Water Bill

Written evidence submitted by the National Flood Forum (WB 01)


1. The National Flood Forum is very strongly supports the Flood Re proposals, as this model offers the best opportunity for providing flood risk insurance to householders that is:

· Accessible

· Affordable

· Supports the most vulnerable

2. In particular, it offers significant improvements over current arrangements on both accessibility and affordability.

3. However, we believe that Flood Re should not simply be a vehicle for reinsurance, but should have a clear identity and purpose. It should be charged with the duty to operate in a way that helps people change behaviour, giving them incentives to reduce their flood risk over time.

4. It should be an engine of change, promoting the transition from the current dysfunctional market, through the fixed price regime now proposed, to the socially just market in flood insurance that we envisage post-transition.

5. There are also a number of issues that need to be resolved as the proposal develops.

6. The following outlines our views on detailed matters.



7. The National Flood Forum is a national charity dedicated to supporting and representing communities and individuals at risk of flooding. We do this by:

a. Helping people to prepare for flooding in order to prevent it or mitigate its impacts

b. Helping people to recover their lives once they have been flooded

c. Campaigning on behalf of flood risk communities and working with government and agencies to ensure that they develop a community perspective.

8. We have over 200 affiliated groups and are working with dozens of communities across the country. Ina addition, we provide a range of services such as an advice line, a range of guidance, web based tools and bulletins.

9. The National Flood Forum responded to the Government’s summer consultation. Please see http://nationalfloodforum.org.uk/wp-content/uploads/NFF-FRI-Consultation-response-Final.pdf .

10. The National Flood Forum is very strongly supportive of the Flood Re proposals, as this model offers the best opportunity for providing flood risk insurance to householders that is:

a. Accessible

b. Affordable

c. Supports the most vulnerable

11. In particular, it offers significant improvements over current arrangements on both accessibility and affordability. For the people and communities we represent, Flood Re means many more will be able to afford to insure their homes. Many more will be able to sell their homes again. Local economies are at risk if residents can’t get flood insurance. Communities that are flood blighted need Flood Re now.

12. In providing reinsurance, Flood Re also needs to deliver social benefits. It should encourage and actively support flood risk management whilst also helping to reduce the total amount of claims and the exposure to flood risks.


13. New homes built after 2009 are excluded from the Flood Re proposal, on the basis that housing built after this date should have been properly assessed for flood risk, (PPS 25 and National Planning Policy Framework). They are already excluded under the Statement of Principles.

14. However, we believe that an unknown, but probably small, number of people will still be at significant flood risk and unable to get affordable flood insurance. This is because the proposals do not take account of:

· surface water flood risk, unidentified until very recently and still only partially quantified.

· changing weather patterns that can generate increased risk.

15. There have clearly been several instances where properties built since 2009 have flooded, or caused other properties to flood, particularly from surface water (e.g. St Asaaf and Ruthin in Wales). What is not clear is the extent of the problem, although it is raised by communities remarkably frequently. While this may be a relatively small issue in a national context, for particular communities and individuals in this situation it is very significant.

16. Whilst over 90% of Environment Agency responses to planning consultations are taken into account, the vast majority of planning applications are too small, or don’t meet the criteria, to require an Environment Agency response. As the Agency only commented on 6.6% of the 455,500 applications in 2012/13, there may still be significant flooding issues for other developments or other properties nearby. Local communities frequently have concerns about the decisions made by local government planning processes to assess the risks of proposals properly and to take the right decisions.

17. Houses given planning permission before 2009 but built afterwards would not covered by Flood Re. This is particularly an issue for phased developments where the standards applied may be from an earlier period. We believe either

a. That post-2009 households should be allowed to enter Flood Re

i. where flood risk has genuinely changed since 2009 due to changing weather

ii. developments affected by surface water where the risk was not taken into account as it was not understood in 2009

iii. where significant mitigation is planned within a defined period


b. A later cut-off date, such as 2015 should be used

18. Small businesses, including B&Bs, SMEs, small scale private landlords and camping and caravan sites are covered under the Statement of Principles, but are not under the current proposal.

19. Flood Re, or an equivalent, should cover all businesses run out of a home, but also needs to cover small shops, small scale private landlords and other businesses that are particularly dependent upon the locality for trade and which by their nature support communities. Criteria for inclusion could include the maximum number of employees, say 10. Small scale private landlords should be required in law to hold flood risk insurance because of the impact of not doing so on their tenants.

20. Flood Re should cover all businesses run from a home. Small businesses should be included in Flood Re or alternative provided. Small scale private landlords should be required in law to hold flood risk insurance.

21. Genuinely uninsurable properties, has not been defined. What does it mean? How will these homes be identified? Who will ensure that this label doesn’t become an excuse to exclude difficult cases? There is a significant danger of insurance companies manipulating the scheme to exclude high-risk properties unjustly if definitions are not clear. Properties that flood very frequently should be treated as set out above.

22. Unless a realistic definition is produced, this exemption should be deleted.

23. Council Tax Band H – There will be a small number of asset rich, income poor people in these categories, who may also be elderly, and therefore more vulnerable, so mitigation should be considered. Interventions could include support to gain the best insurance deal, participation in community approaches to reduce flood risk, property level protection and adapting the property to minimise flooding impact. These are locally tailored interventions and Lead Local Flood Authorities (LLFAs) should be encouraged to target some of their funding to address this, at their discretion.

24. The exemption should be retained but ways sought to mitigate its impacts

25. Council Tax Bands A, B and C – Data analysis for Joseph Rowntree Foundation (JRF) shows that across the UK there are low income households in all council tax bands but with particularly high numbers of people in the lowest income deciles (deciles 1 and 2) living in Bands A-C: over 2 million low income households are in Band A, over 1 million in Band B and just under 850,000 in Band C (unpublished data analysis for JRF). Without understanding the income situation of those households who are most at risk and who will fall into the pool it is difficult to assess how affordable the proposed premiums will be for any household. However this analysis suggests there are substantive low income households in all these three council tax bands, not just Bands A and B. The same interventions as for Council Tax Band H properties should be sought.

26. We would like to see further work on how Flood Re can most effectively target help to low income households, particularly Bands A & B.

27. Transitional arrangements – Flood Re is designed as a 25 year scheme, with 5 year review periods. The arrangements for these review periods have not been articulated and further detail is required to provide assurance on how the process will be conducted. The proposal is to return to a Free Market at the end of the Transition period. However, this will simply restore the present dysfunctionality. We believe the market must be modified to ensure social justice.

28. Further detail is required on the arrangements for the review periods and the eventual closure of Flood Re.

29. The pool - An issue not addressed is what would happen to the funds collected once a pool of £250 million has been reached without a significant flood for several years. Will the pool simply carry on growing? If not, how is any surplus to be used? Could the funds be used for flood risk management? Alternatively, will the levy be reduced temporarily? The key question is who has control of the "surplus" funds and how benefit is to be directed. There is an opportunity to use these funds innovatively and proactively to reduce people’s flood risk should the opportunity arise, which in the long term will reduce the impact of flooding and the cost of insurance.

30. We favour the provision of loans for property and community resistance and resilience measures. This would be a better option than reducing the levy. A precedent is the use of Landfill Tax for schemes that benefit the environment.

Additional impacts of Flood Re

31. Flood Re will allow many more people to access affordable flood risk insurance as part of their household insurance than are able to do at present. In doing so, it will provide much better support to people who do flood. As well as the financial impact of flooding, it will help to mitigate the trauma and stress to those it affects. The arrangements are transitional (up to 25 years), with a review every 5 years. This will result in a free market at the end of the period. The impact of Flood Re will:

a. Enable people at flood risk to obtain affordable insurance

b. Create a situation where people at flood risk who do nothing to manage their flood risk over time may be less able to access affordable insurance in the very long term than they are at present

32. The short term impact of Flood Re will be to dis-incentivise people at very high risk from understanding their flood risk and working with partners to reduce its impacts. This needs to be mitigated as set out below.

Financial and social benefits of proactive use of Flood Re

33. The general assumption has been that Flood Re will simply be a vehicle for managing the re-insurance of properties at flood risk. In contrast, we believe that Flood Re should have a clear identity and purpose; charged with the duty to operate in a way that changes behaviour, incentivises people to reduce their flood risk over time and works with partners to strategically achieve this. We largely agree with the analysis and proposals of the Adaptation Sub-Committee of the Committee on Climate Change in its recent letter to the Secretary of State. This would add significant value over and above existing flood risk management activity and is required if the vision of creating a practical, sustainable market in flood risk insurance is to be realised.

34. The creation of the new Flood Re organisation presents an opportunity for the insurance industry to proactively engage with partners, without falling foul of competition regulations. There are opportunities to reduce the total claims on Flood Re over time, reduce the "peakiness" of claims and to work with partners to reduce flood risk overall, by:

1. Data sharing – it is currently impossible to get access to insurance claims data to help manage flood risk, due to competition rules. Making this data available alongside Environment Agency, Lead Local Flood Authority and water company information, would be very beneficial in developing investment programmes to reduce flood risk, and therefore claims in the future. The creation of Flood Re allows this information to be made available for high risk properties without breaking competition rules.

2. Raising awareness of flood risk and directing policy holders to advice and support – policy holders in Flood Re may not be aware that they are in a high risk category, or that they are in the pool. The creation of Flood Re is a perfect opportunity to raise awareness with those at the highest risk and encourage them to work with partners to reduce their flood risk. This could be done in a variety of ways, but it is important that Flood Re is required to be proactive.

3. Supporting measures that individuals and groups take to reduce flood risk – one of the impacts of Flood Re will be that those at highest risk will receive no incentive in the first 5 years to reduce their flood risk through measures such as property level protection, community flood plans and community initiatives, whilst those outside of the pool could benefit from some of the interventions currently being developed by a number of companies and organisations. It is important that ways are found to incentivise personal and community action if the policy is to work overall. Flood Re should be required to work with partners to find suitable interventions.

4. Property Level Protection - the Climate Change Committee has estimated that up to 190,000 homes could have their flood risk reduced through measures to protect their home (Property Level Protection). For many people, these types of measure could significantly reduce their flood risk and bring peace of mind, where properly fitted and maintained. For insurance companies they could help to reduce the number and size of claims over time. Flood Re needs to be charged with taking a proactive approach to encouraging and supporting people in high risk areas to protect themselves.

5. Strategic interventions - those at the very highest flood risk may flood very regularly indeed and sometimes there will be few practical solutions that will reduce their flood risk to acceptable levels. Each household in an area may be with a different insurance company, so developing strategic solutions involving the insurance industry in the past has been impossible. With the advent of Flood Re it should be practical to proactively identify those at the highest risk and to take a strategic approach with partners to solve difficult cases. This could involve moving households, developing regeneration opportunities, finding alternative uses for land, etc., by working in partnership. As well as the social benefits, this could significantly reduce claims. Flood Re needs to be required to proactively identify the very highest risk properties and to work with partners to find solutions.

6. Loans and investments– should Flood Re develop surplus funds, these should be used to provide loans and/or investments for household resistance and resilience measures and community flood risk management measures, where these are cost effective and beneficial.

7. Betterment – reinstating homes after flooding provides an opportunity to make them more resilient to flooding. This rarely happens for various reasons:

a. People are never offered the opportunity

b. It is offered at the wrong time in the process

c. It is not clear what betterment means, or the different levels available

d. The costs are too high for the householder

Nevertheless, betterment could reduce the future impact of flooding for everyone involved. This is particularly the case for the very high risk households in Flood Re. Flood Re needs to be required to work with partners to develop a coherent approach to betterment.

8.  Coordination of loss adjusters in a big flood – A great deal has improved in the claims process since the 2007 floods. However, in a very large event there is an opportunity to improve the overall response for policy holders and the insurance industry through better coordination of loss adjusters, drying companies and reinstatement of buildings by having an agreed framework for action in place.

35. Although the insurance industry may regard Flood Re as a purely financial reinsurance vehicle, there are clear benefits to be had both for the industry, and for society at large, if it has a more proactive role. It can use financial signals to ensure that flood risk is managed more effectively, that claims are reduced and that more people are protected. Without Flood Re operating in this way, there is a real danger that the overall aim of the project will not be achieved.

36. Flood Re should be specifically charged to work in the public interest so that reinsurance is provided in a way that delivers the long term social benefits intended from the scheme.

37. Clause 4 (2) (b) of the Flood Insurance Clauses states "the need to act in the public interest". This should be expanded to incorporate this issues listed above

Flood Insurance Obligation

38. A fall back mechanism is required in case the negotiations on Flood Re are not successful. The National Flood Forum supports this approach. However, there are some qualifications:

a. It could be open to judicial review

b. There is potential for manipulation, where insurers may pick off the "best of the worst" to minimise their risk

c. The quality of the policy would need to be defined to ensure that there was a level playing field

d. The Regulator (or another body) needs to be set up to handle individual complaints, e.g. should householders on the Register find that they cannot find a company willing to offer them insurance. This would be likely to happen once companies consider they have met the Obligation for a particular year. Variation in the size of the Register could result in disputes over whether an insurer has met the Obligation.

e. A fundamental shortcoming of the FIO is that it makes the availability of insurance dependent on an imprecise calculation (percentage of the market) by a number of providers, using a varying base, i.e. the Register. There needs to be far greater clarity on how the scheme would handle real situations, e.g. households recently flooded but not yet on the Register.

f. The FIO appears to have no mechanism to ensure that premiums are affordable. Simply offering a subsidised market premium does not do this.

November 2013

Prepared 4th December 2013