Entec Bulletin
Insuring Against the Flood
Entec is currently undertaking research into flood risk in housing growth areas for the Association of British Insurers (ABI). We took the opportunity to interview Dr Sebastian Catovsky, Natural Perils Policy Adviser at the ABI, as the government steps up its development plans in areas such as the Thames Gateway.
How does the ABI view the government plans for housing expansion in the south east?
Many of the new homes will be built in flood risk areas, and we're keen to look at the implications of that for the continued availability of insurance for householders. The insurance industry recognises that we do need new homes, especially more affordable housing. The Barker Review suggested that we need to double the rate of house building to stabilise house prices, and the government's view is that most of the homes should go in the south east. We need this kind of development, but we want it to happen sustainably and in recognition of the risks. One of the biggest is flood risk, which is only going to get worse in the future as a result of climate change, so it's important that we act now to build an understanding of flood risk into the planning for these new houses at the earliest stage.
Is there enough consultation between government and the insurance industry in drawing up these plans?
The ABI is seen as a key stakeholder and we're broadly happy with the level of consultation. Our initial guidance on the best ways to build flood risk management into the new developments is being taken seriously by the government. We had quite a big job at the beginning to make them understand that we weren't just trying to stop the development, and we're keen to work with them to make sure the development that goes ahead is as safe and sustainable as possible. In the long run it's in everyone's interest to minimise flood risk: the government, the developer, the homeowner and the insurer. The project we're now undertaking with Entec should also help us take these issues forward with the government, providing robust information on the best options for managing flood risk. One of the challenges is that the work the Environment Agency is doing in the Thames Estuary won't be reported in full until 2009/10. By then a lot of the housing in the initial wave will already be going ahead, so we'd like the Entec research to inform the masterplans for the new development going ahead in coming months.
And how do you see government policy developing on flood risk?
The planning decisions we make today will determine the resilience of our infrastructure in the future. Issues in the growth areas are representative of a bigger issue of the pressure on land in the UK. The government is now reviewing its planning policy on flood risk (PPG25), which moved us forward significantly in 2001 by curtailing some of the inappropriate flood plain development. You'll always have development on the flood plain, but our view is that the policy could be stronger. London and the Thames Gateway are defended to a very high standard, but the kind of flood risk they're exposed to is potentially catastrophic. Insurers now need to show they have enough capital or re-insurance to cover any policy they underwrite. So we're very keen that the planning policy takes account not just of the probability of a flood, but also the consequences should one occur. That's an important message which I think is slowly being taken on board.
Are there signs that developers are beginning to take insurance on board as a concern now when they're planning new developments?
Hard to say, but certainly over the last couple of years the number of developments that have gone ahead despite Environment Agency objections has reduced from about 35% to about 20%. That has stabilised now, but it's still too high. We've started writing to local councils that are considering large developments where the EA has objected, to make it clear to them that if the development does go ahead it may be hard for householders to get insurance, and therefore mortgages.
And how is the insurance industry reacting?
Flood risk is an increasingly important factor in underwriting and pricing, with more sophisticated methods of assessment including GIS (Geographical Information Systems) based tools to pinpoint the risk for particular locations. Insurers are fundamentally quite comfortable with risk: what they don't like is uncertainty.
Boscastle is the kind of event that insurance is there for: an unexpected and localised random event that could have affected any of the villages in the area. But if you have a house which is liable to flood regularly, insurance just isn't the right vehicle, because the cost of the premium is going to be close to the cost of reinstatement.
We're very keen on greater transparency on flood risk, and we're also pushing for detailed flood risk information to be included in the new Home Information Pack (anyone selling a house will need to have one in future). Interestingly in Norway, if a local authority approves a development, and the development then floods, the insurers will take legal action against the local authority to retrieve their costs.
So what does the future hold?
Overall, I think we are moving in the right direction. The agreement that the insurance industry now has with the government provides reassurance on the continued availability of flood cover for the vast majority of households in this country, while setting out clear actions for the government in terms of effectively managing the risk. If we take action to prepare for the impacts of climate change, and don't make the situation worse by allowing inappropriate development in the floodplain, there's no reason why flood insurance shouldn't remain readily available and competitively priced for the foreseeable future.
The Association of British Insurers is the trade association
for the UK's insurance industry.
Visit www.abi.org.uk/flooding for further information and useful
links relating to flooding and insurance issues.
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