Written evidence submitted by Flood Re (FLO0061)

About Flood Re

Flood Re is a joint initiative between the insurance industry and the UK Government. It was established by the Water Act 2014, launched in 2016, and will run until 2039.

Its purpose is to promote and enable the availability and affordability of flood insurance for eligible homes and manage over its lifetime the transition to an affordable market for household flood insurance where prices reflect the risks of flooding.

More than 300,000 households have been backed by the scheme since launch. Independent research shows that 98 per cent of households with prior flood claims can now obtain quotes from five or more insurers, when none could get five quotes before the creation of Flood Re. Furthermore, 4 out of 5 households with previous flood claims saw a price reduction of more than 50 per cent.

In July 2018, Flood Re published its Transition Plan[1] which sets out a strategic plan to work with the insurance industry and policymakers to manage our exit from the market by 2039. Our first Quinquennial Review (QQR) was published in 2019[2] and included proposals to help incentivise the take-up of property level flood resilience measures by householders, encourage the growth of the resilience products sector and reduce the costs and disruption of future flooding when it occurs.

Flood Re supports the Committee’s inquiry into flooding as this provides an opportunity to consider how to best manage the risk of inland flooding and to develop further the points made in our previously provided-evidence during the Committee’s earlier inquiry into coastal flooding.

Our submission is informed by our Quinquennial Review (QQR), Transition Plan, and associated research.

Executive Summary

Flood Re’s Transition Plan sets out a vision of what needs to happen to create an affordable risk reflect market for flood insurance. It is this vision which informs our evidence gathering and our recommendations for Government. Our Transition Plan is built around three strategic objectives; 1) reducing the risk of flooding 2) reducing the cost of flooding and 3) achieving an effective insurance market.

Reducing the risk of flooding:

• Investment needs to be maintained in flood risk management and flood defence building and maintenance. Government should also provide more long-term certainty with long term funding settlements over 10 or 20 years.

• Planning policy must ensure that flooding risk is not increased by inappropriate housing development. At a minimum, a joint guidance compliance check by local authorities and the Environment Agency on whether planning guidance for new developments is being adhered to would provide greater transparency around planning decisions and lead to better outcomes.

Reducing the costs of flooding.

• “We can’t stop the rain from falling, but we can do things about it when it arrives”[3] There needs to be a significant, widespread and relatively rapid increase in the installation of property flood resilience (PFR) measures. This requires a package of separate, but related and reinforcing, measures to simultaneously enable, educate and incentivise change.

• The Government should support and where possible mandate the recently published resilience roundtable’s Code of Practice to enable the uptake of PFR. The Government should pilot Flood Performance Certificates to educate householders about the benefits of PFR. Finally, Government should introduce better grant schemes and permit discounted Flood Re premiums to incentivise PFR.

Achieving an effective market.

• The Government should support the recommendations in Flood Re’s QQR to make the scheme more responsive, efficient and better prepared for the future.

Due to climate change, the Government, and all stakeholders, are trying to hit a moving target. Climate change will mean increasing flood risk, especially surface water and flash flooding. Therefore, Government must place as much emphasis in the future on adaption as mitigation.

A national effective flood risk management strategy, which for Flood Re would mean a smooth exit from the market in 2039, needs a wide range of measures, individually separate, but interconnected and interrelated, so that taken together change happens across a wide range of stakeholder and actors.

1. Flood Re’s purpose includes managing the market’s transition to affordable risk–reflective pricing. This means that after 2039 premiums and excesses should, as well as being risk-reflective, remain affordable without the benefit of the current levy[4]. For this to happen, we need to tackle together the factors that drive up the costs of flooding and thus flood insurance.

2. Effective flood risk management by Government is needed to reduce the frequency and severity of flooding. Householders need to act to make their homes and communities more resilient and so reduce the risk of flooding and the costs of repair. The insurance industry needs to ensure that customers are informed and suitable products are available.

3. Property Flood Resilience (PFR) is the installation of resistant or resilient measures to provide enhanced protection to reduce the future risk of, or damage caused by, flooding to a property. Flood Re commissioned the University of the West of England (UWE) to look at the financial viability of PFR, including both post-flood repair and proactive resilience intervention.[5] The report concluded that PFR measures are beneficial and cost-effective than previously thought and play an important role in flood risk management.

4. The National Flood Resilience Review[6], concluded that installing PFR measures is a cost-effective way of limiting flood risk and reducing the cost of repair, thereby reducing insurance premiums.

5. The Property Flood Resilience Roundtable published a Code of Practice (CoP) this year, which sets a clear benchmark for adapting buildings to be flood resilient using six key 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;
• and, surety this can be operated and maintained to have the promised effect

6. Government should take steps to adopt and promote the CoP to maximise householders’ ability to recover more quickly in the event of a flood and decrease future flood vulnerability. This will compliment Government’s pathfinder projects which are encouraging the take-up of resilience measures for homes in high-flood risk areas.

7. Flood Re’s Transition Plan highlighted the potential use of property Flood Performance Certificates (FPCs) by households at risk of flooding. FPCs can help address common barriers to implementing PFR, including:

a)      Providing relevant and actionable information for householders by setting out the level of risk and demonstrating what could be done;

b)      Address concerns about blight by highlighting positive adaptation to flood risk; and

c)       Establishing a consistent benchmark to encourage take up of PFR – such as Government grants and incentives as well as discounted premiums from insurers.

8. Government should establish a programme of testing and piloting FPCs at the point of sale, rent or reinstatement.

9. Cutting the cost of PFR products can help to support and incentivise householders and, if co-ordinated with strong communication, can support behavioural changes which would increase more widespread uptake of PFR.

10. Government grants have been offered following severe flood events to encourage take up of resistance and resilience measures by those whose homes have been damaged. Evidence from insurers involved in responding to recent flood suggests that previous schemes have suffered from administrative and conceptual difficulties, including:

a)      For householders the application processes were confusing. The process acted as a barrier to considering resilient repair as some were reluctant to take action that could be perceived as delaying repairs to their property after a flood;

b)      For insurers/surveyors, variations in the scheme across local authorities made it difficult for insurers to support households in taking up the grant

c)       For local authorities, the time from announcing the scheme to it being operational can be lengthy thus delaying the repairs until after reinstatement works had begun, limiting householders’ ability to retro-fit repairs.

11. Government should take steps to assess and develop a holistic approach to incentivise householders to install PFR adaptations, including creating a more rapid, streamlined, and consistent approach of grant making, which would also allow insurers to play a positive role in maximising take up, as well as exploring the role of other financial incentives. 

12. The proposals in this section all support the up-take of PFR, but are also mutually enabling and reinforcing. Taken together, they can help create a virtuous circle of behavioural change by all the stakeholders. Introducing Flood Performance Certificates would provide a call to action for householders while discounted insurance premiums for resilient homes would provide an incentive to act. Government can increase this incentive for householders to install PFR adaptations by improving the effectiveness of grants and exploring the role of other government backed financial incentives.

Insurance

13. Flood Re is currently utilised by 94% of the home insurance market. Householders have seen the immediate benefits in their premiums and excesses with 98% of households with prior flood claims now able to receive quotes from five or more insurers.

14. Flood Re’s QQR recommends additional ways for the Scheme to be more efficient and support householders to become more resilient.

15. Build Back Better (BBB) refers to the process of carrying out a more resistant and/or resilient repair to provide enhanced PFR following a flood event, in order to reduce the future risk of, or damage caused by flooding to a property in the event of a second, subsequent flood. Specifically, the QQR proposes changes to the Scheme that would permit the payment of claims to include an additional amount for resilient or resistant repair, above and beyond the original damage.

16. Discounted Flood Re premiums would help to recognise and reward those householders who have proactively adapted to be more resilient and resistant to future flooding.

17. Government should permit Flood Re to support flooded homes to Build Back Better and introduce discounted premiums.

Integrated Water Management

18. A coordinated and holistic approach to water management is essential to effectively manage flood risk. Plans for upper catchment management, natural flood management and sustainable drainage systems (SuDS) and other integrated approaches should all form part of the Government’s overall flood and coastal risk management strategy.

19. There is an inconsistency across the UK concerning the implementation of SuDS. The Government should undertake an impact assessment to understand the implications of the introduction of measures in England, similar to those in Wales, who have more stringent SuDS requirements.

20. If the evidence is favourable, this must act as a catalyst to fully implement a policy on SuDS under the Floods and Water Management Act 2010 and ensure mandatory installation of sustainable drainage measures in all new builds as a matter of course, regardless of the size of the development.

Planning Policy

21. There is a pressing need to develop more housing to meet existing and growing demand. However, development also needs to be sustainable so that it does not increase local flood risks, if the market is to Transition to affordable risk reflective pricing by 2039.

22. The impact of new housing developments are significant. During 2019, in England alone, 347,000 planning applications were granted; of these, 6,000 were major residential decisions and 39,000 were minor residential decisions.[7] Looking ahead, according to the Local Government Association there are one million unbuilt homes in the pipeline which have planning permission.[8]

23. Despite 99.4% of new homes included in planning applications being determined in line with EA advice, we are aware this may not fully capture the challenges of ensuring development is sustainable and resilient given the EA does not have responsibility for surface water flooding and may not account for development impacts concerning more dense urban areas. There are concerns in the lack of a consistent approach in the planning review process for considering future climate risk, while there is a gap between what is approved and what is actually build.

24. Given these limitations, at a minimum, a joint compliance check by local authorities and the Environment Agency to ensure planning policy guidance is adhered to would provide greater transparency around planning decisions and lead to better outcomes.

25. Current flood risk and coastal change planning practice guidance allows developers to build properties in a flood risk area as long as space is left for flood defence measures to be installed in the future. As a result, there is currently a systematic disconnect between those who financially benefit from a new development – the developers – and those who face the consequences of it not being sustainable or insurable.

26. Government should consider how those who benefit from a new development are held to account for its longer-term insurability, so they will be incentivised to ensure it is insurable.

27. When Flood Re was established in 2016, properties built after 2009 were deliberately excluded from the Scheme to avoid incentivising inappropriate development in areas prone to flooding. Amending the condition now would not only be inconsistent with planning policy and the commitments made by Government in 2008, but create incentives for inappropriate development.

28. Flood Re recognises the strategic challenge posed by climate change to both parts of its founding purpose; promoting the availability and affordability of flood insurance for eligible homes; and managing over its lifetime the transition to an affordable risk reflective market.

29. There is growing recognition generally and in the Insurance industry specifically of the increasing hazard from inland flooding and sea level rises along with greater exposure due to climate change. This, coupled with new property developments, creates particular concerns about increasing risk of surface water flooding. This has the potential to affect insurers’ appetites for flood risk and the global reinsurance markets’ ability to take on these risks.

30. Surface water flooding is highly impacted by drainage and sewer infrastructure owned by water companies. To ensure sufficient water management capacity is maintained with increasing pressure from rising seas and high-intensity rainfall, local authorities and water companies should coordinate as they update and develop existing and future plans. When possible, green infrastructure and sustainable drainage systems should be incorporated to reduce impervious surfaces and increase drainage capacity.

31. In the longer term, the slow pace of climate change adaptation, and increased at-risk development which can impact flooding on existing properties, threaten the ability for Flood Re to exit the market in 2039. It is imperative that Government brings forward strong national adaptation responses to mitigate against a rapid increasing flood risk that will threaten the viability of communities situated in areas at the highest levels of risk.

32. As outlined in our Transition Plan, limiting the risks of flooding requires continued investment in flood risk management, including flood defences. Investment in flood defences will not only help to mitigate the impact of climate change, but are essential to giving those who live in high-risk areas peace of mind that they are protected from the worst effects of flooding.

33. Research commissioned by Flood Re found that £1.1 billion a year of flood damage is prevented by the UK’s current network of river barriers and defences[9], demonstrating why previous investment in flood defences was value for money.

34. The Environment Agency’s Long Term Investment Scenarios[10] highlighted the long-term challenges in relation to future flood management, which is why investment in new flood defences and the maintenance of existing defences demands a long-term approach.

35. Recent Government spending announcements on flood defences are welcome. However, the Government’s commitment to investment in new defences and the maintenance of existing defences must provide more long-term clarity and certainty with funding spanning a rolling 10 or 20 year period. 

36. We believe the proposal from the National Infrastructure Commission on creating a national standard for flood resilience would have significant benefits.

37. While the standards may not be achieved immediately, a phased approach should be adopted, reflecting the assessment of risks in different places. Benefits of adopting such a scheme include;
1. Promoting place-based resilience; enhancing the capacity of people to plan for, better protect, respond to, and recover from flooding and coastal erosion risks. Making better planning and development choices, protecting people and places while responding to and recovering from flooding and coastal erosion.
2. Supporting a thriving economy; offering financial benefits that outweigh costs of implementation, contributing to a more secure economic position.
3. Ensuring a nationally consistent approach to setting standards; avoiding a postcode lottery and reduces regional inequality in flood and coastal expenditure.
4. Empowering local communities; engaging people in places at risk in the process of selecting and applying tools to achieve resilience in their communities (i.e. not one-size fits all). While local places would co-develop the adaption response to manage future flooding, coastal change and climate risks

38. While we understand national standards would not be achieved immediately, a national minimum standard for flood resilience, as proposed by the National Infrastructure Commission, could be beneficial for the Government to adopt.

Recommendations

In summary, Flood Re makes the following recommendations:

1. Government should adopt and promote the Resilience Roundtable Code of Practice.

2. Government should pilot Flood Performance Certificates (FPC).

3. Government should incentivise householders to install PFR using a more rapid, streamlined, and consistent approach of grant making.

4. Government should permit Flood Re’s QQR recommendations for Build Back Better and discounted premiums.

5. Government should ensure mandatory installation of sustainable drainage measures in all new builds as a matter of course, regardless of the size of the development.

6. Government should mandate a joint compliance check by local authorities and the Environment Agency to ensure all planning guidance relating to new developments is adhered to.

7. Government should consider how stakeholders who benefit from a new development are held to account for its longer-term insurability.

8. Government should adopt a national minimum standard for flood resilience as proposed by the National Infrastructure Committee.

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Flood Re Limited, 75 King William Street, London EC4N 7BE

Flood Re Limited is registered in England and Wales (08670444). Flood Re is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and Financial Conduct Authority (FRN 706046)