Strategy for the flood plain

The panel
Andy Holt, Insurance Times (chair)

Paul Emptage, Royal & SunAlliance

Alan Gairns, Royal & SunAlliance

Neil Cook, Delite Insurance

David Murphy, Environment Agency

Jane Milne, ABI

Ron Whitehead, Flood Protection Association

Mary Dhonau, Flood Forum

Maureen Messer, Lewes Flood Action

Colin Gavin, Crawford and Co

David Meur, Genavco Insurance and chair of the Biba property committee

Chair: Jane Milne of the ABI will start by giving us an insight into the recent ABI study, Coastal Flood Risk: Thinking for Tomorrow, Acting Today.

Jane Milne: Using insurance-catastrophe models, we showed that the number of properties likely to be affected in a 1953-type storm surge would increase by 50% by the time we have a 0.4 metre sea level rise. That is something that could happen as early as the 2040s. We could be faced with 750,000 people being made homeless overnight, as well as major infrastructure damage with around 20% of fire and ambulance stations, schools and hospitals being affected.

The ability of the whole community to respond to the disaster would be severely impeded. It would make Carlisle look like just a small dress rehearsal. This flagged up the need to take urgent action. With one of those storms costing around £15bn-£16bn, we could spend £8bn on improving coastal flood defences to bring those risks back to where they are today. Today, 280,000 properties are at risk, so that in itself will be a big challenge for the industry and government. Climate change will take it to a different order of magnitude.

Chair: There are cost implications.

David Murphy: Absolutely. Clearly flood risk from the sea is a big issue in the UK and we are spending a lot of money on maintaining the sea defences right round the coast. There are issues over longer-term funding that need to be resolved and we welcome the report from the ABI, because it does help to raise the profile of the long-term funding that is needed to manage the risk.

Chair: Is the Environment Agency doing enough to deal with this issue?

Murphy: There is always more that can be done. We are focusing our resources on those areas that have the greatest need and we are targeting our investment accordingly. Clearly, coastal defences are taking a large share of our funding.

Chair: There was a problem with the Department for Environment, Food and Rural Affairs' (Defra) overspend.

Murphy: Yes, we have had to give back funding that had been allocated to us. We are looking hard at our work programme both for this financial year and the next one.

Milne: It is worrying that yesterday Defra's permanent secretary told the select committee that more cuts were coming.

David Meur: Insurance brokers represent private individuals in connection with their need to purchase household buildings and content insurance. Potentially 50,000 small businesses are at risk. Biba has concerns for these clients in terms of the affordability of insurance going forward and how we can help them plan their flood resilience, which will be a big education programme. There is a lot that the insurance industry, particularly through brokers, can do in terms of preparing their clients and that is all part of the adaptation and mitigation message that is coming through because climate change and coastal flooding are almost a given. We support entirely the ABI approach to the government.

Chair: The availability of insurance in these areas then comes under question.

Alan Gairns: We want to be able to provide insurance to as many people and businesses as possible, but it is dependent on the flood risk being kept to a manageable level. The disconnect is between the available funding and the risk that insurers face. When that risk becomes too big, it puts pressure on the availability of cover.

The statement of principles has worked exceptionally well, and Royal & SunAlliance has gone further. For the middle group that is unprotected, but will be protected in the next five years, we have restricted our cover for existing customers to those people who are getting facilities built. It is continually a balance between the risk that we face and the funding needed to improve defences going forward.

Ron Whitehead: There has to be a wider approach to mitigating the consequences of flooding. Civil solutions and property-based solutions are both appropriate. There are a number of issues that still are not on the agenda but need to be addressed, such as grant schemes to encourage individuals to provide self-help and whether temporary demountables are tried and tested. There are a lot of kite-marked systems out there that could be used more cost effectively.

Colin Gavin: Carlisle was unique to some extent because it was so isolated. We saw no real evidence of the protection of property by individuals, and they were surprised because Carlisle had not been flooded since the 1950s. Even now, there seems to be very little knowledge of what people could be doing to help themselves.

Maureen Messer: In Lewes, we have partial flood defences, but we now have a proposal for building upwards of 1,000 homes on the flood plain. Defra says that it has no more money, but the Environment Agency says that we need coastal flood defences. '

' There are a lot of people who were flooded who do not believe a word that anyone says. Where do we get these flood defences? It is not working.

Murphy: To propose 1,000 new homes in the flood plain of a place like Lewes is crazy. We need a stronger planning system to ensure that a risk-based approach is taken to future developments so that they are steered away from flood plains. We hope that the new government planning policy statement on development and flood risk will start to strengthen some of the spatial-planning system to avoid this flood risk.

Messer: I have spoken to a fairly senior planning officer, who said that PPS25 [suggestions for a greater level of powers for the Environment Agency within the planning process] is already being weakened.

Murphy: There are some discussions in government about what the final policy statement will look like. We understand that it will be published fairly soon.

Gairns: The agency now has its statutory consultee status, which we hope will help because it brings in the experts. We are certainly expecting that to be a big step forward, although I do not know whether you will be able to revisit decisions in places like Lewes. Does it just mean that you will start to look at new developments?

Murphy: We welcome the statutory consultee status. Previously, we were not consulted on applications or proposed developments in flood plains. We will now be able to provide advice to planning authorities about flood risk so they can take it into account.

Gairns: One consideration should be whether they can build at all.

Paul Emptage: It is not always the new builds that are flooded. There are other properties that might not have been flooded in decades, or at all, further down the topography of the landscape. I do not know how far the risk factor extends.

Murphy: We are already managing a huge risk in terms of properties, people, environments and financial assets. Some £237bn of assets and 2.3 million people are at risk. We have to manage that, but at the same time we have to make sure that it is not getting worse through inappropriate planning decisions. With the statutory consultee status and the introduction of PPS25, we are able to ensure that the planning authorities and the developers are undertaking flood-risk assessments associated with their developments.

Dhonau: Flooding is not just fluvial flooding; it is alluvial flooding and sewage flooding. On average, 7,000 properties a year flood internally from raw sewage.

Milne: That is a challenge because unlike coastal and river flooding, we do not have a map with the problems.

Murphy: We have a programme in place for the strategic assessment of flood risk across wide areas, and these catchment flood management plans get all the parties together to look at the risks and the issues in that large area.

Neil Cook: Could something be done with IPT or even the insurers to put together a fund? Ultimately, they pay out in claims, so why not set up a pot of money for the Environment Agency to get the work done?

Milne: The deal that we have clearly had with the government since the 1960s, which we have reinforced in the statement of principles, is that insurance is there as a risk-transfer mechanism. It is for the government to manage the risk and put the investment in.

Cook: The money will come from us as taxpayers. Could another insurance levy be put on, perhaps 6% IPT in the areas that could flood?

Milne: Half of all households on the lowest incomes are already not able to afford insurance, so I do not think that we should be loading premiums.

Gairns: Instead of IPT, I would rather it were taxpayers generally. Insurance has a difficult time with some sections of the public, who feel that insurers do not pay out. To start putting a levy on insurance premiums to pay for this would cast an even greater stigma on insurance. Where do you draw the line? Do you bring in crime or subsidence issues?

Meur: We have always argued that there should not be a tax on buying protection. In the insurance business, we prefer to lobby for a reduction in IPT rather than an increase.

Whitehead: We have done pilot schemes with a number of insurers that have offered a discount if certain mitigation measures are undertaken. It was received very badly and no one did anything, which is our general experience of the vast majority of people and even those who have been flooded. They blame everybody else, but they are the property owners and they do not take on the responsibility. That has to be laid at the insurers' door because they have picked up the tab relentlessly and not charged the right price for the risk.

Gairns: There is still some adjustment that has to be made to premiums because people in flood-risk areas are not paying a lot more than they used to. From our own perspective, some of those premiums can be sizeable.

Dhonau: The biggest fear is insurance blight, because people do not have a saleable item if their home is not insurable. They think that if they make their home flood resilient, they are flagging their home up as being at risk of flooding. However, they can show that they have taken mitigation measures and say their home is still insurable. I also have a lot of calls from people buying a house at risk of flooding and they cannot get insurance.

Cook: I heard once that there had been a gentlemen's agreement by all the insurers that if someone suffered subsidence, the policy would be transferable. Of course, it was just something to pacify the public. But I have insurers that will talk to me if someone is flooded so that I can guarantee that the policy is transferable.

Meur: We are talking about the need for education, self-help or maybe even providing grants, but this should be part of the overall equation that includes a responsibility on the part of the government to play its part and maintain and further improve sea defences.

Dhonau: It has to be a two-way partnership. The government has to deliver the goods; it cannot remove millions of pounds from the Environment Agency's budget and expect it to deliver. The worst-case scenario at the moment is asset maintenance. People are sat safely behind flood defences, but the Defra cuts mean that they cannot be maintained. Come a terrible flood, could they fail?

Murphy: The government is taking flooding and environmental issues very seriously, and the spending review highlighted the challenges with climate change. There are a number of longer-term initiatives that flood risk is taking in particular locations over 50-100 years. Defences are required in some locations, but in others defences are not a solution because we cannot continue to build them higher and higher. We have to make sure that properties are not built in areas that will be flooded in the future. We also have to look at opportunities to move properties out of the flood plain.

Milne: Improving flood defences would only fix the issue for a while before it comes back again. We are not going to move London - 75% of the world's most economically important cities face exactly this problem.

Whitehead: We suggested to some of the insurers involved in Carlisle that it would be a good idea if a flood-risk assessment was done as part of the process of determining the right way of minimising the consequences of future flooding.

Milne: We heard some reassuring words from David Miliband at the ABI's recent conference. He said that he was committed to honouring the government's side of the bargain. Our concern is that the government's view of honouring it is just maintaining the expenditure where it is now rather than stepping it up to where it needs to be. We are happy to have conversations with the government about other sources of funding for these sorts of things, particularly some of the really big schemes like the Humber estuary or the Thames estuary, using PFI and those sorts of means of funding. It does not have to be the taxpayer directly coming up with the capital spend.

Murphy: The government is looking at alternative sources of funding the flood-risk management and is looking at options that have a closer levy on those that have benefited directly from flood-risk management activities. There is a long way to go with the debate, but PFI is certainly used.

Chair: Can insurance companies create a pool of cash to help communities?

Gairns: We are the only European country where insurers pick up the tab in that way, without it being a state-funded mechanism.

Chair: Could the ABI push for a Pool Re scenario for flood risk? '

' Milne: The French are trying to take theirs apart at the moment because it is costing the government too much, so the answer is to manage the risk properly in the first place rather than finding another way to fund the damage when it is done.

Gairns: I suspect a Flood Re would cost them a lot more than the Pool Re, because floods are much more likely than terrorism.

Milne: I am not saying that it would not be where we would get to in the end, but we would regard that as a failure. It would have to be something that we resorted to because the more sensible approach did not prevail. The ABI's work with MPs following the launch of the report has secured a debate tomorrow morning on coastal-flood risk, so there is a degree of interest.

We have to keep the pressure up. It is now very clearly on the agenda for the comprehensive spending review, but we are being told that it is competing with programmes on school and hospital building. What is the point in building a hospital in a place where it will be flooded?

Murphy: A hospital is a part of the essential infrastructure that a community needs. The problem is that if the whole community is built in a flood-risk area, then the hospital needs to serve that community.

Dhonau: Carlisle is a case in point. The fire brigade, the police force and the civic centre were all flooded, so the places that would have managed the flood were taken out.

Whitehead: In Carlisle, the buildings were designed to be a metre above the previously worst known flood, as advised by the Environment Agency. Some sub-stations have now been protected, but they are the only substations in the country that have been flood proofed as far as I am aware. Thousands more are at risk. New Orleans is a prime example of where a lot of the safeguards failed; the power went down and so the pumps were not able to work.

Cook: The ABI has information that it is willing to give out free of charge, which I am sure is better than what you can buy. The exchange of information is where a partnership could work.

Meur: We just have to remember that the past is not a real guide to the future, which is why this is a different sort of threat from most other insurance-risk threats.

Chair: Do you see that with all these negative scenarios going forward, you might one day get to the situation where you might not be able to insure some properties?

Gairns: That is potentially the worst-case scenario. Obviously there are a lot of different scenarios around the impact of global warming, and the 12-month contract will allow us to revisit the risk to understand what might happen going forward.

Murphy: We are working in a number of areas. We cannot prevent flooding altogether. We know that climate change is going to get worse, so we cannot protect everyone. We accept that flood defences are not going to be the single solution. It is about a package of measures, and flood defences are certainly very expensive. If we go down that route everywhere, we will not have enough money to reduce risk in other locations. The key element is planning. You have to undertake a flood-risk assessment so you understand the sources of the flooding and how much lead time you will have.

Whitehead: There are other measures that can be taken on a property basis. You do not need the lead time, so you can deploy them within a couple of minutes of a flash flood. It is a question of doing the risk assessment and having the right types of solution available.

Chair: What are everyone's final thoughts on how the industry can move forward?

Meur: The insurance industry has to engage in an education exercise. It will always be easier with businesses than private individuals, but it has to be supported by the government playing its part and accepting responsibility.

Gairns: It is about partnership and providing cover to as many people as possible. We are lobbying very heavily just now to try to get the spending increased in the next spending review.

Cook: We have a lot of resources within the insurance industry that we virtually give away. With government backing, it would not seem that the evil insurance person was charging customers money for nothing. It has to be proved that we are not just taking money out of people's pockets.

Gavin: We have to insist that people help themselves. Some people could be given assistance in terms of how they achieve that.

Emptage: There is a need for joined-up thinking about mitigation. If we accept climate change as a fait accompli, we have to mitigate its impact on our industry.

Messer: I would like insurance companies to be involved when plans are proposed on flood plains. If people are thinking of buying homes on flood plains, how do they know that they can get insurance?

Dhonau: Awareness: find out if you are at risk of flooding. If you are, do something about it so you have a plan of action as if you were thinking about a fire. Help yourself. If people do take steps to help themselves, then insurers should treat them sympathetically and maintain cover. Most importantly, the government has to give people grants to enable them to do that while also really investing in flood defences.

Whitehead: I would like to see a more aggressive awareness campaign that really portrays the trauma and real consequences of flooding. Joined-up thinking is essential if we are going to have an overall policy that deals with the planning and the building process to ensure that the risks are minimised. There is a whole range of different solutions. At the moment, a large part of that is excluded from the equation.

Milne: The statement of principles clearly sets out the partnerships that we have signed up to with the government. Insurers are putting more of their capital at risk in delivering that and are paying claims when the events arise. We now need to see real action across the board by government. There has been significant progress, but the problem is growing and the action to manage it needs to be increased accordingly.

Murphy: We welcome the close working relationship with the ABI. Going forward, there is a real opportunity to work closer with the insurance industry, particularly in education. We are both organisations in the business of managing risk and we can develop more imaginative ways to help people both manage and live with flood risk.

Chair: We need more joined-up thinking, more talking and more action. IT