Written evidence submitted by The British insurance Brokers’ Association (BIBA)(FLO0050)
About BIBA
The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes just under 2,000 regulated firms, employing more than 100,000 staff. General insurance brokers contribute 1% of GDP to the UK economy; they arrange 70% of all general insurance with a premium totalling £62.4bn and 87% of all commercial insurance business. Insurance brokers put their customers’ interests first, providing advice, access to suitable insurance protection and risk management.
BIBA receives more than 600,000 enquiries per year to its Find Insurance services, online and via the telephone which are directed to member insurance broking firms.
BIBA is the voice of the sector advising members, the regulators, consumer bodies and other stakeholders on key insurance issues.
The below is evidence submitted on behalf of the British Insurance Brokers’ Association (BIBA).
In considering the terms of reference provided by the inquiry, BIBA is in a position to respond to Question 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?
BIBA applauds current Government flood programmes, like the Environment Agency strategy review and Flood Re. quinquennial review. They are a means by which we can shine a light on what is working to improve flood resilience and where there are still gaps. Notably for BIBA this means focussing on the insurance sector.
Our members suggest some of these initiatives could be more ambitious, and their scope widened. This could benefit consumers and businesses, increasing their financial resilience to flooding and people’s personal well-being.
BIBA urges EFRA to consider 3 main initiatives from 14 important calls for action described in this document :
First. Government grant funding for homes and businesses to adapt their properties with flood resilient measures, and specifically, offer subsidies for flood risk improvement surveys defined by DEFRA’s new Code of Practice. This includes the Government’s public support and incentives for an accreditation system.
Those obtaining accreditation might reasonably expect recognition from their insurer in terms of lower premiums and/or flood claim excess.
Second. Build Back Better. This is a system for insurers to implement during the claim process. Claim compensation following a flood would allow a fixed additional amount to improve physical flood resilience, materials, design, construction, whilst the property is undergoing repair. We would like Government to allow Flood Re. to incorporate build back better into their rules.
Third. A review of leaseholders’ access to Flood Re cover where private residents in flats are treated differently to commonholders and freeholders because of their tenure.
BIBA and some of our members are long-standing contributors to DEFRA’s Property Flood Resilience Group. Most notably the Group published a Code of Practice (the Code) in February 2020. We would urge the Government to adopt and promote the Code to UK householders and businesses, to enable them to recover more quickly in the event of a flood and decrease future flood vulnerability.
1.1 The Code sets a clear benchmark for adapting buildings to be flood resilient using 6 standards:
- An assessment of the likely severity and hazard to a building
- A flood survey of the property
- Recommendations and options to build-in better flood resilience
- Surety the design and construction can work as promised
- Upon completion the operator in the home or business has the necessary knowledge to deploy systems effectively
- Surety this can be operated and maintained to have the promised effect
Call to Action - For Government to publicly promote and support the ‘Code of Practice’ as a means to increase the uptake of flood resilient measures in UK property.
1.2 Private households and businesses are now more than ever since COVID-19 facing competing pressures on limited resources which may prevent them investing in flood resilient measures. BIBA believes a mix of public and private investment is necessary to motivate uptake.
1.2.1 The cost of flood surveys could be subsidised by Government and/or local authorities, especially in known flood areas, but not exclusively so, as the evidence of climate change suggest many more localities must adapt to increased risk of flooding.
1.2.2 Accreditation of surveyors and tradespeople is required to give consumers and firms surety their investment will work. Government grants would encourage sole traders in particular to increase the number of skilled and accredited suppliers.
1.2.3 An accreditation or certification scheme might help insurers recognise risk improvement (see below), making flood insurance cover more accessible and affordable to more householders and businesses. By comparison insurers will offer security discounts for risk improvements like SSAIB or NACOSS approved alarms in homes and businesses, or Thatcham approved security in cars.
1.2.4 Government promotion of the Code of Practice through media and other Government channels is desirable.
Call for Action - For Government to apply a mix of funded incentives and encouragement to trades people and local authorities to increase the pool of skilled and accredited surveyors and installers to put the Code into practise. This may also benefit local employment in a post-COVID economy.
1.3 1 in 6 UK properties are in areas at risk of flooding (Source : Construction Industry Research and Information Association (CIRIA) and Rainbow International) so a decrease in the cost of flood repairs is a significant benefit to consumers and businesses. It is estimated as many as 40% of firms will not re-open after a flood (CIRIA and Rainbow International). This means a significant reduction in taxation revenue. It is in the economic interest that Government promotes and supports the facilitation of the Code of Practice.
1.3.1 ‘Build Back Better’ is a means where insurers can actively help householders and businesses. Insurance policies are generally contracts of indemnity. This means that the insurer will pay to put the insured back to the position (s)he was in pre-loss. It is not intended that any repairs or restoration will put the insured into a better position than when (s)he started. This is sometimes referred to as betterment.
1.3.2 However, there is an opportunity whilst a flooded property is being restored to ‘build back better’. Flood resilient materials and techniques can be implemented to help limit future flood damage and reduce repair costs in the event of another flood. Sometimes this might come at little or no extra cost; e.g. raising electrical sockets or a replacement boiler to counter height.
1.3.3 In this instance, we think it is justifiable for insurers to allow for betterment in order to carry out ‘build back better’. When a recent survey of BIBA members asked, “How could Flood Re be improved for the benefit of customers?”, build back better scored the second highest response.
1.3.4 If insurers want to manage additional claims costs, they can cap their liability at very modest amounts; e.g. £5,000. However, that £5,000 may be more than enough to prevent a future flood in the property. Consider simple adaptations like concrete or ceramic tile flooring and water-resistant kitchen units. The faster we adapt the less likely the future costs from flooding.
1.3.5 Sometimes insurers may argue that other insurers will benefit from their investment if the policyholder switches insurer. However, we think the insurance market is a competitive space and this will be spread around.
1.3.6 We hope the Government might support an agreement of principle for ‘build back better’. This could benefit consumers and businesses, and have an economic impact if businesses can recover at all or recover faster from flooding.
Call for Action - Government can support Flood Re to widen its remit and encourage insurers to adapt their policy wordings for ‘build back better’. There was a time when ‘new for old’ was revolutionary but now it is the ‘norm’ for millions of policyholders.
2.1 Government can support the uptake of property flood resilience measures directly through the
application of building regulations. This would have an immediate impact on reducing the
effects of flooding on property.
Call for Action - BIBA would like Government to encourage policy leaders at MHCLG to consider positive changes in building regulations to support the uptake of property flood resilience based on the studies of the DEFRA PFR working groups. As a first step we would encourage the Minister to set up a working party with PFR Group stakeholders.
2.2 A new report by the Institution of Civil Engineers, brought to our attention by Zurich Insurance,
has revealed that 60 per cent of SuDS professionals in England have experienced planning applications being delayed because of refusal on the grounds of the SuDS design. This compares with only 30 per cent experiencing the same problem in Wales. England and Wales have different regulatory frameworks around SuDs with Wales having introduced new legislation in January 2019 that makes SuDs a mandatory requirement for all new developments of more than one house or where the construction area is 100 square metres or more.
SuDs is essential to improving flood resilience in the face of climate change so these disparities within the UK are a concern.
2.3 Surface water run-off is of great concern especially when there is new development adjacent to homes built since 2009.
Call for Action – For the alignment of SuDs policy framework.
3.1 Where the risk of flood damage is mitigated by resilience measures it seems reasonable insurers would help incentivise uptake. This might be in the form of reduced premiums or lower claims excess.
3.2 Conversations BIBA has had with the Federation of Small Business (FSB) supports the view that if firms take responsibility for flood risk mitigation, insurers would recognise this in a reduction in premiums and claims deductibles (policy excess).
3.3 Flood Re has mooted significant savings for some risks ceded to the reinsurer where householders have built-in flood resilient measures. This would enable insurers to pass on a benefit to consumers of sometimes £100’s.
3.4 Improvement in the flood risk management might encourage more insurers to offer cover to householders, increasing competition and choice for consumers.
3.5 Would the uptake of flood resilient measures under the Code encourage insurers to offer cover to commercial entities that are unable to benefit from Flood Re.? Niche providers like the BIBA scheme with Randall and Quilter are doing this but could this encourage more insurers to work with brokers and scheme providers like R&Q.
3.6 Can Government incentivise the uptake of flood resilience using the Code by offering 2-year funding packages for firms to make these improvements? This would be especially beneficial to SME’s and micro-SME’s, firms with fewer than 10 staff and turnover in 100’s thousands of pounds or less.
3.7 Is there a Bellwin-style scheme the Government could activate before a major flooding event occurs, thereby minimising the impact?
Call for Action – BIBA and stakeholders like the FSB would like to see more collaboration from Government and incentives from insurers to help homes and businesses adapt their properties through accredited flood resilience schemes.
4.1 Where a freehold or commonhold homeowner might benefit from access to Flood Re. cover, the majority of leaseholders in flats are ineligible for the Flood Re scheme. This is because the leaseholders are likely to be in a block of flats and not occupying;
“a single residential unit or a building comprising of two or three residential units” (Flood Re.)
4.2 Leasehold unit owners in a block of flats will pay a share of the building’s insurance premium through compulsory management fees to a landlord/freeholder. This will cover their own unit and common parts, but to qualify for Flood Re. they must be:
“insured on an individual basis or have an individual premium” (Flood Re.)
4.3 Therefore, because someone has leasehold tenancy status, they cannot access cheaper buildings insurance for flood via Flood Re. This isn’t a case of subsidy for commercial freeholders since the tenant leaseholder pays for the premium.
4.4 According to the Leasehold Knowledge Partnership, 840,000 individual leaseholders live in an area at risk of flooding and 70,000 live where there is a high risk of flooding. This means the possibility of almost one million individual homeowners who are unable to obtain Flood Re protection because of the method in which they pay their insurance premium and their tenure.
4.5 We would also ask that the eligibility of leaseholders to purchase contents insurance is explained more clearly. BIBA believes it is the intention of Flood Re to offer cover in blocks of flats over 3 units, but this has not been so easily understood. The importance of leasehold contents cover is compensation for alternative accommodation in the event of a flood where homeowners are forced out of their flats for long periods during recovery work.
Call for Action - A review of leaseholders’ access to Flood Re cover where private residents in flats are treated differently to commonholders and freeholders because of their tenure.
5.1 This is particularly relevant today when leaseholders are petitioning Government for intervention in the insurance market. Grenfell exposed the severe fire safety hazards in flats as a result of combustible cladding, lack of internal fire separation and endemic failure to implement fire safety regulation.
As a result, insurers are adopting risk-reflective pricing. The BBC recently ran this feature; “Flat owners at a tower block in Birmingham say they face a joint insurance bill of about £500,000 due to changes brought in the wake of the Grenfell Tower tragedy. Last year, owners of the 182 flats in Brindley House paid £43,000.”
If these same buildings are excluded from access to affordable/any flood cover, they start to look uninsurable. This has the knock-on effect they are un-mortgageable and then unsaleable. In effect, leaseholders are trapped.
Call for Action - Flood Re.’s current quinquennial review is the opportunity to review leaseholders’ status.
6.1 Insurance brokers are the independent trusted adviser to consumers and businesses to find, compare and give advice on the appropriate level of cover at the most affordable price. They may also offer support when making a claim.
6.2 Yet only a handful of insurers from among hundreds of products make Flood Re backed policies available to brokers through software house sales and administration systems. These systems are used by the majority of brokers to arrange home cover.
6.3 Increased access by brokers to Flood Re. products would be essential if a leaseholder review allowed flat owners to access Flood Re backed buildings cover. The unintended consequence of one without the other might be a decrease in competition.
Call for Action – To encourage insurers and Flood Re to enable access to Flood Re backed polices through their intermediary channels and in particular make more products available on software house systems.
6.4 BIBA’s recent flood survey among members showed they thought;
“ almost 90% of customers would benefit from a Flood-Re backed policy ”
However,
“ over half of brokers said they had difficulty accessing them “.
Where you would expect the most used platform for a home quotation to be the software house system, it was the least used because so few insurers offer their products.
7.1 BIBA member Randall & Quilter Commercial Risk Services (R&Q) has developed an insurance
facility to help make flood insurance more accessible for property owners and firms excluded from buying Flood Re. cover using:
However, risk reflective flood pricing is less easily applied to micro-SME/SME’s. Here average premiums are comparable to home insurance and stakeholders suggest they may be unaffordable for some small businesses.
7.2 Some confusion remains to what level individual property postcodes are at increased risk of flood where there has been no history of flood but, they may still be shown on flood maps. It seems even the Environment Agency (EA) tools ‘Flood Map for Planning’ and ‘Long Term Risk of Flooding’ don’t always agree with each other.
Call for Action – Is there a way to marry the two EA mapping tools?
8.1 Single event flood insurance as opposed to traditional insurance where reinstatement of cover
is automatic is relatively new. It is offered in post-code areas the rest of the insurance market may decline.
However, it is closer to business interruption insurance than indemnity cover as betterment isn’t an issue. It does not insure the building and its contents for a replacement value. A firm is required to have a degree of self-knowledge about their recovery costs following a flood to choose a total cost to insure. It is then a matter of choosing the depth of flood that would take place before the policy is triggered. A working example would be flood depth minimum 600mm for £50,000 flood recovery.
8.2 As well as access to flood cover in a high-risk postcode, the principle benefit is claims may be
paid in days rather than months. Electronic monitoring is installed which triggers when flood waters reach the agreed depth and a claim payment is made to the policyholder’s bank account without the need for loss adjusters or claims negotiation.
8.3 Parametric insurance may suit firms who are reliant on cashflow rather than balance of
payments for their survival.
Call for Action - BIBA would like to see the development of parametric flood insurance alongside traditional forms of indemnity insurance, and Government to incentivise independent insuretech to widen the field of insurance flood solutions.
9.1. BIBA is engaged with a number of stakeholder groups and APPG’s where a prevalent belief is building developers can walk away from their responsibilities very easily. Allegedly it is straightforward for a developer to liquidate and start up a clone firm with little onward accountability for building standards and safety at their developments. It is the leaseholder who is left holding the bill for remediation and legal safety.
Call for Action – Could we re-think the effect more accountable developers would have on flood standards in buildings, and perhaps insurance costs?
10.1 BIBA urges Government to continue educating consumers, and promote myth-busting:
10.1.1 Some of our members suggest people assume that Flood Re is a pool that will support them in every eventuality, whether their insurer has opted to cede to Flood Re., or not.
10.1.2 Consumers can automatically assume that flood cover is included if an insurer offers cover knowing their home is at risk of flood. If a broker is used, they can give advice and find alternatives, but for consumers going direct to insurers and through price comparison websites this needs to be explicit.
10.1.3 During recent flood events in February 2020 and November 2019 there was a debate whether insurers should be able to offer home insurance excluding flood cover when they are aware the property is at high risk of flooding.
Call for Action – For more debate among stakeholders whether products can be offered excluding flood cover where there is knowledge the location is at higher risk of flooding.
BIBA believes the excellent efforts and goodwill of stakeholders to work together on building UK flood resilience through should not stop here. There may still exist roadblocks and taboos to overcome and those that say, “that’s the way it’s always been”.
Subsequently, we see the uptake of developments like Defra’s Code of Practice as a new milestone and continual development of Flood Re.’s remit as essential.
We would ask the Government to move at a greater pace in the safe knowledge existing practices and new initiatives are not mutually exclusive. We suggest only that these are given fair consideration to improve personal and economic flood resilience.
May 2020
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