Written evidence submitted by Zurich Insurance (FLO0090)

About Zurich Insurance

Zurich UK provides a suite of general insurance and life insurance products to retail and corporate customers. We supply personal, commercial and local authority insurance through a number of distribution channels, and offer a range of protection, retirement and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market. Based in a number of locations across the UK - with large sites in Birmingham, Farnborough, Glasgow, London, Swindon and Whiteley - Zurich employs approximately 4,500 people in the UK.

Executive Summary

As highlighted in our original May 2020 submission, Storms Ciara and Dennis which hit the UK at the beginning of 2020 caused significant damage and disruption to families and businesses across the UK and the Government’s recently announced multi-billion-pound investment is a sign of the increasing flood threat faced by UK communities.

The Defra Flood Risk Management Policy Statement and the Environment Agency (EA) National Strategy are, therefore, welcomed by Zurich. They outline a number of key overarching commitments that will help to manage and reduce the flood risk across England, including the need for sustained long-term investment in flood defences, recognising the importance of property-level flood resilience measures, and the need to reform the planning framework to ensure that developments on flood risk areas are avoided. We welcome the opportunity to respond to this re-opened inquiry and confine our response to the two new additional questions posed:

1.)    How effectively do the new Government policy statement and Environment Agency strategy meet the challenge posed by a changing climate?

1.1   We welcome the investment of £5.2 billion to create around 2,000 new flood and coastal defences to better protect 336,000 properties in England by 2027. The Government’s multi-billion-pound investment is a sign of the increasing flood threat faced by UK communities. We particularly welcome the plans to “include £200 million for innovative projects such as sustainable drainage systems and nature-based solutions”, but we would suggest that this funding seems small compared to the overall £5.2 billion additional investment in flood and coastal defences.

Flood Defences

1.2   Increases in extreme weather events across the UK are increasing the number of properties and businesses at risk of flooding.  However, flood defences have design limits and can be overtopped (even if they don’t fail structurally), meaning they are not failsafe, and losses can occur. As we saw in Doncaster in 2019, flood defences were built to protect the highly urbanised city centre but further downstream, there were no flood defences. All the water flowing rapidly along the river’s course from the protected areas often results in the flooding of homes, farms and rural businesses elsewhere.

1.3   Wherever possible, flood defences should prioritise green and sustainable elements and be non-concrete. Only where this is not possible should the investment go to the engineered, hard and inflexible structures. We would reiterate the following 5 principles when considering flood infrastructure investment:

1. Harnessing the power of nature to not only reduce flood risk, but deliver benefits for the environment, nature, and communities;
2. Better preparing communities for when flooding and erosion does occur;
3. Ensuring every area of England has a comprehensive local plan for dealing with flooding and coastal erosion;
4. Managing the flow of water to both reduce flood risk and manage drought;
5. Upgrading and expanding flood defences and infrastructure across the country.

Property flood resilience measures

1.4   There is currently a lack of evidence about which pre-event resilience-building initiatives actually make a difference when a flood comes.  We, therefore, echo the Association of British Insurer’s comments on the need to ensure the right incentives and financial products are available to encourage property flood resilience installation, including collecting robust data about the value of resilience measures within properties and making this data available to insurers and householders.

1.5   Flood infrastructure investments need to be part of a wider portfolio of solutions that provides communities with an ongoing flood risk reduction strategy.  At the moment, there is still a tendency to build back rather than ‘build back better’ or build forward (or sustainably). Zurich remains fully supportive of effective resistance and resilience property-level protection measures for homes, businesses, and local communities so we are pleased to see the importance of property flood resilience recognised in both the Flood Statement and National Strategy. The commitments and measures outlined by the Government and Environment Agency will help remove some of the barriers limiting the update of property level protection measures. However, barriers will still exist, such as behavioural issues related to flood victims not wanting these measures in their property and the difficulty in ensuring the measures are holistic and protect the whole property. These barriers could be removed, and community resilience would be strengthened significantly, if there were better incentives to install flood resistant and resilient measures and help better protect properties from future flooding.

Flood Resilience Grants

1.6   The Government’s Property Flood Resilience Recovery Support scheme, which has been available in response to recent major flooding events, could be made more efficient in order to more effectively increase the uptake of property flood resilience measures for homes that have been recently flooded. We are, therefore, pleased to see that the Government has committed to evaluate the impact, administration, and timescales of the most recent Support Scheme, including reviewing the criteria to ensure that future applications encourage the installation of cost-effective resilience measures.

1.7   As outlined in our May 2020 submission, based on our experience in responding to flood events, there are some administrative and conceptual difficulties with the current flood resilience grant scheme including: an unclear application process; inconsistencies in the scheme across local authorities; lack of understanding of suitable products and contractors; and, lack of availability during non-flood event periods preventing pre-emptive action.  Moreover, for some the relief provided by the scheme is limited to retro-fit repairs, as it is received after reinstatement works had begun.

1.8   We reiterate that extending, reforming, and improving the grant scheme by ensuring that the grants are available all year round; can be pooled across multiple neighbours; and can be administered by insurers will encourage the pro-active take up of flood resilience/resistance measures.  We must avoid the situation where repairs are delayed while people await funding from the scheme.  Delays and an overly cumbersome and bureaucratic process will inevitably deter those eligible for applying as their primary intention will inevitably be to get back in their repaired property as soon as possible.  Adopting these proposed reforms to the grants via a centralised system would address customer inertia and would enable insurers to help their customers complete these applications.

1.9   This must be complemented by a fundamental review and reform of building regulations to provide a set of resilience standards that need to be met when properties that have been flooded are being reinstated.  This will build flood resilience into properties as standard and it is our view that this is the most effective way for property flood resilience measures to be put in place for all at risk properties and would provide a level playing field for insurers repairing all properties.

Flood Performance Certificates (FPCs)

1.10           Further consideration must also be given to Flood Performance Certificates (FPCs) as part of a “home information pack”.  FPCs could be invaluable in ensuring greater accountability through the planning and construction processes as well as creating a competitive market for flood resilience products which supports the affordability and availability of insurance.  Indeed, FPCs and an increased awareness of flood risk could encourage more homeowners and businesses to proactively install property level flood resilience measures, subsequently reducing the risk and the cost of claims to insurers, therefore reducing premiums for the consumer.

Sustainable Drainage Systems

1.11           We are pleased to see that both the Defra Flood Statement and EA National Strategy recognise the importance and practicality of Sustainable Drainage Systems (SuDs) by committing to increase the provision, and promoting uptake, of SuDs as they can play a pivotal role in ensuring that new properties are built in a manner which helps to manage surface water flood risk at the local level.

1.12           Increased hard landscaping increases the pressure on traditional drainage systems during periods of extreme rainfall.  This is then compounded by the natural deterioration of drainage systems.  Whilst we acknowledge that land shortages, and values, are likely to dictate which sites are chosen for development, together with both national and local planning policies, it is essential that drainage is properly taken account of within the wider catchment area, both upstream and downstream, and not just as part of the local development.

1.13           However, the Government should consider going further than what is outlined in the Flood Statement and National Strategy. We remain concerned by the Government’s decision to put on hold the enactment of Schedule 3 of the Flood and Water Management Act 2010 and the requirement for all new developments to include SuDS due to fears that compulsory SuDS could discourage house building by increasing development time, construction and land-opportunity costs.

New Developments on Flood Plains

1.14           We welcome the commitments and measures outlined that are aimed at strengthening planning policies to direct new developments away from areas at risk, improving transparency and reporting during the planning process and ensuring new developments are resilient to flooding.  New developments on flood zones 2 and 3a will inevitably add to the long-term flood risk as well as the cost of flood protection. Local authorities, planning committees as well as house builders must avoid inappropriate developments in areas at risk of flooding whilst increased transparency around planning decisions against the advice of the Environment Agency must be more easily available to ensure those buying or renting property can make informed decisions. This would help empower consumers, and their legal representatives, in their decisions on whether to purchase a particular property.

1.15           Additionally, the Government has recently launched its planning for the future consultation which provides further opportunity for essential reform. However, further clarity is required to understand how standards will be maintained with a relaxing of planning regulations as well as ensuring that local flood action groups and local communities have a voice.

3.)    What level of investment will be required in future in order to effectively manage flood risk in England, and how can this best be targeted?

3.1   Preventing flood losses and building societal resilience to flooding are important elements in integrated flood risk management, and from Zurich’s own as well as other studies we know the ex-ante prevention and resilience building is, beyond avoiding the detrimental impact on local communities, also highly cost-effective.  Indeed, our own research indicates that on average every EUR 1 invested in flood risk reduction allows to save EUR 5 in avoided future losses[1].

3.2   However, we would highlight that, for existing assets, there has been limited debate on what “acceptable levels of risk” are and, therefore, how to effectively manage flood risk and how this can be targeted. For existing assets further corrective risk reduction will be needed under the umbrella of climate change adaptation.  As such, more investment will be required to be able to keep this risk level constant and premiums / investments by property owners affordable under climate change. This climate change adaptation cost aspect of flood risk needs to be an additional investment.

3.3   For future risk, it could be argued that additional assets should be built in such a risk-informed and climate-smart way that they do not add to the total cost of risk but that they are already adequately managed. If that’s not the case, then additional investment is needed to bring these new risks in line.

August 2020

Zurich Insurance

ANNEX 1 – Zurich Insurance May 2020 Submission: EFRA Select Committee – Flood Inquiry

About Zurich Insurance

Zurich UK provides a suite of general insurance and life insurance products to retail and corporate customers. We supply personal, commercial and local authority insurance through a number of distribution channels, and offer a range of protection, retirement and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market. Based in a number of locations across the UK - with large sites in Birmingham, Farnborough, Glasgow, London, Swindon and Whiteley - Zurich employs approximately 4,500 people in the UK.

Executive Summary

Storms Ciara and Dennis which hit the UK at the beginning of 2020 caused significant damage and disruption to families and businesses across the UK.  Whilst the immediate priority is always to ensure that communities and businesses are protected and supported, it is also important that all those involved in the response take the opportunity to review their own procedures and actions.  Zurich, as part of its global flood resilience program, has developed a post-event review capability (PERC) methodology to analyse large flood events and provide societal learning, which has been applied twice to UK storms[2].  It is often the case that when the UK’s flood response is put to the test in a ‘real world’ scenario that we discover things that could have been done better, or differently, and can make changes to ensure continuous improvement.  This is true of insurers as much as it is of central and local government and the emergency services, because events like these demand a truly integrated response.  We, therefore, welcome the opportunity to respond to this inquiry and highlight the following recommendations for the Committee to adopt:

• Address the lack of both direct and in-direct long-term incentives to prioritize resilience building and enhance the uptake of integrated flood risk management along the full risk management cycle.
• Extend, reform, and improve the flood resilience grant scheme by centralising it and ensuring that the grants are available all year round; can be pooled across multiple neighbours; and can be administered by insurers will encourage the pro-active take up of flood resilience/resistance measures.
• Local, property-specific resilience initiatives need to be compared to larger scale flood protection measures and should work alongside each other rather than in isolation. Neither spatial nor location-specific protection can work alone, and to optimise the available resources, combined protection within communities is essential.
• Any reform of the flood resilience grant system will need to be supported by revised Building Regulations with a set of resilience standards that need to be met when properties that have been flooded are being reinstated.
• Support the biodiversity net gain clause in the Environment Bill to drive the uptake in multi-functional sustainable drainage systems (SuDS).  This is because when considered alongside the new CIRIA SuDS guidance, and National Planning Policy Framework (NPPF) multi-functional SuDS represent the most cost-effective means for developers to comply with biodiversity net requirements.

1. Are the current national and local governance and co-ordination arrangements for flood and coastal risk management in England effective?

1.1   All parties need to contribute to the principle of ’integrated flood risk management’ strategies that evolve and adapt to local requirements. Our experiences suggest that among the parties responsible for responding to flood events there is an insufficiently integrated approach to managing flood risk and building resilience.

1.2   As it comes to solutions favoured or typically implemented, we find there is still a bias to hard-built, grey infrastructure approaches such as single-purpose levees and other physical infrastructure as opposed to more system-level, multi-purpose and integrated “grey-and-green” approaches[3].  Local, property-specific resilience initiatives need to be compared to larger scale flood protection measures and should work alongside each other rather than in isolation. Neither spatial nor location-specific protection can work alone, and to optimise the available resources, combined protection within communities is essential.

2. What lessons can be learned from the recent floods about the way Government and local authorities respond to flooding events?

2.1   Flood risk management is a task that involves many actors and is not just the job of the Government’s dedicated Environment Agency. More public functions (such as the education sector) need to come together with the population, local businesses and with large organisations to achieve integrated flood risk management. As we have seen, flood risk is a complex topic and there is not one single solution or actor that can solve the problem.

2.2   In order for local actors to be more motivated to invest proactively into flood risk reduction and resilience-building, there is a need for more shared ownership of risk. If risk is owned and seen as an internal cost to the actor, then there is a likelihood that costs and benefits are adequately addressed and the cost of managing risk is compared to the cost of risk, where otherwise the cost of doing nothing would not be actively outlined and no action would be biased over the cost of investing now.  As such, the role between flood risk governance by public authorities, of risk awareness and risk transfer by the insurance industry, and the level of protection and self-protection by citizens and businesses is essential.

3. Given the challenge posed by climate change, what should be the Government’s aims and priorities in national flood risk policy, and what level of investment will be required in future in order to achieve this?

3.1   Risks from flooding have been rising due to increasing population, urbanisation and economic development in hazard-prone areas. With over 1 in 6 properties in England at risk of flooding, it is vital that all those involved work together to manage the risk.  In particular, insurers can have a positive impact by helping existing and prospective customers to better understand their exposure to climate risks. Indeed, preventing flood losses and building societal resilience to flooding are important elements in integrated flood risk management.

3.2   From our own, as well as other studies, we know that proactive prevention and resilience building is, beyond alleviating the human impact, also highly cost-effective.  Zurich’s Flood Resilience Alliance research of cost-benefit from dozens of specific flood resilience programs have identified that there is, on average, a 1:5 benefit/cost ratio, underlining not only that resilience building is the right thing from a humanitarian point of view, but also cost-efficient[4].

3.3   However, currently around 87% of all disaster related funding is targeted “post-event”.  We identify a lack of both direct and in-direct long-term incentives to prioritize resilience building. In order to enhance the uptake of integrated flood risk management along the full risk management cycle and support long-term resilience building, a clearer link to prevention incentives should be established.

4. How can communities most effectively be involved, and supported, in the policies and decisions that affect them?

4.1   By enhancing the focus on community voices – looking to build support through community cohesion and better knowledge sharing mechanisms – many losses could be avoided. It could also help to ensure that better understanding of risk is developed which in turn can help communities decide to take appropriate actions. Local knowledge is also needed to help agencies coordinate and plan appropriately.

4.2   Similarly, flood resilience needs to be viewed holistically, utilising community assets (knowledge and experience in the form of human capital as well as the ability to collaborate among stakeholders and across political and administrational boundaries in the form of social capital) to harness environmental and physical developments that enhance the ability to manage flood risks.

5. With increasing focus on natural flood risk management measures, how should future agricultural and environmental policies be focussed and integrated with the Government’s wider approach to flood risk?

N/A

6. How can housing and other development be made more resilient to flooding, and what role can be played by measures such as insurance, sustainable drainage and planning policy?

6.1   Property insurance underpins the resilience of millions of businesses and households across the UK. There are a range of measures which can be taken to make housing and other developments more resilient to flooding:

Property Level Resilience & Flood Grants

6.2   As part of its response to various flood events, including 2013/14, 2015/16 and the recent floods in Yorkshire in November 2019 the Government announced Property Flood Resilience Recovery Support Scheme in which businesses and households could apply to receive up to £5,000 to make their property more resilient to flooding.

6.3   Based on our experience in responding to flood events, there are some administrative and conceptual difficulties with the current flood resilience grant scheme including: an unclear application process; inconsistencies in the scheme across local authorities; lack of understanding of suitable products and contractors; and, lack of availability during non-flood event periods preventing pre-emptive action.  Moreover, for some the relief provided by the scheme is limited to retro-fit repairs, as it is received after reinstatement works had begun.

6.4   We believe extending, reforming, and improving the grant scheme by ensuring that the grants are available all year round; can be pooled across multiple neighbours; and can be administered by insurers will encourage the pro-active take up of flood resilience/resistance measures.  We must avoid the situation where repairs are delayed while people await funding from the scheme.  Delays and an overly cumbersome and bureaucratic process will inevitably deter those eligible for applying as their primary intention will inevitably be to get back in their repaired property as soon as possible.  Adopting these proposed reforms to the grants via a centralised system would address customer inertia and would enable insurers to help their customers complete these applications.

7. This must ultimately be complemented by a fundamental review and reform of building regulations to provide a set of resilience standards that need to be met when properties that have been flooded are being reinstated.  This will build flood resilience into properties as standard and it is our view that this is the most effective way for property flood resilience measures to be put in place for all at risk properties and would provide a level playing field for insurers repairing all properties.

New Developments on Flood Plains

7.1   New developments on flood plains will inevitably add to the long-term flood risk as well as the cost of flood protection. Local authorities, planning committees as well as house builders must avoid inappropriate developments in areas at risk of flooding whilst increased transparency around planning decisions against the advice of the Environment Agency must be more easily available to ensure those buying or renting property can make informed decisions.

Sustainable Drainage Systems

7.2   Increased hard landscaping increases the pressure on traditional drainage systems during periods of extreme rainfall.  This is then compounded by the natural deterioration of drainage systems.  Whilst we acknowledge that land shortages, and values, are likely to dictate which sites are chosen for development, together with both national and local planning policies, it is essential that drainage is properly taken account of within the wider catchment area, both upstream and downstream, and not just as part of the local development.

7.3   We, are, therefore concerned by the Government’s decision to put on hold the enactment of Schedule 3 of the Flood and Water Management Act 2010 and the requirement for all new developments to include SuDS due to fears that compulsory SuDS could discourage house building by increasing development time, construction and land-opportunity costs.

7.4   However, we are optimistic that the National Planning Policy Framework (NPPF) now includes a strong expectation on all new developments to include SuDS and for a burden of proof if not implemented.

7.5   Moreover, if the NPPF is considered in conjunction with the biodiversity net gain clause contained in the Environment Bill as well as the new CIRIA SuDS guidance, we expect to see a rise in the number of SuDS schemes delivered in the coming years.  This is because multi-functional SuDS represent the most cost-effective means for developers to comply with biodiversity net requirements as well as NPPF and CIRIA drainage guidance.  We would encourage the Committee to support raising the profile of the biodiversity net gain clause and the role that SuDS can play in meeting these biodiversity requirements.

May 2020

Zurich Insurance