Environment, Food and Rural AffairsSupplementary written evidence submitted by the British Insurance Brokers’ Association

Access to Flood Insurance—Signposting

BIBA believe that a system of “signposting” can help flood risk property owners more easily access insurance cover. If flood insurance goes “open market” after the expiry of the statement of principles then signposting will be even more important. It is a win for the customer, a win for the government, requires no legislation, can happen now and there is no cost to the taxpayer or policyholder.

I have included some details on the existing arrangements for older drivers. If you wish I can provide contacts at the Government Equalities Office and HM Treasury who can explain a little more about this from the government’s perspective.

What is Signposting?

Following the new Signposting agreement between the government, the British Insurance Brokers’ Association and the Association of British Insurers launched in April 2012, BIBA has helped over 40,000 older people access travel and motor insurance through our find a broker service. (This is in addition to the thousands of referrals made by insurers directly to other relevant partners).

Under the agreement, if an insurer or insurance broker is unable to offer cover to an older motorist or traveller due to the fact that their age is above any upper age limits they have, then they will automatically refer them to an alternative provider who can meet their needs or to a dedicated signposting service, such as BIBA’s “Find a Broker” service or website.

BIBA believe that if there is no flood solution by the 30th June a similar signposting solution for flood risk properties is vital to help people access cover. In practice this would mean an insurance provider that rejects a certain property due to its flood risk will signpost to BIBA who can pass the enquiry on to a specialist flood broker member who can help them, or the declining provider should refer it to a source who they know can cover the risk.

The final signposting agreement on age and insurance titled “Transparency and access in motor and travel insurance for older people” can be accessed here: http://www.biba.org.uk/UploadedFiles/418agreement.pdf

The Government Equalities Office Equality Act 2010 consultation document titled “Banning age discrimination in services, public functions and associations a consultation on proposed exceptions to the ban” that asked the original question about signposting can be viewed here: (you will probably be most interested in page 48) http://sta.geo.useconnect.co.uk/pdf/110301%20Consultation%20doc.pdf

The Question said: Do you agree that a service level agreement signed by BIBA, ABI and the Government, agreeing that a signposting/referral system should be set up so that those refused an insurance product, because of their age, are referred to a supplier that can help them; is an effective way to achieve improved access?

The government’s response to the consultation Equality Act 2010 “Banning age discrimination in services, public functions and associations” Government response to the consultation on exceptions can be found here: (you will probably be most interested in page 20) https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/84985/government-consultation-response.pdf

I have pasted in here the paragraph explaining the government’s decision to proceed with signposting for older people here:

Our Assessment

4.18 We decided to proceed, in conjunction with the Association of British Insurers and the British Insurance Brokers’ Association, with the signposting proposal so that consumers have better access and also more choice in obtaining the products they want. We consider that the voluntary approach is proportionate and should be effective. 4.19 In practice, this will mean that where a motor or travel insurance provider is unable to provide cover to a person because of their age, they will be required, as a member of the signposting scheme, to refer that person either to a specific provider who can meet their needs or to a dedicated signposting service such as the service currently operated by BIBA. 4.20 An agreement between the Government and the insurance industry represented by the British Insurance Brokers’ Association and the Association of British Insurers has been finalised and published17. The British Insurance Brokers Association has said it will expand its dedicated call centre and website, to meet this agreement. It covers both aspects of the voluntary scheme.

There has been a healthy increase in enquiries to BIBA over the first year and over the last few months there have been more than double than when we started, with over 5,000 enquiries a month now.

I have taken HM Treasury and the national press to our call centre and so if you or your members wanted to attend and see how it works then I am very happy to host you for the day.

All ABI members adhere to the current agreement as a condition of membership and all BIBA brokers also undertake to comply with this agreement.

There has been a continual increase in enquiries to BIBA over the first year and over the last few months enquiries have more than doubled.

Although it is still early days in the five year agreement with time needed for awareness to filter through the whole industry we are committed to growing this service.

What else can be done to improve access to insurance.

Government could increase profile of the find a broker service on Government websites.

The service could be expanded to include people experiencing difficulty accessing home insurance who are at risk of flooding.

I have put below some real life examples of where flood risk customers have accessed cover through BIBA Brokers:

Broker 1

I have can confirm we have offered terms and incepted cover on five cases recently all with differing variations of flood risk. I have set out brief details below which I hope will help.

Case 1

Evesham WR11—mapped as a significant flood area on EA.
Property had flooded in 2007 when the River Avon burst its banks cost of claim was approximately £60,000.
Property was included in the Fairhurst Flood Defence Assessment dated July 2009.
Defence measures include a concrete retaining wall, removable flood barriers, a clay bund and non-return valves which has reduced the overall risk of flood for the area and property.
The previous Insurer who indicated renewal terms this year with a premium in the region of £2,000.
We inspected the property, cost of £175.00. and have offered terms and incepted a policy for buildings and contents insurance at a premium of £542.11 inclusive of IPT and admin fee.
We applied terms of £2,500 flood excess, warrant that the owner signs up to the EA early warning system and put flood barriers in place whenever the property is a risk.

Case 2

Falmouth, Cornwall TR11—mapped as a significant flood area on EA.
Mid-Networth Holiday Home 213ft from Flushing Falmouth Ferry Landing in a small fishing village.
Property flooded in 2003 due to high sea levels and storm conditions—cost of claim was approx £30,000.
Property benefits from raised floors, there is a flood wall built around the front of the property and a flood gate at the rear.
Property was insured excluding flood cover who apparently refused to renew as they no longer cover stand alone holiday homes.
We have offered and incepted cover for buildings and contents at a premium of £962.88 including IPT excluding flood due to the occupancy.

Case 3

Tiverton EX16—Mapped as be prepared on EA.
Property is 3–400m from the River Exe.
Property and area has never flooded.
Previous insurer was excluding flood cover.
We have offered and incepted cover for buildings, contents and personal possessions including flood at normal terms.
Premium charged 394.29.
Minimum security applies.

Case 4

Hull HU5—mapped as moderate on EA.
Property was flooded in 2007 due to heavy rainfall, inadequate drainage and a failed pumping station—cost of claim was approx £13,000.
The previous insurer were offering terms with an increased premium and excess which was not declared to us.
We have offered and incepted cover for buildings and contents at a premium of £660.40 including IPT and admin fee.
Terms are sign up to early EA warning system, increased flood excess to £2,500 and minimum security.
The drainage system in Hull is now checked and cleared at least twice a month.

Case 5

Willingdon, Derbyshire DE65—mapped as significant on EA.
Property situated 2 metres away from a brook. New purchaser had obtained cover and had declared no flooding to the property. He was then told that the previous owner had suffered a flood and claimed on his insurance for damage to furnishings he is unaware of the cost etc, on telling the insurer this new information they withdrew flood cover.
We visited the property in question at a cost of £175. The property is located in an area of significant flood risk and is eligible for an EA grant for flood opening barriers for which it is ideally suited having only four openings. The previous owners had fitted some intermediate barriers and are prepared to finance installation of proprietary kite marked barriers and they already subscribe to the EA early warning system.
The area was subject to a flood warning in 2012 and some minor ingress to the property occurred but was not subject to a claim.
We have offered and incepted cover for buildings and contents at a premium of £698.73 including IPT and admin fee.
Terms are to have appropriate flood barriers fitted, put them in place whenever the property is at risk of flooding, sign up to EA warning system and we have excluded flood cover to the garage and its contents.

Broker 2

Insurers set the rules here where their extensive flood mapping tools will decline (where flooding is a certainty) or refer by postcode. Different insurers have different modelling and attitude to risk. This means there is a fair chance for a broker to find cover for his customer’s property by searching the market. Indeed, this is the advantage a broker brings over direct insurers.

As you’d expect of sophisticated mapping there are layers of acceptance. What we do is to use our experience and the broker’s knowledge of their community to refine the risk to insurers.

My company earnestly tries to support brokers and their clients with an empathetic approach. We avoid “the computer says no” attitude.

The first thing is to say is we will insure properties that have flooded.

This can be at no additional terms whatsoever (property not in a flood refer/decline postcode) or where a property is in a flood referral area we will offer cover with an increased claims excess and/or premium increase. Our aim being to give property owners access to good quality cover at an affordable premium.

I cannot stress how important the broker’s local knowledge and experience is; eg I’ve known that street for over 50 years and its never once flooded or yes, sadly the water levels rise very quickly around there.

My business also recognises local authority flood improvements, property owners’ flood resilience measures and the nature of previous floods; eg was this caused by culverts not being cleared or block drains? Measures can be taken to rectify these so that flooding is less likely to occur again. The nature of flooding requires careful assessment of the need for a permanent or removable defence; eg if a drain has backed up a non-returnable valve can be installed to avoid a repeat of the incident.

It’s also not like motor insurance where previous claims attach to the individual.

In summary, where some insurers will not offer cover in a specific postcode, others might. There is choice in the market where brokers are in a good position to get the best terms for their clients. Where insurers are open to proposals local knowledge can make a difference. And finally, cover is available for properties which have flooded previously. It all depends on the individual circumstances.

Broker3

Our experience in the market is that the composites are just not Interested in the Non standard risks.

We use mainly other Brokers products and believe you would better off talking to a specialist broker. We tend to only do properties for our commercial customers or our mid to high net worth clients and so far we have only been asked to quote by these types of clients as well.

The specialist broker policies tend to be most competitive.

On a recent case the following policy terms were applicable:

“F2—Flood Cover It is a condition of this insurance that you: Sign up to the Environment Agency Flood Warnings Direct service within 21 days of the date of this endorsement. If you fail to comply with the above condition this insurance will become invalid in respect of loss or damage resulting from flood”.

“EX5—Flood Excess You must pay the first £2,500 of every claim for loss or damage caused as a result of flood”.

AD wasn’t covered for outbuildings, gates and fences.

The property was 150 yards from the local watercourse but at a gradient of 4 meters with the client also providing a current Environment Agency report which confirmed how often & whether St Asaph would flood again.

These terms do not seem over the top and we find building a picture of the risk helps us in getting the terms. Unfortunately most brokers/clients want a transactional approach with Household Insurance and these risks don’t fit their bill.

Broker 4

Property flooded in 2007 for £5650 of damage—the client has an environmental agency report for us. Bell quoted £468.78 with a £5000 flood excess or 25% of the claim whichever is greater.

Broker 5

Kings Lynn has, for some years been considered as a higher than average flood risk area and this has meant that we have faced challenges over the years with various providers who, from their own research, grade the area according to their own flood criteria.

In general we have been able to negotiate with the larger providers to secure flood cover without the need for special terms. The discussions undertaken have centered around the last major flood event in the area being in 1978 and, prior to this the well known and documented East Coast floods in 1953 that affected a huge area in East Anglia (including Kings Lynn).

We have found that we need to use our market experience to locate appropriate underwriters able to provide flood cover at standard terms in circumstances where other providers are unable to assist.

In personal lines we have sourced provider(s) that do not apply special terms for flood in this area.

In commercial lines we broke business on a case by case basis and have to negotiate individually where necessary. We have very few (if any) cases on the books without flood cover as, generally we have been able to secure normal terms or, at worst, a slightly increased flood excess.

Examples:

Recently we have become aware that certain commercial Insurers have adopted new (and apparently improved) flood mapping technology. This is throwing up issues. A recent example is where a request to the holding Insurer provide terms for a building has resulted in a “no flood cover” response. This, for an established risk with long standing (and insured by the provider in question) premises (admittedly contents only) within 200 yards. Previously, for the existing premises, terms had been available through the provider subject to an increased excess.

The result was that we had to source an alternative major Insurer who provided a quote at normal terms.

In a second example the same underwriter that considered the new premises 200 yards from the existing to be uninsurable for flood quoted quite happily for a different risk in another area where in that case the existing Insurer was seeking a huge rate rise as the premises had been newly flagged in a “black” flood area.

In conclusion it would appear that the flood mapping technologies employed throw up different results for different Insurers and one must assume therefore that the accuracy of the systems has to be questionable.

Insurers are refusing flood cover in areas where in the past they have been perfectly happy to offer insurance and the new decision seems to be based purely on the technology they now employ. A classic example of “The computer says no”.

We have no particular expertise or schemes available to us for risks perceived as “high risk flood”. The issue is an ongoing one that we deal with as the need arises by selecting providers accordingly on a case by case or class of insurance basis.

Whist appreciating the need for ever more sophisticated risk assessment, and without wishing to over simplify the issue it seems that there is a danger of Insurers becoming so selective over time that the original principles of insurance providing indemnity to the few from premiums of the many are being compromised.

In Summary

BIBA want to help facilitate a solution for those at risk of flood. I hope this additional information illustrates how our members are able to help customers more easily access insurance for their properties at risk of flooding and the Select Committee call for the introduction of signposting.

BIBA also helped DEFRA produce the flood guide “Obtaining flood insurance in high risk areas”, which helps customers understand how to more easily access cover by working with the industry.

March 2013