Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by the Association of British Insurers (FP 01)



  1.1  The Association of British Insurers is the Association for insurance companies in the United Kingdom with over 400 members. Between them, Association members account for almost 97 per cent of the worldwide business of UK insurance companies; almost 100 per cent of the long-term insurance and over 91 per cent of the general insurance written by insurance companies authorised in the UK. We are delighted to have the opportunity to provide written evidence on this important subject to the Select Committee.

  1.2  ABI members have been concerned for many years about the threat of coastal and inland flooding. A particular issue is the control of development in the flood plain. The Government target of 3 million new homes by 2016, together with increased weather volatility and severity coupled with climate change will increase significantly the nation's exposure to flood risk. Such development will need to be controlled effectively to avoid potential insurance availability and affordability problems going forward.


  2.1  The industry has always recognised that insurance plays an essential part in returning policyholders to normal as soon as possible following a catastrophic event. Despite the growing exposure and risk, in order to achieve this, in recent years, individual insurers have improved their contingency arrangements so that they are able to respond immediately and effectively to disaster situations. Insurers have gained much credit for their ability to do this, albeit that a small number of problem cases receive disproportionate media attention.

  2.2  The ABI has also worked closely with the Department of the Environment, Transport and the Regions, the Environment Agency and the Ministry of Agriculture, Fisheries and Food in recent years to help ensure that there is adequate investment in flood defence strategy.

  2.3  In order to be able to assess and influence the situation, the ABI has commissioned a range of research over the last six years. This is designed to identify the current and future risk of flooding occurring and includes some of the action which is needed to contain the risk within sustainable limits. A summary of this research is attached (Annex A). We would draw particular attention to the Inland Flooding Risk—Issues Facing the Insurance Industry General Insurance Report No. 10 which has only just been published. This report suggests that the inland flood risk is an order of magnitude higher than previously thought (£1 billion-£2 billion). The latest nationwide floods demonstrate that such predictions are both sound and realistic. Our earlier research on coastal and major estuarine flooding indicated that such events presented an even larger exposure, possibly £4 billion-£5 billion.[1]


  3.1  In responding to Draft Public Policy Guidance Note 25: Development and Flood Risk, the ABI was pleased to recognise the significant improvements compared to the existing guidance contained in circular No. 30/92. Specifically, ABI supported the broad parameters for controlling development in the flood plain and the broad principles set out. A number of detailed points were raised. In particular, we supported:

    —  the lead role of the Environment Agency and application of the precautionary principle designed to recognise the impact of housing development in and adjacent to the flood plain and climate change and variability;

    —  emphasised the need to draw attention to the insurance implications and offered suggestions as to how this might be achieved;

    —  promoted the risk based approach and encouraged the adoption of a template for planning control based on a hybrid of the insurer and Environment Agency models; and

    —  more generally, we advocated strongly the need for supporting warning and contingency arrangements as well as the Government taking steps to ensure that Planning Authorities responded effectively to the problems.


  4.1  The recent nationwide flooding should be the catalyst to real progress towards the introduction of a balanced risk based approach to development control. While the ABI recognises the need for balanced decision making within Local Authorities, clearly a more structured and prescriptive approach is justified.

  4.2  In the past, the ABI has established the general approach which its members will be adopting in future to the provision of flood cover. Essentially this is that the provision of insurance may become more difficult where:

    —  a local community has refused a flood alleviation scheme, for example, due to aesthetic reasons;

    —  there is new building in the flood plain without adequate protection;

    —  dwellings have been bought cheaply due to habitual flooding and subsequently the owner expects insurance to be available;

    —  flooding has been habitual without any likelihood of a flood amelioration scheme being provided within a reasonable timescale.

  4.3  However, the recent problems provide the opportunity to identify a range of issues which are relevant in terms of the planning considerations. We, therefore, make the following suggestions:

    (a)  there should be an automatic presumption against development unless adequate and sustainable protection is put in place. Our present view is that it would be inappropriate for the Environment Agency to have an absolute veto against development because local authorities need to be able to take account of many considerations. However, it should be a requirement that the Environment Agency is satisfied that the risk based planning controls as described in b) are met. We would also like to see the other issues described in c) to g) resolved satisfactorily;

    (b)  a hybrid risk based approach to planning control should be introduced based on the two models presented by insurers and the Environment Agency in draft PPG 25;

    (c )  publicity should be given to the consequences eg insurance availability of a local community refusing a flood amelioration scheme based, for example, on aesthetic grounds;

    (d)  new requirements should be incorporated in the Building Regulations and/or supporting guidance providing that any development in the flood plain, adjacent to it or exposed to potential run-off and related risk, must be built to flood resilient design techniques and using products and materials which give added protection;

    (e)  the arrangements which exist in Scotland where the planning guidelines (NPPG 7) recommend the establishment of flood appraisal groups with representation from the insurance industry should be adopted in England and Wales. Flood appraisal groups in Scotland now cover most of the population and have had a significant effect on planning strategies there. This would enable insurers to be part of the consultative process when planning applications in flood exposed areas are considered. This would help to satisfy them that their interests are adequately protected in individual cases and for the market to have confidence that it is not providing insurance against inevitabilities. The mechanics of this will need to be considered prior to implementation;

    (f)  a detailed reappraisal of the cost benefit analysis parameters should be undertaken with the aim of ensuring that the full impact of flooding on the nation are taken into account. The National Flood Insurance Claims Database could provide a valuable additional source of information for assessing possible flood losses. While this is a difficult issue, arguably, some of the recent flooding would have been avoided if the cost benefit parameters had allowed a higher level of protection to be implemented. This may be an important consideration going forward, particularly in relation to new development where PPG 25 in draft promotes the idea of "developer pays" for necessary flood amelioration connected to particular developments. It is also important at the national level in terms of the longer-term protection provided to the nation;

    (g)  the current process for implementing flood alleviation schemes appears to be over-bureaucratic and, as a result, ineffective. A complex web of fragmented responsibility exists and there is no national strategy. This means that alleviation schemes are delayed at best or at worst never implemented. In addition, there appears not to be any means of prioritising, for example, flood defence work on a national basis. The recent flooding highlights the need for a thorough and fundamental review. It also argues persuasively for some interim procedures to allow new schemes to be expedited in areas of acute need.


  5.1  Despite many previous reviews and reports, flood issues remain both high profile and complex. Controlling new building development will become ever more important in flood risk reduction and management. However, the recent nationwide flooding illustrates that the whole mechanism and structure also needs to be reviewed from first principles if real progress is to be made.

  5.2  The insurance industry has contributed to the effective management of the problem. It will need to be convinced that the latest events are a real catalyst for change and that its concerns are addressed if insurance problems are not to emerge in future. Subject to this, the industry will continue to act responsibly and work with the various agencies to secure progress.

Chris Mounsey
Manager, Property and Household

13 November 2000

1   Copies of these reports are available from the ABI. Back

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