government's work on adaptation.
The draft Flood and Water Management Bill is an important step
to make England and Wales safer from flooding. Delivering and
securing legislative approval of the Bill is one of the key milestones
in the ABI-Government agreement on the future of flood insurance
in England.
However, we believe that the issue of adaptation
must be pursued with more energy.
SUMMARY
— The Environment Agency's long-term investment
strategy shows that even if spending on flood defences is increased
by £20 million per year (until 2035), flood risk will still
only remain at current levels. Therefore, we cannot afford not
to invest in flood defences. Insurers can only continue to provide
cover for properties where the flood risk is adequately managed.—
As in the Climate Change Act, the ABI would like to see clear
legally-binding targets for adaptation, particularly the number
of homes and businesses at risk from flooding.
— There should be a clear public scrutiny
process of how local authorities, the Environment Agency and the
Government deliver on their adaptation objectives.
— It is important that new developments
are built to withstand the challenges faced by climate change.
— We need to create an open culture of
sharing information between all stakeholders and increasing risk
awareness.
FUNDING
1. We cannot afford not to invest in flood
defences. The Environment Agency has recently published its long-term
investment strategy which shows that an additional £20 million
per year (until 2035) of investment is required just so the same
number of properties can be protected as today. In other words,
a doubling of expenditure will not reduce the problem.
2. Our own research shows that adaptation investment
can be very cost-effective: for example, flood defence expenditure
in the UK has a cost-benefit ratio of 7:1, much higher than for
other public sector capital investments.
3. The ABI welcomes Defra's and the Environment
Agency's work on the long-term investment strategy and we will
engage in the public debate about future investment needs.
MONITORING AND
EVALUATION OF
WORK ON
ADAPTATION
Targets
4. The ABI welcomes the Climate Change Act,
which sets clear, legally-binding targets to reduce carbon dioxide
emissions. The Government should take a similar approach to reducing
the number of properties and businesses exposed to flooding. It
should set legally-binding targets for reducing the number of
homes and businesses at different levels of flood risk by eg 2015,
2025 and 2050, following the precedent set in the Climate Change
Act. We hope this will be included in a future Flood and Water
Management Bill.
Public scrutiny and accountability
5. The draft Flood and Water Management Bill
sets out new responsibilities and duties for the Environment Agency
and Local Authorities, as recommended in the Pitt Review. It is
essential to develop a clear public scrutiny process of how the
Environment Agency, national Government and Local Authorities
perform and deliver on the new duties set out in the draft Bill.
Otherwise, it is difficult to hold the Government and Local Authorities
democratically accountable and there is a risk that it is only
apparent that flood risk is not being managed adequately when
an avoidable flood event happens, and by then it is too late.
REDUCING THE
NUMBERS OF
HOMES AT
RISK FROM
FLOODING
6. 1 in 6 homes is at risk from flooding.
As mentioned above, even if the Government spends £20 million
a year for the next 25 years on flood defences, the level of protection
will still only remain at today's levels. It is essential to manage
this risk by: offering advice and information to the public; providing
clear guidance to developers; making high-risk homes more resilient
to flooding; and producing research to help understand the risk.
Regulation of new developments
We must not allow new developments to create additional
flood risk.
7. The ABI has recently published its Guide on
Insurance Issues for New Developments to help ensure that new
developments will stand up to the challenges posed by climate
change. This guide can be found on the ABI's website (www.abi.org.uk).
8. Insurers want to be able to continue
to offer affordable property insurance to as many people as possible.
This is important because without insurance, mortgages are difficult
to obtain and properties are virtually unsellable. However, to
achieve this, the risk must be managed.
9. The ABI's key messages for new developments
are:
— Buildings must be located and designed
to ensure that they are able to withstand climate change—particularly
increased flood risk.
— Insurers will only be able to insure
buildings—vital to ensure that they are sellable—if
this risk is managed to acceptable levels.
— We recommend that developers:
— Follow National Planning Policy Statements.
— Provide buyers with information on climate
risks and how they are managed.
— Develop publicly-available standards
or kitemarks that certify enhanced resilience to climate change
impacts.
— Before buying a property in a new development,
prospective owners should check the flood risk and obtain information
on measures taken to reduce it.
IDENTIFYING RISK
AND INFORMATION
SHARING
10. We need to create an open culture of
sharing information between all stakeholders and increasing risk
awareness. The information gathered under the EU Directive—preliminary
flood risk assessments, flood hazard maps, flood risk maps and
flood management plans—needs to be communicated effectively
to the public. To ensure that flood insurance remains as affordable
and widely available as possible, it is also important that this
information is provided to insurers, in a convenient administrative
format.
16 October 2009
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