1.  INTRODUCTION

  1.1  The Association of British Insurers (ABI) is the trade association for insurance companies and represents virtually the whole of the UK insurance company market.

  1.2  There are around 450 insurance companies in membership who, between them, transact over 96 per cent of the business of UK insurance companies. ABI represents them to Government, Parliament, Civil Servants, regulatory bodies and to a host of other organisations including some in the European Union.

  1.3  The Association provides members with a wide range of information and technical and statistical services. ABI's close contacts with the media and consumer bodies enable it to promote insurance generally, keeping the public well informed on market developments.

  1.4  The members of the Association provide flood insurance cover under the vast majority of household contents and buildings policies and, where required, for commercial and business premises. Their exposure to potential flood events, both coastal and riverine, is very considerable. For this reason, the ABI has undertaken research to help establish the extent and degree of these risks, with the primary aim of helping to ensure that flood defence strategy responds adequately. In undertaking this work, the Association has liaised closely with the Environment Agency (EA) and MAFF.

  1.5  While the Association is content that real progress has been made and continues to be made by the EA, complacency needs to be avoided at all costs. It is clear that increasingly variable and volatile weather, as well as climate change, has already had, and will continue to have, a significant impact on flood risks. For this reason, the EA should, ideally, be focussed on delivering a holistic strategy which balances contingency planning, emergency response, planning control and hard defences.

  1.6  The comments that follow in Sections 2 and 3 of this submission seek respectively to provide objective comments on the work of the EA to date and how its activities might be better focussed in future. The Association can only comment objectively on its own experience of working with the EA in recent years which is almost exclusively in the area of flood defence and management.

2.  THE ENVIRONMENT AGENCY'S CURRENT WORK

  2.1  When the Association decided to undertake flood research work originally, around five years ago, there was very little direct contact between EA and insurers. Since then, the picture has changed markedly. Regular meetings are held between the two parties and very positive efforts are made to work collaboratively. While the Association was, initially, the primary driver, the liaison has developed to the point where it is on an equal footing. The EA is now taking ABI's research into account in its defence work prioritisation and consulting the Association on technical and policy issues. The positive approach of EA has enabled insurers to establish a fair degree of confidence that the EA is tackling matters in a positive and generally effective way. It has also helped in establishing a far better understanding of the real risks posed with the result that, currently at least, the insurance industry can continue to provide cover on a very wide basis.

  2.2  In our dealings with EA staff we have found them to be professional, competent and open minded. Those we have met, including Bryan Utteridge, Brian Empson and Ron Watson from Head Office and a number of Regional Managers, including John Fitzsimons, appear also to be dedicated and hard working. The staff appear to have responded exceptionally to the challenges resulting directly from the impact and change which is being driven by the Easter floods and the Bye and Horner report. This is despite what appears to be a lack of adequate resource which has meant that individuals have been under severe pressure to deliver.

  2.3  We cannot comment on the performance of EA staff more generally as we have no day to day exposure and are not aware of target performance levels.

  2.4  In summary, the EA has developed a good relationship with the insurance industry on the issue of flood. In our exposure to EA staff they are providing an excellent and fruitful channel of communication which has helped in the delivery of sound policy.

3.  AREAS FOR FUTURE ATTENTION

  3.1  The contact we have with the Environment Agency has focussed on flood issues rather than the wider problem of environmental pollution. The comments that follow are, therefore, concentrated in the former area.

Flood Warning

  3.2  Some of the criticisms of the EA highlighted by the Bye and Horner report, while justified, should be seen in the context that the flood warning scheme is relatively new and lessons are still being learned. The new flood warning centre is a step in the right direction but it will be important for the output of this resource to be put to effective use. We also welcome the recent publication of EA's "Flood Warning Service Strategy".

  3.3  The telephone warning system has many good points but only reaches a limited number of people ie those who have registered with the EA. There is, we believe, some anecdotal evidence that some members of the public are asking to be removed from the flood warning scheme because of the number of false alarms. We do not know how widespread this is, but if it is common, it must be of some concern. In the USA, they still have a system of sirens in potentially hazardous areas, combined with announcements of details on radio and TV. This has the advantage of automatically reaching a wider population, not just those who have registered. There may well be practical difficulties with such systems in the UK and, no doubt, all options were considered. Clearly, though, the system needs to be kept under constant review until the ideal balance between cost and effectiveness is achieved.

The public appears often to be concerned about housing blight and insurance ramifications of being in a flood warning area. More needs to be done to ensure that this does not militate against the system as a whole. The insurance industry would be prepared to play its part here in liaison with EA. It will be a matter for discussion at the next scheduled liaison meeting.

Education

  3.4  We believe there is more scope for educating the public about what to do in the event of flood. The ABI believes it can help in this area. Discussions have already taken place with EA and other stakeholders with a view to producing an "after the event" flood leaflet designed to give on-the-spot information when its needed. Clearly, the shortly to be announced Flood Awareness Campaign by the EA should also help and is being supported by ABI.

Planning

  3.5  The EA/Local Government Agency Flood Defence Technical Protocol of August 1998 seeks to encourage local authorities to take flood hazard into account in planning decisions. DETR are currently reviewing the circular on these issues (DoE 30/92) and ABI have given Dr David Brook of DETR details of the Scottish National Planning Policy Guideline Number 7 which was drafted with the assistance of the ABI and which recommends that local authorities consult with the insurance industry through "Flood Appraisal Groups". The ABI has strongly supported this successful initiative in Scotland and we believe that the EA should support similar guidelines being introduced for England and Wales.

Regional Flood Defence Committees (RFDC's)

  3.6  The majority of the EA's flood defence functions are the responsibility of RFDC's which include Councillors nominated by local authorities and members appointed by MAFF, Welsh Office and the EA. Mrs Jean Venables (Chair of Thames RFDC) has produced an excellent paper (MAFF Conference, August 1998) on ways in which the funding of flood defences could be reformed. We understand that some 600 organisations are involved in flood defence issues in England and Wales. The 1953 floods cost 10 per cent of GDP and we currently spend £400 million per year on flood defence which avoids some £2 billion losses a year on average. Work by Halcrow for ABI shows that 60 per cent of coastal defences could fail if subjected to a 50 year event, leading to potentially catastrophic losses.

  3.7  For these reasons, the EA should review the way in which flood defence priorities are assessed and the amount of resource allocated to flood defence maintenance and development with a view to achieving a balance with other important activities including contingency planning, emergency responses and planning control. ABI would wish to be involved in such a review. As an important stakeholder, ABI would like the EA to consider revising the representation rules to RFDC's so that ABI, itself, can be represented.

Flood Maps

  3.8  ABI welcomes the indicative flood plain maps and would encourage the completion of Section 105 maps but not at the expense of more immediate issues. We also welcome the LiDAR maps and emphasise their importance.

  In this respect, it may be of interest that two research projects are currently being funded by the insurance industry. These are:

(i)  by ENTEC to review the quality and resolution of data currently or shortly to be available in respect of riverine flooding; and

(ii)  the TSUNAMI funded project on the implications for insurers of higher resolution flood mapping data.

  Both these projects will help ABI in setting future policy on flood issues. The ABI research is continuing because the industry remains concerned about the implications for the industry of major coastal floods and more regular and widespread riverine floods. There may be issues of availability and affordability in the future if EA is not given more power and more resources to deal with the future threats.

Vulnerability

  3.9  Research and dialogue is needed to make future buildings more resilient to flood damage. ABI would welcome involvement with EA, Government and BRE on issues such as more resilient reinstatement after a flood, for example, replacing a floor with a raised floor, use of more flood proof building materials etc.

Climate Change

  3.10  Climate change, combined with increased weather variability and volatility, will introduce greater uncertainty about future flood return periods. The Treasury should recognise this uncertainty and provide additional funding to enable greater freeboard to be built into defences. EA should also encourage MAFF to build in this uncertainty in its funding allocations.

Funding/Economics

  3.11  It is clear that the EA needs to be adequately funded to carry out its important work. It also needs to maintain a level of expertise consistent with the threats to life and property and the UK economy in general. Many more projects could, potentially, be undertaken if the funding were available. While it is appreciated that funding has to be justified on a cost benefit basis, the current tables of costs of flooding are well out of date and significantly understate the true costs. The ABI has supported the establishment of a National Flood Claims Database to which some 25 major insurers have contributed flood claims data. This database has detailed costings of seven major flood events from Perth 1993 to Midlands 1998 and these show that floods actually cost around 2.5 times the costs indicated in the tables used by Government. The insurance tables were published in July 1999 at the MAFF Conference. ABI want Government to be aware of these tables and call for Government to take these data into account in future revisions of flood loss tables for cost benefit appraisal purposes.

  3.12  The current cost benefit analysis does not take into account such items as the cost of the emergency services if there is a flood, subsequent pollution caused by a flood and, not least, the suffering caused to individuals. We understand that MAFF are assessing a potentially wider scope for the cost benefit analysis in an effort to create a more balanced formula which may justify a wider range of schemes in areas under threat. ABI would support such an approach but consider that a fully independent review might be needed to achieve the optimum criteria. The EA may wish to encourage this approach.

Consumer Organisations

  3.13  Many people assume that existing defences give full protection which they do not. There needs to be greater awareness generally of the hazard as discussed earlier in paragraph 3.4 and consumer bodies may have a role here in liaison with EA and others.

ABI Role

  3.14  Because flood insurance is widely available at a reasonable cost, the Government has not been under pressure as a result of public concern. The Government needs to be aware that the current situation is changing and could be materially affected by:

—  climate change increasing the hazard;

—  a long period of underdfunding of sea and river defences;

—  continued development in flood plain areas, often against the advice of the EA;

—  much higher quality, higher resolution flood mapping data becoming available;

—  increasing concern on the part of insurers about increasing flood exposure due to the above; plus

—  greater wealth and more people living in flat coastal areas.

  3.15  The UK is the only country in the world where flood insurance is widely available to all householders without Government support. This may not be sustainable indefinitely unless the EA is given the support it needs for flood defence, flood warning and contingency programmes and more power to influence development in high flood hazard areas.

Environmental

  3.16  As mentioned, the focus of this submission relates to flood issues. However, environmental liability is also a major concern for insurers. In its response to the EA on environmental issues, the ABI experience of working with EA on the Joint Pollution Working Group was useful and productive. In addition, the ABI would like to see specific dialogue with EA on the clean up aspects of implementing the Environment Act in the UK.

October 1999