MFR0002

Written Evidence submitted by Association of British Insurers

About the Association of British Insurers

1. The Association of British Insurers (ABI) is the voice of the UK’s world-leading insurance and long-term savings industry. A productive and inclusive sector, our industry supports towns and cities across Britain in building back a balanced and innovative economy, employing over 300,000 individuals in high-skilled, lifelong careers, two-thirds of which are outside of London.

2. The UK insurance industry manages investments of over £1.7 trillion, pays nearly £12 billion in taxes to the Government and supports communities across the UK by enabling trade, risk-taking, investment and innovation. We are also a global success story, the largest in Europe and the fourth largest in the world.

3. The ABI represents over 200 member companies, including most household names and specialist providers, giving peace of mind to customers across the UK.

Managing flood risk

4. The ABI welcomes the opportunity to provide input into the Public Accounts Committee’s inquiry on managing flood risk. The insurance industry is committed to working alongside the Government, Local Authorities, and other agencies and stakeholders, to support initiatives to reduce the impact of flooding and increase public awareness of flood risk.

5. Flooding is the greatest natural disaster risk in the UK, and we expect insurers to pay out in excess of £540 million in storm and flood claims in response to storms Ciara, Dennis and Jorge in February/March 2020. Insurers are on the front line in fighting against the impact of climate change on our communities, with an estimated 1 in 6 properties in England now at risk of flooding.  As a sector we have long been calling for increased investment in flood defences to better protect communities and for a co-ordinated approach to increase the UK’s resilience to climate risk.

6. The Defra Flood Risk Management Policy Statement and the Environment Agency (EA) National Strategy have been welcomed by the insurance industry. They outline a number of overarching commitments that will help to manage and reduce flood risk across England.  We particularly welcome the recognition of: the need for sustained, long term investment in flood defences; the importance of property flood resilience measures (PFR); and the need to reform the planning system and property development procedures to ensure no inappropriate developments are built in high flood risk areas. Long term flood risk management is vital if a well-functioning home insurance market is to continue, particularly as we transition towards the end of Flood Re in 2039. 

Flood defence investment

7. The Government’s commitment to invest £5.2 billion over 6 years in flood risk management is a good step in the right direction, but it still falls short of the investment required as set out by the Environment Agency’s long-term investment scenarios report (2019).  This states that without sustained investment, future flood damage to properties and infrastructure in England will significantly increase. The EA estimate an average annual investment of £1 billion will be necessary up to 2065, but that £1.2 billion will deliver “very high” levels of protection, provided climate change targets are met.[1] This is reflected in the Environment Agency’s own National Strategy which also states that in the long term an average of over £1 billion a year will need to be spent, a minimum of £50 billion over the next 50 years, to avoid the flood risk getting worse.[2]

8. It is also important to note that the Government’s funding commitment does not include any detail on the provision for maintenance spending to ensure existing flood defences remain effective. Ensuring sufficient funding for flood defence maintenance is essential.  There is little point in building new flood defences if there is not enough funding to ensure they are well-maintained. The ABI and Flood Re have commissioned research to investigate the benefits of spending on flood defence maintenance.  Findings from phase one of the research, which focuses on a case study of the Severn Catchment area, show that even an increase of £0.1 million in maintenance spending results in a capital replacement cost saving of £1.9 million. The second, and final, phase of the research is now under way and will expand the research to the national level. We will look to publish these findings in due course and will be happy to share a copy with the Committee once complete. In the meantime we would call on the Government to detail its spending plans for flood defence maintenance and to ensure that this is also reflected with a long-term commitment, rather than annual budgets.

9. The ABI would like to see a long-term commitment of £1.2 billion per year in capital and maintenance spending for flood defence infrastructure in England.  Investing in flood defence infrastructure is not only crucial to protect households and businesses, it also makes economic sense with every £1 spent on flood defences saving £8 in costs to the economy from flood damage. Flood defence capital and maintenance investment also protects whole communities, families and businesses.   An ambitious, long-term strategy for flood defence investment, in both new projects and to maintain existing ones, is crucial for the UK to adapt to climate risk and prepare for the greater risk of flooding in the future.

Property flood resilience measures

10. The insurance industry has and will continue to be fully supportive of effective resistance and resilience property-level protection measures for homes, businesses and local communities.  We are pleased therefore to see the importance of property flood resilience measures 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 uptake of property level protection measures.

11. However, barriers will still exist, such as psychological reasons as to why people do not want constant reminders of a flooding incident in their property and the difficulty in ensuring the measures introduced are suitable, effective and holistic for many varying property types. These barriers could be reduced, and community resilience would be strengthened significantly, if buildings were built or refurbished in a resilient manner. To achieve this, one suggestion is for Government to review and reform building regulations to ensure an appropriate level of flood resilience is built into properties as standard. We believe this is the most effective way for PFR measures to be established for all at risk properties and would provide a level playing field for insurers when repairing all properties.

12. We welcome the Government’s aim 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. To help insurers recognise the effectiveness of these property flood resilience measures and take them into account, evidence on how the measures reduce the level of damage and associated costs (including the cost of repair, need for alternative accommodation and reduction to business interruption costs) for the particular property is essential. This type of data should be shared in a useful format to enable insurers to access and underwrite accordingly.

13. With Flood Re due to end in 2039, it is increasingly important for homes to become more flood resilient. Following Flood Re’s quinquennial review a number of proposals have been put forward to allow Flood Re to enable the uptake of property flood resilience measures, for example, by making payments to flooded homes to ‘build back better’ and offering premium discounts where property flood resilience measures have been installed. The insurance industry supports measures that will continue to allow households to access affordable flood cover and we will work closely with the Government, Flood Re and other key stakeholders during consultation on these proposals. Their future success however will still be dependent on continuing to address the barriers to uptake of flood resilience measures.

14. 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 increase the uptake of property flood resilience measures.  We are 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.

15. It is essential that these schemes are available as soon as they are announced, so resilience can be incorporated into the repair process. This would avoid the situation where repairs are delayed while people await establishment of the parameters of the scheme. Delays and complex processes will clearly disincentivise those eligible for applying as their primary intention will inevitably be to get back in their repaired property as soon as possible.  Developing a centralised system, which is coordinated and managed by central Government, would likely help to overcome this inevitable and predictable customer inertia, and would enable some insurers to help their customers complete these applications, avoiding differing approaches in Local Authorities.

16. Flood Re is currently advocating for the use of Flood Performance Certificates (FPCs) as a means to remove some of the barriers limiting the uptake of PFR measures, which we are supportive of.

17. FPCs would provide a rating, which would reflect a property’s flood risk the and the implications should a flood occur (i.e. likely time spent displaced from the property). The Certificates would make recommendations for uptake of the most effective PFR measures suitable for that property. Information held on FPCs would be similar to that in Energy Performance Certificates and would give homeowners the ability to understand what action needs to be taken to ensure their home is more flood resilient.  They would also provide information on registered and accredited PFR installation companies and indicative costs for PFR measures, in an easy to understand format. FPCs would likely increase homeowner awareness and understanding of flood risk, as well as creating pressure on developers to build homes in a way that is more resilient to flooding.

Planning policy and flood risk

18. The ABI has long been calling for the Government to ensure there are no inappropriate developments in flood risk areas and encourage a more transparent planning application process, with clear monitoring and reporting by Local Authorities on planning decisions. This would provide reassurance to insurers and local communities concerned about the potential impacts of new developments. We therefore welcome commitments and measures, including those outlined in the MHCLG ‘Planning for the Future’ consultation paper, 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. However, these measures could still go further. A mandatory responsibility to report publicly on planning decisions in a clear and transparent way, especially when decisions have been taken against EA advice, is required. This would help empower consumers, and their legal representatives, to make informed decisions on whether to purchase a particular property. To increase resilience across locations, the Government should consider clearly linking further residential and commercial developments to the Building Regulations Approved Documents.

19. The DEFRA Flood Risk Management Policy Statement and the EA National Strategy outlined a number of overarching commitments that will help to manage and reduce the flood risk across England, including the need to reform the planning framework and property development procedures to ensure no inappropriate developments are built in high flood risk areas. We welcomed these commitments, however, to ensure these are carried out effectively, it is important there is greater co-ordination between MHCLG and Defra to prevent development in flood risk areas.

20. The Government’s proposed review of the National Planning Policy Framework presents an opportunity to close the loophole in the guidance that accompanies the Framework, which means that developers can build and sell properties in flood risk areas simply if they leave space for flood defence measures to be installed in the future. Leaving space, with no commitment, responsibility or accountability to actually install measures to alleviate the flood risk is unacceptable. We believe that this loophole should be closed to ensure the developer is held responsible for any measures that are necessary to ensure that properties are protected from flood risk to the highest possible standard.

21. Finally, we are pleased to see that both the Defra Flood Statement and EA National Strategy recognise the importance and usefulness of Sustainable Drainage Systems (SuDS) by committing to increase the provision, and promote the uptake, of SuDS. With 3.8 million properties in England at surface water flood risk and the Government’s plans for boosting the supply of new homes, SuDS can play a pivotal role in ensuring new developments are built in a way which manages surface water flood risk at the local level. However, the Government should consider going further than what is outlined in the Flood Statement and National Strategy. There is an urgent need to implement the Government’s policy on SuDS under the Floods and Water Management Act 2010 to ensure mandatory installation of sustainable drainage measures in all new builds, regardless of the size of the development.  We have now been waiting a decade for implementation of this policy, while the country’s surface water flood risk increases, and surface water flooding continues to devastate communities.

22. The ABI would also like to see evidence of clearer monitoring on the use of SuDS by local planning authorities, with a responsibility to report publicly on planning decisions in a clear and transparent way; particularly when decisions have been taken to not install SuDS within a new build property. This would help to reinforce the existing requirements within the National Planning Policy Framework as well as other approaches aimed at driving the increased adoption of SuDS across England.

January 2021

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