UK flood claim and counter-claim

The threatened showdown has been as a result of the UK’s worst floods in over 60 years in June and July 2007. They cost over £3 billion in insured claims – the largest catastrophe loss in the United Kingdom ever. Indeed, the Association of British Insurers (ABI) has said that insurers are threatening to withdraw flood cover for domestic and commercial property unless Parliament proves that it is going to improve flood defences, tighten planning rules on flood plains and improve flood risk management.

Some action has been taken: The Parliamentary Comittee on the Environment, Food and Rural Affairs has listened to days of evidence on the summer floods. The committee plans to publish a report shortly which is designed to assist an independent inquiry set up under Sir Michael Pitt, chair of the South West Strategic Health Authority.

Sir Michael has made 15 immediate recommendations in his preliminary review of the causes and consequences of flood which was published in December 2007. He will be calling for implementation of these recommendations and more changes for England and Wales in his final report in June 2008.

The Scottish Parliament has published a consultation document, The Future of Flood Risk Management in Scotland, and will introduce a flooding bill to simplify and improve flood management in Scotland sometime this year.

But if summer 2008 is as wet as 2007, it is unclear whether words can be turned into action in time to help prevent flooding of homes and businesses. “I think the overriding issue as far as we are concerned is preparedness,” said Sir Michael Pitt to the House of Commons committee in January. “The floods which took place during the summer of last year, as we all know, were unprecedented. We think that the emergency services, the local resilience forums and other organisations were stretched to the absolute limit, if not beyond.”

The object of the first report of the Pitt Review, said Sir Michael, had been “to ensure that the country both nationally and locally is much better prepared for this degree of flooding, which we suspect will be happening again at some stage in the future.”

In particular, he called on everyone to recalibrate their risk registers and treat flooding as they would a terrorist risk or a flu pandemic. “We think flooding should have a higher status in those risk registers,” he said. “So we are inviting central government and local organisations to review their risk registers in the light of the lessons learned from last year.”

ABI also wants action

The ABI also wants the UK government to prepare a long term flood management plan. It says that otherwise, insurers will consider pulling the agreement to insure flood for all existing property policies. The insurers have been calling for government action for seven years since the major flooding losses in the southeast of England in 2000. According to an ABI spokesman, those floods exposed a few issues:

• Flood defences were inadequate because of years of under-investment.

• There was a chronic lack of coordination between the organisations involved.

• The action taken to recover from a large scale flood was too slow. Because the government pledged to do more, the ABI made a commitment to provide flood insurance to 2 million existing domestic and commercial properties, as long as there were adequate flood defences in place. In January, 2002, this pledge was incorporated into an ABI document known as The Statement of Principles on Flooding.

“Since then, we feel that the government has not nearly done enough, particularly in the light of the summer 2007 floods,” said the ABI spokesman. The ABI is particularly concerned with issues such as the limited investment by the government in flood defences, inadequate and poorly maintained drainage systems, and the lack of tight planning controls. It would like to see a long term – possibly 25 year –flood strategy from the government rather than one that coincides with the threeyear pending review.

Such a strategy would take into account the likely the long term flood risk, including climate change. A more coordinated approach to flood risk between various government agencies, is another ABI objective, with the Environment Agency given the overall task of coordinating the flood strategy.

“We also need to see a thorough reassessment of the flood risk. What are the risks of flooding caused, for example, by drainage? That has never been assessed,” said the ABI spokesman. “Some drainage in the United Kingdom goes back to Victorian times and has not been upgraded since then. If you assess the flood risk, then you can develop an investment programme to meet that over the long term.”

The ABI also wants planning controls to be tightened, even though they were reviewed 18 months ago. Planning is a particularly tricky area for the UK government because it wants 3 million new homes built by 2020, a third of which would be on flood plains ABI members are threatening not to insure these properties.

“Planning controls have been tightened up in recent years, but there are still too many developments being built in areas of high risk of flooding without adequate flood defences, despite the fact that the Environment Agency is now a part of the planning consultation process,” said the ABI spokesman. “Since 2005, fifteen developments have gone ahead against Environment Agency recommendations in flood risk areas. That is obviously a problem in the future because our Statement of Principles only applies to existing customers. Insurers are under no obligation to offer flood insurance to new customers. So more people moving into their new homes with an increased flood risk may find it very difficult to buy flood insurance.”

The ABI also plans to review its Statement of Principles in April to see if it is still viable to offer flood insurance to existing customers. If the government does not improve its flood management plans to the satisfaction of insurers, the ABI could withdraw the statement and allow insurers to exclude flood on all property policies.

However, insurers want to continue to offer flood insurance in the United Kingdom despite the rising flood risk. The ABI spokesman added. “There is no appetite to stop underwriting flood risk and give it to the government as we did with Pool Re for terrorist cover in the early 1980s when there was no insurance capacity for terrorist risks.”

The ABI plans to hold fire until the second report of the Pitt Review is published in June before a final decision is made.

Government perspective

The government, however, has not been impressed with the ABI’s criticism. During the Parliamentary committee inquiry on flooding, environment minister Phil Woolas noted that in June 2007, the ABI demanded that £750 million be allocated on flood defences and, in fact, his department had been allocated £800 million. “I think that shows that our ambition was right,” he said.

Mr. Woolas explained to the committee that £308 million has been allocated this year for capital expenditure for flood precautions, of which £34 million was to implement the 15 urgent recommendations from Sir Michael Pitt’s initial report.

Since the floods last summer some action has been taken, said Mr. Woolas. Work, previously decided, had been done to improve defences and pilot programmes were being carried out to improve surface water flooding which had been a big problem last summer, according to the minister.

Mr. Woolas said that his department has a 25- year flood strategy and will be producing a national flood plan, which will include a framework plan and a flood defence plan “that involves not just coastal and river flooding but the whole of the surface.” In addition, the Environment Agency will be rolling out pilot programmes for urban drainage, he said.

More opportunities for insurers

Aside from lobbying, the UK insurance industry could actually help reduce flood losses in other ways, according to flood management expert Professor David Crichton, visiting professor at Benfield UCL Hazard Research Centre at University College, London. The domestic insurance industry, he said in his December 2007 paper for the Chartered Insurance Institute, The Future of Flood Risk Management in the United Kingdom, could:

• Use its risk management skills to help planners, architects, utilities and other sectors to manage flood risks.

• Go to court to recover claims payments from the authorities, thus providing them with an incentive to manage flood risks better.

• Help local planners to avoid building in flood hazard areas.

Professor Crichton disagrees with the ABI that more needs to be spent on permanent concrete flood defences, because he believes that they are pointless. He believes that there are other options to consider, such as abandoning homes which are constantly flooded; using moveable temporary flood defences or restructuring homes and commercial buildings so that the ground floors are used for car parking and can be vacated in a flood.

According to Professor Crichton, the UK government should turn for an example to the Scottish Parliament, whose flood management, he says, is probably the best in the world. In February 2008, the Scottish Government published The Future of Flood Risk Management in Scotland, a consultation document on its proposals to update legislation and make the process for protecting at-risk areas quicker and simpler.

The consultation on proposals for the Scottish flooding legislation will run until April 23, and the Scottish government plans to introduce a draft bill later this year.