Environment, Food and Rural Affairs - Minutes of EvidenceHC 330

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 20 March 2013

Members present:

Miss Anne McIntosh (Chair)

George Eustice

Mrs Mary Glindon

Neil Parish

Ms Margaret Ritchie


Examination of Witnesses

Witnesses: Nick Starling, Director of General Insurance, Association of British Insurers, and Paul Miller, Head of International Catastrophe Management, Aon Benfield, gave evidence.

Q195 Chair: Good afternoon and welcome. Can I, at the outset, thank you very much indeed for rejoining us after we had to interrupt the earlier evidence session? Thank you very much for agreeing to participate in our inquiry on flood funding. Would you just like to introduce yourself, each of you in turn, and give your position for the record?

Nick Starling: My name is Nick Starling. I am Director of General Insurance at the Association of British Insurers

Paul Miller: My name is Paul Miller. I am Head of Catastrophe Management for Aon Benfield.

Q196 Chair: That is what makes me rather nervous, you being here this afternoon. You are both very welcome. Can I ask at the outset what the legal position would be if we reached the end of June this year and there was no replacement of the Statement of Principles?

Nick Starling: The legal position will be unchanged, because there is no formal legal position behind the Statement of Principles. The Statement of Principles is an agreement between the constituent Governments in the United Kingdom and the insurance industry. It is not based on any formal legal background.

Q197 Chair: Would any legislation be required to introduce a replacement, or not?

Nick Starling: If we were to introduce Flood Re it would require primary legislation, because Flood Re is based on a levy on all insurers writing domestic property insurance in the UK.

Q198 Chair: We are probably better able to answer this, but I imagine it would take some three months for primary legislation to go through.

Nick Starling: If we reached an agreement to go ahead with Flood Re now, I think we acknowledge it would take some time to come into effect, clearly, because it would have to go through a legislative process.

Q199 Chair: If the legislation were not in place and we reached the end of June, could you explain to us what, effectively, would happen in those circumstances?

Nick Starling: If there was no legislation in place and if Flood Re was not agreed, then we would have the free market, and we reckon the implications of that are that around 200,000 households would find insurance either unaffordable or unobtainable. That is the sort of scenario we are looking at. If there is an agreement on Flood Re coming into place, no doubt part of that would be looking at what transitional arrangements there might be.

Q200 Chair: Just for clarity, is that not currently the situation for new properties built after 1 January 2009 anyway?

Nick Starling: That is correct.

Q201 Chair: I know that you encourage developers and customers who purchase a property in a new development to ensure that it is insurable for flooding.

Nick Starling: It is an extremely sensible thing to do before you buy any property, yes.

Q202 Chair: What comeback do they have if they purchase such a property and then cannot obtain insurance?

Nick Starling: I find it difficult to comment on that. If they have specifically asked professional advisers if they can get insurance, or they have tried to get insurance and thought they could do so, then there might be a case, but it would go back to the general advice that if you are buying any sort of property, checking whether it can be insured is probably a sensible thing to do.

Q203 Chair: I think we can both think of cases where it does happen that someone does not require a mortgage-if they are in that fortunate position on one level-and then only subsequently finds out, because the developer has not explained to them that the property is at risk of flooding, that they cannot obtain flood insurance.

Nick Starling: I can understand that that might be the case, but that is not something we would be formally aware of.

Q204 Chair: So it is caveat emptor.

Nick Starling: I think when you are buying a house it is probably the biggest purchase you will ever make in your life, so it is sensible to check everything from an insurance point of view, to get it surveyed properly and to check there is not anything that would affect the value of the property, or any risk to the property.

Q205 Neil Parish: You have talked about the Statement of Principles, and its agreement not only between the Westminster Government but also between the devolved Governments. Have you got individual agreements on the Statement of Principles with the devolved Governments as well?

Nick Starling: Yes, we do.

Neil Parish: Interesting. That’s all.

Q206 Ms Ritchie: This first question is to Mr Starling. Does the Government’s commitment to spend some £2.17 billion over this spending period reassure the insurance industry as to the priority it places on flood protection?

Nick Starling: The Environment Agency has estimated that flood defence expenditure needs to increase by 80% by 2035 just to keep abreast of the problem, and we know that with the spending review we are now something like £680 million behind that trajectory, even with the £120 million extra announcement. I suppose the answer is, of course we would like to see more spending. Flood defence expenditure is extremely effective. It has got a return of around eight to one, but we obviously do recognise the constraints that are around. I would add at this point that we do not mind where the investment comes from. It could be the public purse, local authorities as part of the public purse-it could be any sort of investment. The key things are that it is put in place, it is strategically planned and it is effective.

Q207 Ms Ritchie: A question to both of you: does the Government’s forecast that it will better protect only around 145,000 households in the current spending period indicate a lack of ambition to tackle the problem on a meaningful scale, given that some 5 million properties are at flood risk?

Nick Starling: I think all Governments want to tackle flood risk; I do not think anyone disagrees. It is the amount of resource that can be put into that. We do not have much granularity around that 145,000 figure. By definition it will include low-risk as well as highrisk properties. What we do know is that there are around 500,000 high-risk properties which could benefit from flood defence expenditure. That is quite a large amount and the risk is increasing.

Paul Miller: My only point would be that it is a relatively small number, 145,000. That is part of 500,000 properties at risk, which puts it into context. Any investment in defences can be reflected in trying to understand the exposure and would have a mitigating impact on the loss potential.

Q208 Ms Ritchie: A further question to Mr Starling: how far do your respective models, Flood Re and NOAH, incentivise the Government to invest in costeffective flood defences?

Nick Starling: My understanding of NOAH is that it did not have any Government involvement in it, so I would assume there was no incentive. The incentive around Flood Re is that the Government would like to ensure that premiums for people in flood risk areas are kept low, that any levy is kept within reasonable bounds and that the contingent liability and the overdraft are not called upon. We think that those are important incentives; indeed, we think that if Flood Re were to go ahead there would need to be Government commitments around flood defence spending and also planning controls.

Q209 Neil Parish: The Government puts a lot of store by getting a partnership agreement together and money from the private sector as well, even from insurance companies, but to date we have not really generated a huge amount of money from private sources. How could we improve that for flood defences in particular?

Nick Starling: First of all, we do not mind where the investment comes from, or who pays for it. The key thing is that it should be properly strategically planned. You would not want a situation where, say, in one constituency a lot of investment went in and it was nicely protected, but the problem was just shoved on to your neighbour. It does not matter where the money comes from. The insurance industry takes the view that it deals with risk and it is up to people to manage that risk, so it does not pay to reduce the risk itself and, hence, invest in flood defences. We are open to any circumstances which can get people to do that investment. It could be linked with developments, for example; it could be linked with local authorities. Our overall concern is that people tend to recognise the need for flood defences when they have had a flood. The real challenge is for people to recognise that they might need to put some money in flood defences when they have not had a flood.

Q210 Neil Parish: What about the insurance companies themselves? If a major insurance company is taking a lot of fairly high premiums in a given area to insure houses, why should they not then make a contribution? In some ways, it would be in the insurer’s interests, as well as those of the Government, local authorities or anybody else, in protecting those properties.

Nick Starling: I think there are two answers to that. I have to say that lots of people suggest that the insurance industry should pay for things to reduce risk, and there is a long list of that. The point I would make is that the money has to come from somewhere, and if it is not coming from the taxpayer it will be coming from the premium payer. In fact, in some circumstances, if the insurance industry were required to spend money on flood defences, say via a levy, then I think it would be regarded as a tax in those terms. That would be our concern. It does not make the money disappear. It still has to be paid for, and the taxpayer and the premium payer are essentially one and the same person.

Q211 Neil Parish: My argument would be that naturally insurance companies will take the risk and allocate the premiums because of the risk. Therefore when the risk is higher, you will charge a higher premium. If you use some of that higher premium to help with the defences, which then meant it was less likely that those homes would flood, surely it would be a good use of your resources. I rather think you want to take on the properties that do not flood and then make sure the Government pay for the ones that do. Is that unfair?

Nick Starling: It is not unfair. Insurance works on the basis of risk.

Neil Parish: I know how it works.

Nick Starling: One of the key things here is affordability as much as availability. The insurance industry could operate perfectly happily in a free market but charge accordingly. I think the problem with the model you are talking about here is what could happen is that I, as an insurer, could pay for a bit of flood defence and then the policy holder moves to another insurer who benefits from my investments. The only way you could do that is if you mandate it across the whole industry. In those circumstances it would be treated like a tax and it would still have to be paid for.

Paul Miller: There is the potential for the policy holder to benefit, of course, because if you are charging them a premium for the risk and the risk is reduced, their premium could reflect that reduction in risk.

Q212 Neil Parish: It also reduces the risk to that insurance company. I accept that one individual company would have to have a lot of properties in any given area to make it work. I just think that we are all thinking that there is money to be made-quite rightly; I am not objecting to that-from insuring people, but it is just whether you could provide some more of that money in a partnership system. Have you considered that?

Nick Starling: As I said, it is often put forward as an idea in a lot of areas: road safety, for example, or funding the police. There is a general societal point, if I may make it. I do not think it is just for the insurance premium payers to pay for things which benefit society as a whole, and that is an important point to make, but the only way that you could make this work would be to have it across the industry as a whole, otherwise, as I said, I would be putting in investment that my competitor might pick up the next time round. Under those circumstances, it is just money coming from a different pocket.

Q213 Neil Parish: The insurance company does not charge a level fee across all properties; you are actually asking for a bigger contribution, naturally enough, because those properties are more prone to flood, and it is about affordability; it is a big issue. The policy holder is paying more to the insurance company, so why should the insurance company not pay something towards protecting them?

Nick Starling: The analogy I would use is if you applied for your home insurance and thought the premium was a bit high, and then asked your insurance company to buy you a burglar alarm to reduce the premium. It is really for the property owner or society at large, by and large, to reduce the risk, and then the benefits flow through from the fact that the premiums then reflect that risk and become lower.

Neil Parish: I think we will be asking questions about that later.

Q214 Chair: Do you think there is going to be scope for the private sector to part fund in the partnership approach as the Government hopes?

Nick Starling: There could be scope. The key issue is whether the private sector would get any sort of return.

Q215 Chair: There is one example with a water company putting in flood protection measures, working for the public good with local landowners. That is the only example I can think of, and that would obviously have to get past the regulator as well.

Nick Starling: I am aware that some water companies are very keen to get involved in flood defence expenditure. Not all of them, but some of them are. Presumably that would be paid through water bills if that were the case.

Chair: We are going to look in more detail at the free market model.

Q216 George Eustice: I wanted to come back to the specific Flood Re model that has been proposed. We had some evidence to the Committee from a firm called Richfords Fire and Flood. It is a flood damage restoration firm in my constituency, as it happens. They have proposed a modified version, effectively, that would have a mandated premium income on every insurance policy that would then go into a mutual fund. That would then effectively be a pooling system, but without the need for an insurer of last resort. Could you just explain why you think there needs to be the taxpayer as an insurer of last resort, or does their system work?

Nick Starling: Obviously I have not seen what their system is. It sounds a little bit like NOAH, where all the flood risk is ceded and goes into a mutual pool. The reason that we developed Flood Re is because in a free market there will be circumstances where the riskreflective premium is too high for most people, or it is just not available. If you look at Germany, for example, it has a flood zone system, and in the highest flood zone it is effectively impossible to buy flood insurance. Our members could operate within that market, but it just means that for some people the cost would be unaffordable. That is why we have put forward Flood Re as a way of meeting that cost. It is designed to have minimal impact, with a levy that is as low as possible, but it needs a back-stop in circumstances where there is a very large event in the early years and the levy needs to increase to pay that back. It is really around these issues of affordability as much as anything else that we think this model needs to be developed. I cannot comment on the one that has been mentioned to you, but the issue around NOAH, which it sounds similar to, is that it does not guarantee that affordability.

Q217 George Eustice: Why is that? In previous evidence, we have been told that it is because a onein300-year risk might overwhelm the fund. Is that the sort of figure you are talking about?

Nick Starling: I will start talking about what happens individually to houses, then I will pass over to Paul. The issue with flooding is that for most people it is a rare event, but it is an extremely expensive event, on average between £20,000 and £40,000 per property. If you have got a property which is at a high risk of flooding-it is likely to flood on a frequent basis-you can see how the risk-reflective premium for that sort of situation would be extremely high and effectively unaffordable.

Q218 George Eustice: We understand that, but that is why you would have a pool system, with a levy or a mandated premium, whatever you want to call it, on everyone else’s insurance. Is the key to making sure that fund is not overwhelmed just getting the levy pitched at the right level, rather than having the Government basically taking on the risk for you?

Nick Starling: What we are saying is that the levy we suggest, which effectively matches the crosssubsidy existing in the system, would be sufficient in almost all years to cover the claims on the pool. It is just that the problem with flooding is that flooding happens with big, big spikes, so in the last 15 or so years-and Paul might correct me if I get this wrong-we think it is only 2007 that would have actually impacted on the pool and required funds to come in to make the pool up. I will pass to Mr Miller if that is alright.

Paul Miller: You mentioned a return period at the start. I read through, and it seemed to cause confusion last time. From a policy holder perspective, Flood Re or not, it does not impact the amount of cover, so if you insure your house for £150,000, that is your insurable value. The return period is irrelevant. Where the return period comes in is the level that the insurance industry protects itself to, typically, and that is around 200 years at the moment. That is why, probably, 300 years was used as an example over the top. To put it into context, if there is a 200year return period flood, which this country has never seen, it would be a natural disaster. There would be governmental impact on infrastructure. The insurance industry as a whole could potentially become insolvent, so it is a very, very significant event that we are talking about.

Q219 George Eustice: That is what I am trying to grapple with, because it seems to me that on one level the problem is that you are getting a very frequent flood risk; that is why we are having these conversations, because you have got certain properties that are at risk of flooding once every 10 years, say. It seems a totally separate problem that you are arguing for the need for the insurer of last resort, which is a kind of onein300 risk. That is what I cannot understand, because an insurance industry exists for one reason only, and that is to deal with rare risks: hurricanes, tidal waves, all sorts of things. I cannot see why you can insure hurricanes in the Caribbean but you cannot insure a onein300 flood risk off your own backs in the UK. I am not an expert on insurance; I just wondered if somebody could explain why there is this mismatch between a problem which is about frequent flooding rather than-

Nick Starling: I will make a general comment then pass over here, which is that you cannot insure unlimited liability, essentially. With all these sorts of events there will be a limit to the liability which is covered. That will be reflected in the way the insurance operates.

Paul Miller: Going from a policy holder perspective, return periods are irrelevant, so you cannot say a policy holder would not have cover for 300 years, because they would have cover up to their insured value. In the reinsurance marketplace, reinsurance does not stop at 200 years. You can buy more, but it has an impact, obviously, from a premium perspective, and so it impacts a levy and the premium being produced. You have to weigh up the benefits of that, but it is not the case that you cannot buy reinsurance beyond 200 years. You can.

Q220 George Eustice: In a nutshell, it would be possible, if you had a slightly higher levy, to buy more robust reinsurance, and then you would not need the Government to be involved, apart from maybe passing some regulations to grant the powers to issue a levy on every household’s insurance, would you?

Paul Miller: To Nick’s point, you cannot buy unlimited reinsurance. You cannot buy it for all the way out in the tail forever. If you felt, as an insurance company, that 200 years was not an adequate tail-and again, we have never seen a 200year event; it is beyond anything this country has ever experienced by far-and you thought it was an efficient use of premium to do that, then you can, but it would have an impact on the premium required.

Q221 George Eustice: But you do not really need it. This is what I am trying to get at. It is the same situation you have on any property you insure in the UK: you could have a onein300.

Nick Starling: Can I just make a point about Flood Re? Flood Re essentially has two controls on it. One is the levy that goes into it and the other is the extent of the exposure through the contingent liability. Obviously you can buy much more reinsurance for the pool, but that is going to cost. That means that the risk of there being a call on the pool at the lower end is higher, so to mitigate that you would have to have a higher levy. You cannot have a low levy and a low risk of contingent liability; it is one or the other. That is how it operates, and those are the controlling mechanisms.

Q222 George Eustice: One final question on this, and then we will move on: if there were no insurer of last resort and the Government had no role in this, what sort of levy would you need? How much more do you think it would need to increase-rough, ballpark figures-in order for the system to stand up buying the level of reinsurance you would need?

Nick Starling: I am having whispered 280 to me. A £280 million levy.

George Eustice: An additional £280 million would be-

Nick Starling: Yes. At the moment it is modelled at £150 million.

Q223 Chair: And in your view that is what corresponds to the current crosssubsidy?

Nick Starling: £150 million is roughly the current crosssubsidy, yes.

Chair: This is what I do not understand, because you said at the beginning that the levy corresponds to the current crosssubsidy. Now you are saying it is almost twice as high.

Q224 George Eustice: You are saying if you remove the Government protection, then it would go from £150 million to £280 million.

Nick Starling: Yes.

Q225 George Eustice: Roughly speaking, it would be almost doubling the size of the levy.

Nick Starling: Roughly.

Q226 George Eustice: But that is an option. You would be happy with that as an option.

Nick Starling: Can I just come back on the point? There are choices at all aspects of the Flood Re model, and you can choose what you want the levy to be, just as you can choose what the riskreflective premiums going into the pool should be. What Government has asked is: could we fix the levy, could we suggest a levy that matches the unofficial crosssubsidy which is happening in the market at the moment? That is round about £150 million, and that is the levy, which lands at about £8 per property, combined contents and buildings. Clearly if it is £280 million, then you are talking about a much higher levy, which would be whatever it is, £15 or £16.

Q227 Chair: How have you reached that figure? Is that on a basis of so much per household or small business?

Nick Starling: That is just based on our analysis of the market and what we think the crosssubsidy effectively working across the market is under the Statement of Principles.

Q228 Chair: It does seem a big leap. Is this because you are going from 200year risk to 300year risk?

Nick Starling: No. Our calculation of what we call an effectively neutral levy, which matches what people are unofficially paying, is that it would be around £150 million. That is how we have reached that calculation. You could have whatever levy you wanted. You could decide not to have a levy at all, in which case obviously there would be much more frequent calls on the pool, or you could have a higher levy, in which case the calls on the pool would be much lower, because you would be able to reinsure to a much greater extent. The pool would fill up much more quickly with a higher levy.

Q229 Neil Parish: Surely insurance works on "seven fat years and seven lean years", in as much as that you build up a reserve when you have got good years and you do not have to pay out too much, and then you pay it out in a bad year. My suspicion is that you want to take in the good years and then you want the Government or the levy payer to pay out in the bad years. This is what we have got to get to grips with, because naturally you are going to want to try and get as much money out of the pool, out of the Government or out of wherever, in order to get a deal. That is what you are in business for. We accept that, but what we cannot seem to get to grips with is what the actual figure is.

Nick Starling: We have a shared objective with Government, as we want flood insurance to be widely available and affordable. We could have a free market. Our members would be perfectly happy to operate a free market, but it would mean that for 200,000 people the price would be extremely high, and in some cases it simply would not be available at all. That is the public policy objective we are trying to reach. It is not about trying to offload risk on the taxpayer and so forth. It is simply that that is the policy objective we want to reach. That is the whole purpose behind Flood Re and why we have worked on it, and why we have dealt with it. Obviously, in years where insurers have to pay out for your claims, it is a very competitive market and that tends to be reflected in premiums, just as if you have higher claims the premiums go up the following year. They are there to match the premiums with what they pay out and make a decent return. A way to make a decent return is to make sure that you capture a lot of risk, but the really high risk is very difficult unless you are charging a very high price for it.

Q230 Ms Ritchie: Mr Starling, other witnesses have told us of their concerns about the Environment Agency’s withdrawal from uneconomic maintenance activities. Is the insurance industry concerned about the impact that this could have on local communities’ flood risk?

Nick Starling: The first point to make is that we think maintenance is just as important as actual construction. That is quite clear. I think the important thing for the Environment Agency’s programme, whether it is for new build flood defences or maintenance flood defences, is that it is focused on the risk, and where the risk is highest. That is where it has the most effect.

Q231 Ms Ritchie: Do you have examples where reduced maintenance has already led to increased insurance claims from flooding in places which might otherwise have been spared?

Nick Starling: I do not have direct examples. I know for example with Cockermouth that there were concerns that since dredging and so forth had not happened, that impacted. In that case, it would not have stopped the flooding, but it might have mitigated the impacts somewhat.

Q232 Chair: Are you concerned at the present planning regime? Do you think it is clear whether PPS 25 on flooding still pertains, or the National Planning Policy Framework, as regards building on functional floodplains?

Nick Starling: We are concerned about planning and we are concerned that we still have a situation where developments are being built unwisely and in high-risk areas. We would like more power to the Environment Agency’s elbow, and also the Scottish Environment Protection Agency’s, in Scotland, to make sure that they oversee those sorts of planning applications, that they are told about them and that they can take firm action to make sure they do not go ahead, or are amended to make sure they are appropriate.

Q233 Chair: Do you think water companies should be statutory consultees on the same basis as the Environment Agency here, or its equivalent in Scotland?

Nick Starling: I had not thought about that, but that would seem to be sensible. I think any agency or company which understands the risk and knows how the risk operates would have a legitimate case for being consulted.

Q234 Chair: Should we see the end to the automatic right to connect?

Nick Starling: Again, that is not something that the insurance industry has formally looked at, but I do understand that if you have an automatic right to connect it would in some circumstances increase flood risk, yes.

Q235 Chair: 2007 saw for about the first time surface water flooding on the grandest scale. Are you concerned at the delay to the guidance to put sustainable drainage systems in place?

Nick Starling: Riverine flooding is quite well understood in this country. It is a much, much bigger challenge to develop an understanding of surface water flooding. As you correctly point out, it was a major feature of 2007 and it was a major feature of last year. I am not aware of the guidance you are talking about, but I think there is now a statutory obligation on local authorities to map surface water flooding and understand it, and that is an important priority. Also, we must not do anything that makes it worse; that probably leads to the question you have just asked about automatic connection, and also what we do to the urban landscape in particular that might increase surface run-off.

Q236 Chair: Do you think the retrofitting of properties with SUDS would assist flood alleviation?

Nick Starling: Anything that demonstratively reduces risk that can then be reflected in Environment Agency data is welcome, because that eventually feeds through to what people pay for their insurance.

Q237 Chair: Where local authorities or developers have put in sustainable urban drains, or where individual households or small businesses have put in flood prevention measures, might you see fit to review and reduce their insurance premium?

Nick Starling: There are two answers to that. If a local authority has been able to reduce risk, and that risk feeds through to the Environment Agency’s data, all our members use that data and that would then feed through to individual premiums. When people have made risk reduction on an individual basis, it is usually the difference between being able to access insurance at all. Under those circumstances-this is what our members will frequently do-insurance can be available, but there would need to be some independent assessment of the effectiveness of what they have done. Of course, you might put in some resilience measures-you might put seals on your doors, you might block up your air bricks-but that does not stop water coming up through the floorboards or through the plumbing.

Q238 Chair: How close are you to reaching an agreement with the Government? Are you able to say?

Nick Starling: There was a meeting on Monday of this week, so there are still very active discussions taking place, but there are a lot of substantive issues to deal with.

Q239 Chair: Mr Starling and Mr Miller, on behalf of the Committee, can I thank you both very warmly indeed for being with us this afternoon, and especially the ABI and Mr Starling for coming back a second time? We are very grateful to you.

Examination of Witnesses

Witnesses: Mark Weil, Chief Executive Officer, Marsh Ltd, and Graeme Trudgill, Head of Corporate Affairs, British Insurance Brokers Association, gave evidence.

Q240 Chair: Gentlemen, may I first of all welcome you both very warmly, and thank you for participating in our inquiry into flood funding? Could I ask each of you to give your name and position please, for the record?

Mark Weil: Mark Weil, CEO of Marsh Ltd.

Graeme Trudgill: Graeme Trudgill, Head of Corporate Affairs at the British Insurance Brokers Association.

Q241 Chair: We are very grateful to you for being with us. If no agreement is reached on replacing the Statement of Principles, how do you view the situation that would then arise, and a potential free market solution? Mr Weil, would you like to open?

Mark Weil: We have heard from the ABI that there is around about £150 million of subsidy, which is going on cross-subsidy at the moment, so you would have to assume that that would go. That would manifest in higher prices to those who are in floodprone housing, so it would result in a price increase. It is not clear to me that that would make those houses uninsurable, but it would certainly make it unaffordable for a significant number of people.

Graeme Trudgill: BIBA has looked at this. We believe that about 98% of the properties out there will still have flood insurance included as standard with no concern. It is that higher risk 2% or so where they would find it harder, but the open market does have insurance brokers who specialise in flood insurance risks. We have submitted in writing to this Committee various examples of where, if those people in the very highest risk areas do sign up to the Environment Agency’s flood alert system, they are much more of an attractive risk. Even if they have been flooded before, it is possible to insure them. It may be that they are required to put some defences in place, and then typical premiums and terms would perhaps be up to 25% increased premium, and perhaps a £2,500 excess. Normally the excess would not be more than that, because then they would not be able to get a mortgage.

Certainly BIBA has 123 members who specialise in flood risks, and what we would suggest is that if it does go open market there would be some sort of signposting solution put in place, similar to the agreement that already exists for older drivers and older travellers, where if they are having difficulty accessing insurance-if they go online to a comparison site, for example, and they put in their post code and it says "No quote"-that site, seller or bank, whoever it is, signpost them to someone that they know can specialise in flood risks. BIBA is a notforprofit trade association. We have a findabroker service and would be very happy to step up to that point and distribute those inquiries to our members to help the public.

Q242 Chair: Mr Weil, when we first invited you before us, you were looking at a model known as NOAH. At the 11th hour you have introduced Flood Mu. Is this not a rather late entry into the game?

Mark Weil: It may be late, but I hope it is helpful. I have led this, and my view of things is that NOAH has a role to play in helping private companies decide how to manage their risks. In Flood Re, you have in front of you a proposal which has some significant problems with it. I think some of the comments already made echo my own sentiments: it risks passing the costs to the consumer and the risks to the Government. That impasse needs breaking, so what I have attempted to do in the note, rather than say, "Here’s another model and another model", is to start with some principles that we can hopefully all agree with, or certainly put them on the table so they can be debated. I then critique the details of the flood redesign in a way that is very open-you can agree or disagree with it-and then put forward what I hope are some constructive suggestions for how you would modify them, so you end up with a solution that puts the Government in the right role for Government, leaves the risks with the insurance industry, and gives as competitive and complete a deal to the consumers as possible.

Q243 Chair: I can only speak for myself. I was quite attracted by my understanding of the NOAH model. If I have understood the ABI model, Flood Re, there was going to be a shortfall between the £150 million levy and the £250 million added risk. NOAH would have seemed to fit in quite neatly with that.

Mark Weil: It still does.

Chair: Now I feel that you risk perhaps losing the advantages of that by going off on a completely different tack. Before we take this any further, could you set out to the Committee briefly what the main points are between the two schemes?

Mark Weil: I can do that. I promise to be no more than two minutes. Let me start with concerns with Flood Re; then I have notes on five significant differences, which I will get to very quickly. As for the concerns with the design as is, they are both pooling arrangements, so they both assume that you need to redistribute risk to keep affordability in place for the highrisk homes, particularly those of poorer householders. The question is how you do it. I already made the comment about the passing of risk to the Government, and through a tariff mechanism it is likely to end up with the customer. It seems strange to me that essentially you have got the insurers acting as Government in making social policy, pricing off wealth rather than risk, and you have got the Government acting as the insurer, taking the back-stop on the pool, which has been observed. That is what the reinsurance industry exists for; there are about £13 billion of catastrophe excess of loss reinsurance treaties out there already, so it is well above any conceivable event. The tail is cheap to insure, by the way. It is not a problem to take it within the industry if it needs to. It does not give the Government enough skin in the game. I think the Government is taking the tail in Flood Re because insurers want the Government to feel some ownership for building flood defences. It is the wrong place to put the Government. The Government should be in at the beginning, applying social policy. It happens to be a smaller number; it is also a much more bounded number. I imagine the Government has had enough of back-stopping financial institutions. It plays the role and leaves the existing catastrophe excess of loss reinsurance to take care of the tail.

The next biggest concern is it flattens the cost of risk. You have this £300 set charge. My concern with that-look again at the banking crisis and the mispricing of risky and subprime mortgages-is that you are going to create some unforeseen consequences when you do that. Builders, planners, owners are going to find it attractive; above that threshold risk is no longer paid for, and that is a dangerous place to be. The final and biggest concern is that it is going to cost a lot because of exactly the point you were making: it invokes a whole new entity, Flood Re, which is effectively an insurer. It then needs to buy reinsurance in a spot where reinsurance is the wrong thing to use, because those risks are concentrated, regular, known. Reinsurers like to diversify their risks. Reinsurance is a very expensive proposition, and it is probably why a reinsurer is attached to the ABI proposal. It is good news for the reinsurance industry; it is not particularly good news for the consumer, who will end up paying for that cost through the tariff.

I come to my six points on what is different. We would argue for a percentage, not a flat rate, because that leaves risks with the creators of that risk, from the builder to the owner to the insurer, into the reinsurance market. We would argue for doing it on claims, not premium; because claims are real, it leaves premium and the pricing of premium to be set by the market, and it makes it much harder to form a tariff. As soon as you allow a tariff to be formed-a preset, known amount, be it £8 or £20, and we will argue about that later, I am sure-it is very tempting, that implicit or explicit charge.

Third, we would do it postevent, not up front. Do not create a new pool; simply reallocate the costs as they arise, then use the existing structures. That is what insurers exist for, to distribute these risks. That is why they have reinsurance. Fourthly, we would put the Government in, as I have mentioned, via social intervention, not as a de facto reinsurer. That is what Governments do all the time, and how it is done is to be decided by the Government. Finally, that would leave you with a simple clearing house for the claims, rather than creating this whole new entity. Those are the differences. We think it has a number of advantages. I will not list those, because they are set out in the paper.

Q244 Chair: Did you say six? I thought you said six.

Mark Weil: I went through five, sorry. Percentage not flat; claims not premium; postevent not up front; Government is in via social policy not backstop; and then it is a simple clearing house, not a new insurer.

Q245 Chair: Under your Mu, if there is no Government backstop, is there a possibility that high claims could bankrupt the whole system?

Mark Weil: Apologies for the name, by the way. One of the reasons for the delay is that I wanted to get the paper written. It is Flood Mu, or Mutual. If you look at the history, the last 13 years of losses, as was pointed out by the previous witnesses, in 2007 you had the largest catastrophe in flood; I think it was about £1.2 billion. As I have mentioned, the existing catastrophe reinsurance treaties in the industry add up to £13 billion. Now, they cover wind storm as well as flood, but it is a substantially larger number. When we have looked at the reinsurance costs for that tail, it is cheap, because-as somebody else here has pointed out-that is what reinsurance does. It likes those longdistance natural catastrophe risks. We do not anticipate that being an issue.

Q246 Chair: Which one are you pushing? Are you pushing NOAH, Mu or both?

Mark Weil: I thought it would be helpful, hopefully, in following the logic, to start with Flood Re, question aspects of the design, and propose an alternative way to blend risk, which is Flood Mu. One of the objections to Flood Mu that we identify is that I as an insurer will now be receiving a smooth, averaged claims cost from other people’s policies that I did not write. That gives me risks I am not comfortable with, even if they are averaged and we can apply some stats to give them some comfort. What NOAH does is allow that company to buy reinsurance, should it wish to. All it does is prove that there is a perfectly viable private sector solution for that insurer to reinsure out those risks, in this case to Munich Re, but I am sure there will be plenty of other competitors in there wishing to take it on. Think of NOAH as a component that takes away one of the objections as to why Flood Mu could not work.

Q247 Ms Ritchie: As a followon to the Chair’s questions-in particular, this is directed to Mr Weil-what has been the insurance industry’s reactions to the NOAH proposal? Perhaps you have already explained that, but could you give us some more detail?

Mark Weil: I have only been in Marsh for six months, and I have not followed the full history of the reaction over time. It looked pretty clear to me that we had got into two distinct camps, and that was not making a lot of progress in terms of moving the debate on. As for the reactions so far to what is in the paper, Flood Mu, we have shared it with the ABI. We have had very constructive discussions with them. It is hard, because it is a very competitive industry and each insurer comes from a different stance. Bluntly, on the table is the possibility of a significant amount of Government support, so I was not expecting it to be welcomed with open arms. The question is whether on practical grounds it is workable or not, and whether there are good reasons to reject it. I have so far heard some very sensible questions around the detail, but I have not heard anything that has made me feel that it is the wrong answer.

Q248 Ms Ritchie: A further question, then, along that line: the Association of British Insurers noted two disadvantages of NOAH, and they were, one, it is a riskbased model that gives no control over affordability for highrisk properties, and, two, those operating the NOAH pool would control the price of insurance. Do you think these are fair criticisms?

Mark Weil: The first one, no, because in what I have just described, the Government sets the affordability question. You can make it as affordable as you want; if you want to fully distribute the costs, it is within the Government’s power to do so. My point is that the Government should drive that, not the private sector. Tesco does not meansassess you when you go in to shop, and it is not clear to me that insurers should either. The second one was where I have used the phrase "Flood Mu", because NOAH in its socialisation costs did invoke the model. That is no longer required in what is described here, so there is no need for a central model setting technical prices. Private insurers will assess risk, assess the price and bid for it at a market price, knowing that the flood risk has been reduced by around 50%, and then come to their own conclusions. There is no central authority that is setting prices in this design.

Q249 George Eustice: I do not think any of us here are insurance experts, and this gets quite complicated with all these different models.

Mark Weil: Maybe that is to your advantage.

George Eustice: I think in your supplementary evidence you said there are around 200,000 households in the UK with a significant flood risk. When you say "significant flood risk", what is that? Is that one in 75 years, or what? What do you define as significant to get that figure?

Mark Weil: It varies. I have a table in front of me which talks about what we would call the technical price, so how much those households might expect to pay for their flood premiums. It happens to give you a social breakdown, so you can look at the impact of wealth upon it. It is those that have a material probability of flooding. I cannot quote a percentage; either my colleagues or Graeme may be able to. I pass it to you.

Graeme Trudgill: I think one in 75 years is certainly seen as significant, yes.

Q250 George Eustice: Effectively, if you are one in 75 you can get affordable. So is there then a 2% who cannot get insurance at all, or for whom it is totally unaffordable? What sort of risk is that? Is that one in 10, one in 20?

Graeme Trudgill: What our members tell us, the specialist flood brokers, is that of the rejections that are made from insurers-say about 200,000 high risks-they can, if the customer cooperates with the flood defences in signing up to the Environment Agency alert, insure about 95% of the rejections, so that will leave a very small 10,000 or so, where if they are not cooperating then they are going to find it very difficult to access cover.

Q251 George Eustice: So it is actually only about 10,000 where there is a real problem?

Graeme Trudgill: They are the ultimate, highest risk.

Q252 George Eustice: That is where it is unaffordable; no one will touch them with a bargepole.

Graeme Trudgill: That is when they would need to have defences built specifically around their property to change the risk to make it affordable.

Q253 George Eustice: You gave the figure of one in 75 as being judged a significant risk. That 10,000, is it a one-in-10-year risk?

Graeme Trudgill: From the broking side, not underwriting, it is difficult for us to get into the science of that, to be honest with you, but certainly that is the highest risk element, where you do need a specialist and you will get rejected and red lined if you just go in the general market and search on the internet. That is where our members will come in to help.

Q254 George Eustice: What I was trying to get to the bottom of earlier with the ABI was if you take a normal house that is not judged to be uninsurable, so maybe does have a one-in-75 flood risk-not huge-who is the lender of last resort if there is a freak onein300-years act of God that floods the entire country?

Graeme Trudgill: Currently, if a normal insurer just insured a property, they consider that we are an island, most of our cities are on rivers, and we expect to have a significant amount of flooding every year anyway, so that would be built into the pricing of the insurer when they set that risk, and when they rated the post codes they have their own mapping information, so it is all taken into account. They will then have their own reinsurance programmes to take that into account as well, so from many years of experience they build that in automatically.

Q255 George Eustice: Could the Government not just pass regulations to require a pool premium on every other household’s insurance policies to create a fund that gets everyone to one in 75 years, which is roughly where you are with all the other houses anyway-a simple regulation that creates a legal obligation to do that, and then the insurance industry can run a fund? Would that work?

Graeme Trudgill: I think the Government wanted to avoid an extra tax on families.

Q256 Chair: Is that what the ABI are proposing: £3 on one and £5 on another, so on those not in the risk areas everybody is going to pay an extra £8?

Mark Weil: It takes you back into that territory. There is an argument about whether the tariff is explicit or implicit. I am not sure it matters too much, because once there is a tariff, you should expect it to be undercompeted for.

Q257 George Eustice: I am just trying to get to the bottom of why there needs to be the Government as an insurer of last resort, because they are not an insurer of last resort on my house or 98% of people’s houses. There should not be a requirement for that, should there?

Mark Weil: That is broadly my view. In the event of genuine national catastrophe, the Government has a role to play-civic defences, etc-so there is clearly a role for Government. Yet in terms of doing what is well within the bounds of natural catastrophe reinsurance territory, there is not, and I think the reason there may be in Flood Re is because it is working against the grain of what reinsurers want by pooling a lot of similar risks into one spot. Reinsurers do not really want that. They want to diversify it. You go to a normal insurance book, you will find some highrisk flood homes, but you will find some lowrisk homes, so it is an insurable proposition. The issue is that it may be hard to insure the tail on the Flood Re pool, which is why the Government comes in. That is a question for the designers of the Flood Re scheme.

Q258 George Eustice: Do you think the industry has been playing a bit of a game of brinkmanship with the Government?

Graeme Trudgill: No, I think this is a moral hazard issue, and the Government have to have some skin in the game to ensure that the defences are still put in place, and they have to have some responsibility. They cannot lay it all off to the insurance industry. This solution has to have the right balance of sharing, where the policy holder is doing their bit, the insurance industry is doing their bit and the Government as well. It is all about the right balance and what is fair.

Q259 Chair: Would you accept, just after 2007, with it moving from coastal and river flooding to surface water flooding, that no Government is ever going to have funds to say that any part of the country can be saved from a particular flood? We are in a different ball game now, Mr Trudgill.

Graeme Trudgill: We are looking for the Government to launch their surface water map and make that fully available to the insurance industry, so we can better understand those risks. Yes, it would help if we could have that sooner rather than later.

Q260 Chair: Is that the one that is being done by the Environment Agency or the Met Office?

Graeme Trudgill: We believe the Environment Agency is launching that, hopefully by the end of this year, but the more information we have, the better we can target where the defences should go. We want the claims to not even happen in the first place; we do not want people’s lives to be affected by flooding, so we would be quite happy for the Government to spend money on flood defences and for the insurance industry to take care of the flood models and the claims, but we do need to have the right balance.

Q261 Chair: Was that something that Sir Michael Pitt asked, that the map should be made available in 2007?

Graeme Trudgill: Yes, it was, and we agreed with him back in 2007.

Q262 Chair: Have you made noises to that effect since?

Graeme Trudgill: Obviously some of the members here have ended up creating their own mapping facilities, and they have got very technical. That is part of the NOAH idea, that it has detailed mapping-and obviously Aon as well. There is a significant amount of information available, but the Government information would be very wide and very valuable to us. If we can more accurately target where the defences should go, where the real risks are, then we can get a better solution, and spend that money more wisely.

Q263 Chair: But there are other maps to which you do not have access, is that not right-the District and County Council maps?

Graeme Trudgill: There are maps, and the insurance industry are utilising them where possible, but we do need the big one.

Chair: Very happy to have that on the record.

Q264 George Eustice: I mentioned earlier some evidence we had received from Richfords Fire and Flood, which is a flood damage restoration firm. The essential differences between theirs and Flood Re were that not only would it not have an insurer of last resort in the shape of the Government, but also rather than using the reinsurance market, they advocated setting up a mutual fund that would itself directly step in when there were payouts to highrisk properties. Do you think something like that would work, or would there be a danger of that fund being overrun?

Mark Weil: I would need to see the details, is the answer. There are a lot of pooling arrangements out there. Insurers themselves are a risk pool, and then there are lots of different designs: Indian car insurance, Florida household-you find them all over the place. It is all about the detail. As for anything that takes risk away from the originators of it, though, a flat "just pass it into a fund" was how the Indian car one worked, and if you look at it, they have just had to restructure it because risks have shot up and up. You do need to leave some pain with the creators of the risk, and that would be one axiom for me that I am not sure that proposal had in it.

Q265 Neil Parish: To Mr Weil in particular, what are the principal legislative and regulatory reforms necessary to introduce NOAH, if that is what we decide? Has the Government told you it is prepared to implement these?

Mark Weil: We have not discussed it with them yet. Flood Mu, as the Chair mentioned, is an 11th-hour proposal. My assumption is that it will require certainly no more legislation than the Flood Re solution would. If the insurance industry wished to, it could do it itself, in that essentially there is no levy required. There is an agreement among themselves to share claims and to include flood in their policies. It would require legislation if the insurance industry did not agree to do that.

Q266 Neil Parish: With NOAH, if that was what came in, that is basically a levy, is it not, on all payers, in order to pay a degree of the fund?

Mark Weil: No. What would happen here, if you follow this through-I will keep going with Flood Mu so as to avoid version control problems-is that the insurers would charge as usual. It is like a normal market for insurance, but household now includes flood. Periodically, every quarter, they would know that a proportion of the claims incurred would be shared out across the rest of the industry. I chose 50% in the paper because that happens to be what the rough level of current cross-subsidisation is, so it suggests that prices would not move much from today. If you work out 50% of the current average annual flood claims, it is about the same number you get to both ways. There would be no levies or tariffs; there would simply be a bill that comes my way each quarter, which is a result of the average occurring flood claims in the UK; I would then need a sort of clearing mechanism to settle it. I mention in the paper the brokers: any one of them does this all the time with the insurer; it is not complicated to do that netting and payment.

Q267 Neil Parish: How would that work to guarantee that there is genuine affordable insurance? This is what worries me. Whatever system we put in, being blunt, the insurance companies might take the money, but will they actually deliver the affordable insurance for those houses in a highrisk area?

Mark Weil: Understood. If it is helpful to break it down, affordability comes from two sources. One is risk and one is wealth. What the pooling of claims does is share out the risk problem. Regardless of my wealth, if I am in a highrisk home, half of my problem has just been socialised out. You can argue about whether that is an important thing to do or not. There is a free market version, which is where you say "No, it is not; we are not going to share out any claims", but our assumption here is that there are people, regardless of their wealth, in a highrisk situation; we want to help them.

The second way to help is this. There are people who simply cannot afford it. Again, looking at my social bands, it is a very concentrated problem of the bottom quintile in the UK population by wealth. We are talking about a flood price that is below £100. There is an argument about whether that is affordable or not, but the very significant numbers you hear in the press are a very concentrated problem among poorer households. My view is that that is not a problem the private sector is wellequipped to take on, and if you ask them to take it on they will do it badly and it will distort competition. The Government, rather than backstopping a pool that is not needed anyway, should take that one on and find a means to support people who need it with their flood costs.

Q268 Neil Parish: Are you saying to support them with their premiums?

Mark Weil: There are various ways you could do it. You could do it through vouchers; you could do it through premium support. In the paper, we propose to do it with claims, because it is in the spirit of how the other insurers are participating, and it keeps the Government away. Of course, the risk with a voucher is that it may inflate price again; insurers may use that, knowing that the customer brings £50 to the table.

Q269 Neil Parish: This would be instead of actually allowing a levy.

Mark Weil: That is right.

Q270 Chair: It would assist the Committee to know whether Mu is a variation of NOAH or an alternative.

Mark Weil: It is an alternative to Flood Re that allows you to socialise out the costs of flooding and factor in affordability to it. We are not saying it is the right answer; we think it deals with some of the concerns we have raised in Flood Re design. Within Flood Mu, NOAH has a role to play in allowing those insurers who feel they need it to buy extra reinsurance.

Q271 Mrs Glindon: Can I ask you both, have you sought the views of customers in low-flood-risk areas who would, under Flood Re, subsidise, through premiums, the 2% who live in the highflood-risk areas?

Mark Weil: I absolutely agree that that should be a significant concern. The only lens Marsh as a broker brings is that we are here to help consumers and corporates get the best value from their insurance. I referenced in the paper two constituents to be concerned with. One is the poor in high-flood-risk areas, because they will have an affordability issue. The second is the 98% of people who are going to be paying for at least part of this. There is no question, if you socialise the cost, some of it is coming the way of the consumer. The question is, how do you make sure that is as little as possible? Our view is that a competitive market, with insurers competing openly for those people with no tariffs, is the best way to ensure that the cost is not fully passed on to the consumer.

Graeme Trudgill: I think the principle of insurance is that the premiums of the many pay for the claims of the few. That has always been the case, and it is with motor insurance in uninsured driving and other areas. It is one of the fundamentals that that would work that way.

Q272 Mrs Glindon: But there is no direct consultation that you are aware of with these people who would have to cover that cost of high-flood-risk-area customers.

Mark Weil: No. In so far as they have a voice at the table, I certainly feel very conscious that we are concerned with that issue, but we are not in consultation with consumers.

Q273 Mrs Glindon: What would the relevant costs of annual household flood-risk cover in a low-flood-risk area, compared to a high-flood-risk area, be under a NOAH model?

Mark Weil: Right. There would be levelling, so if you went with the proposal we have made through the Flood Mu description, then it would in principle not change too much from today, in that it has roughly the same amount of cross-subsidy allowed for in the redistribution. We do not have a model that says "This is the exact increase in price", but our view going into it is that it avoids a lot of the costs that you get if you create a distinct pool which requires its own reinsurance, so whatever that increase is for the 98% of customers, it will be a lot less under what we are proposing than if you add a lot of extra cost into the system.

Q274 Neil Parish: To both of you, to what extent are insurers reflecting in premiums the measures by individual householders to minimise flood risk or the impact of flood damage to their homes? I have seen people go to quite a big extent to stop flooding in their home, so does this reflect in the premiums, or is it just that the map says they are in a certain area and they will be charged a certain rate?

Graeme Trudgill: It makes a fundamental difference between having insurance for flood or not. We have got various examples. There is one here where someone in Evesham had a £60,000 claim. The River Avon burst its banks and the defences were then put into place, and they were able to access buildings and contents insurance at £542. There are various examples like that where it does make all the difference, having those defences in. We thoroughly recommend that where possible, people do that, and they speak with specialist flood insurance brokers to see which of the kite mark defences are the right defences to put in place. Yes, it does make a difference.

Mark Weil: If I could add another angle to that question, earlier on I think the question raised was, should the industry be helping to pay for flood defence? Well, directly would be unusual, but indirectly one of the things that concerns me about a flat tariff if it is set at £300 is that, rationally, I will spend £299, not a penny more than £300, on flood defence, because at that point I am covered. Obviously I do not like to be flooded. That is where you put me economically. If you do it on a percentage basis, it is always worth my while improving the flood defences of my home, and if I am an insurer it is always rational to reflect that in the premium I pay. It is another reason to think hard about how you want to leave some risk with each party so that they behave rationally and invest in flood defence.

Q275 Neil Parish: This leads me on to a supplementary to you, Mr Weil, and that is, how far will the NOAH model allow for premiums to reflect the individual property resilient measures? Is there any mechanism?

Mark Weil: Yes. With Flood Mu, it is down to the capability of the individual insurer, but as far as possible, I think, the two of us are in a sort of "Let the market prevail" camp; I am just acknowledging there may be affordability issues where you therefore need to socialise the risks, and there may be some which cannot be covered without socialising the risks. The important issue here is to make sure that you do not apply tariffs that constrain that ability, and you simply say to an insurer "Price what you will, given the risks you are taking on, but know that half of those risks are going to be socialised." It will reduce the price. It does distort the price of risk; as I comment in the paper, I think it is the least bad way to do it.

Q276 Neil Parish: Would you expect individual companies almost to compete on premiums due to any of these measures, or is there some sort of agreement across the industry?

Mark Weil: In what we are proposing it would be very hard, because if you do a pool preset, you can argue about what the number might be-it might be £10 or £20-but you know it is coming your way and it is pretty tempting to add that on to the bill. The history in other industries is those kinds of delivery charges, extras, do not get contested. Doing it after the event through claims means it is much harder to know what that item is, so it makes it harder to simply add it to the bill in advance. There is every reason to just assume that people would just compete as normal. There is no Government involvement in the pricing, there is no preset tariff; it is simply up to the insurer to decide who they want to cover and at what price.

Graeme Trudgill: There is still competition in the market. As an example, in Tiverton, one insurer was not prepared to offer a flood risk as the property was about 300 metres from the River Exe. The broker found someone else that could do it, normal terms, £394, so there is a level of competition.

Neil Parish: I am delighted that was offered in Tiverton.

Q277 Chair: On the forecast of properties that the Government think are going to be covered, is it reasonable that 145,000 properties deemed to be most at risk covers the bulk of them when there are 5 million of them, potentially, at risk?

Graeme Trudgill: I think there is potential to do a lot more. We are seeing climate change; we have heard Mr Starling refer to the concerns of the Environment Agency about the increases heading our way. We think this is a huge priority for the Government, for business, for the economy and for families, and we would encourage greater investment in flood defences, and also in the maintenance and drainage sides, which I think you will probably come to. We have been told by Carlisle action groups that we have spoken to that some of the significant floods that occurred there just would not have happened if the drainage had been up to date and drains unblocked. I think the investment needs to continue.

Q278 Chair: Do you think there is scope for more sustainable drains? Do you think we should speed up the audit of SUDS that already exist?

Graeme Trudgill: Absolutely. The more that can happen, the sooner the better.

Q279 Chair: To both of you, Mr Weil and Mr Trudgill: do you think that the planning regulations are completely clear to prevent inappropriate development on functional floodplains?

Graeme Trudgill: No, we think Policy Planning Statement 25 is not sufficient, because basically builders are able to come through the back door and still build inappropriately on floodplains. Then innocent home owners will buy these properties and find out that they are unable to access insurance very easily, so we think there needs to be more stringent controls and those laws need to be reviewed.

Q280 Chair: Do you think the Environment Agency currently has sufficient power?

Graeme Trudgill: I think there could be some room for improvement in that as well, yes.

Q281 Chair: Do you think water companies should have the right of statutory consultation?

Graeme Trudgill: Well, they are a stakeholder in all of this.

Chair: But they are not statutory consultees.

Graeme Trudgill: No. I think it would be healthy to have all parties. This affects everybody; everyone has a part to play with drainage and preventing flood. They should be involved.

Q282 Chair: Do you think we should end the automatic right to connect? For example, a lot of the surface water flooding, anecdotally, seems to have been caused by waste water combining with water coming off highways, causing combined sewers to spill into people’s homes.

Graeme Trudgill: We have members that tell us they have concerns: people’s properties that have never been flooded before have a new supermarket built nearby, there is a large concrete car park and the water floods off and affects those homes which were no risk in the past. I think it is something that does need to be considered, yes.

Q283 Chair: Do you think the Government has the balance right in terms of maintenance spending and flood capital spending?

Graeme Trudgill: It does seem to be reducing, unfortunately. We have seen several hundred of the activities being cancelled or delayed; therefore we think a review definitely should take place. This is a really fundamental thing for our country, and the Government needs to have it right at the top of their priority list.

Q284 Chair: In one of your answers, Mr Trudgill, you referred to drains being unblocked. Do you think that regular maintenance that perhaps should have been done has not been done over recent years?

Graeme Trudgill: Yes. We speak to the National Flood Forum, we speak to our members whose customers are making claims, and they all keep talking about drainage, which is not a very exciting subject in itself but it is actually critical to the future of flooding, so yes.

Chair: That is a very positive note on which to end. Can I thank you, Mr Weil and Mr Trudgill, very much indeed on behalf of the Committee for being so generous with your time and contributing? Thank you very much indeed.

Prepared 3rd July 2013