Assessing the flood review

Last week, Sir Michael Pitt published his eagerly anticipated review into the catastrophic floods of last summer. The report called for urgent and fundamental changes in the way the country is adapting to the increased risk of flooding. It called on the government to set out publicly how it will make rapid progress on improving the country's flood resilience.

Many, including the ABI, have stressed that the report’s findings be used as a catalyst for instigating change, including legislation.

The report, which contains over 92 recommendations, adds some desperately needed clarity to the murky issue of responsibility for dealing with flooding intelligence, flood defences and future events. It also gives the insurance industry something it is not used to: praise.

Insurers were braced for criticism for the 4,000 homes that remain uninhabitable, but instead Pitt assigns the blame to the construction industry, calling for changes to building regulations – albeit not until 2010.

Equally vindicating for insurers is the U-turn of former home secretary David Blunkett, who previously blasted the industry for its handling of the crisis. Speaking to Insurance Times, Blunkett, MP for the flood ravaged Sheffield Brightside, admitted that his criticisms of the industry over its paying of claims may have been a little premature.

“The insurance industry has come out of the review a lot better than it went into it. But there are big challenges. I wouldn’t want the insurance industry simply to pat itself on the back. Let one or two of us who were critical do a bit of patting,” he said.

The report will be music to the industry’s ears, but amid the fanfare some key issues remain unresolved. With only 80% of Pitt’s recommendations capable of being undertaken within the current budget, the implication is that insurers, like all stakeholders, will have to pay for their role in flood risk management. This will inevitably impact premiums, Pitt says.

Though the review praised the insurance industry at large, it noted that there were many insurers that did not perform well. Unsurprisingly, the review found that the stress of dealing with insurance companies added to people’s discomfort. Pitt describes the 22% of claimants that were unhappy with their insurers as a small but significant number.

RSA property insurance manager Alan Gairns also expresses concerns that the report is too focused on future events, and does not adequately address the key issue of minimising the significant risk of flooding now for half a million households.

“Under current government spending plans only 45,000 of these 517,000 households will benefit from increased protection over the next three years,” Gairns says.

“In light of the fact that the risk of serious flooding is only going to increase in future, we believe that it is essential that the government’s long term investment strategy addresses the key issue of additional investment in flood management.”

Ahead of the ABI’s potential revision next month of its Statement of Principles – an agreement between the industry and government that insurers will continue to provide flood cover for existing flood-risk properties provided the government continues to increase its investment in flood management – there will be some heated discussions taking place behind closed doors.

Pitt says the government’s funding plan for flood defence spending of £800m by 2010-2011 is a good step, but adds that due to the impact of climate change, the government should plan funding based on above inflation rate settlements in future spending reviews.

Other commentators, including Mark Taylor, general manager of Homeserve Chem-Dry, have questioned the report’s focus on a national as opposed to local flood management strategy, and say it has failed to tackle the crucial issue of managing a stretched supply chain.

“We don’t believe Pitt adequately recognises the importance of local strategies over a national plan to oversee all flood risk,” Taylor says.

The issue of poor drainage, which caused around three quarters of last year’s floods, has been passed into the hands of local authorities which, with the help of the Environment Agency, will draw up detailed drainage maps of their constituencies. But because of its complexity, drainage, says Gairns, will prove a tough nut to crack.

The review, despite its positive assessment of insurers, concluded there were a number of areas where they can make their mark. This includes making policyholders understand flood risk so that their expectations can be better managed.

David Williams, claims director at AXA, welcomes the opportunity to help educate the public in order to mitigate against future flooding.

He says: “We would be very keen to help formulate voluntary guidance to cover reasonable expectations of service performance from insurers.”

Steve Langan, managing director at Hiscox UK, adds: “Homeowners in at-risk areas need more education about what to expect from their insurer should the worst happen.

“Homeowners need to think beyond price and scrutinise the service they are entitled to in the event of a crisis of this nature. And the insurance industry needs to consider carefully how it markets itself, so that homeowners are able to make a more informed choice.”