Flood warning

If we are to believe the doomsayers on climate change, floods of Biblical proportions will become much more common. You don’t have to agree with them, but the evidence that action is needed to better protect our homes from flooding is becoming pretty compelling.

Last November, large tracts of Cumbria were devastated after what the Environment Agency described as “a one-in-a-thousand year” flood wrecked havoc in a calamitous 24 hours. The insured losses are set to come to more than £200m. Yet this flood occurred just 18 months after most of Britain – particularly Yorkshire, the Midlands and Oxfordshire – was hit by destructive floods during one of the wettest summers since records began in the mid-18th century. According to figures from the ABI, the 2007 monsoon-like deluge cost an estimated £3bn.

The ABI says a minimum of 2.5 million properties in England and Wales are at risk from flooding from rivers or the sea, with 1.1 million of these also at risk of surface water flooding. A further 2.9 million properties are themselves also susceptible to surface water flooding. The ABI adds that even if the government doubled its investment in flood defences over the next 25 years, the number of properties at risk is unlikely to fall significantly, meaning the risk of being flooded will be a fact of life for many years.

So as we approach the third anniversary of the 2007 floods, what is being done to make properties more resilient to similar events in the future? The short answer appears to be very little.

Insurers are keen to promote and help educate customers about the benefits of resilient repair – restoring flooded homes in a way that makes them more able to stand up to future floods – but insist that this is as much as the industry can realistically do.

“We’ve tried to take a lead on this issue but it’s a difficult area,” AXA claims managing director David Williams says. “It’s complicated because most losses from floods are relatively small and people want replacement fittings and materials that match their old ones. No one wants one quarter of their home to have been rebuilt in a different manner to the rest of their house. You may be able to consider different types of materials on a new-build, but it doesn’t work like that on repairs – and most flood damage is about repairs.”

Sticking to the standards

Williams points out that, in cases where a property has to be demolished and entirely rebuilt, Axa can work with customers to construct a home that complies with level four of the Code for Sustainable Homes (CSH), the new national set of standards for building more environmentally friendly housing. “But even then customers have fixed ideas about what they want for their home, so it’s not straightforward.”

Cost is a major consideration in flood-resilient repair. “If you go beyond standard repairs, the cost increases,” ABI policy adviser Tim Humphries says.

Research by the ABI reveals resilient reinstatement generally costs 40% more, although it can range between 15 and 70%. Insurers are reluctant to take the additional cost on board because a customer may change companies, leaving the original insurer with little to show for its investment.

“Understandably insurers may be reluctant to pick up an additional cost as this will be more than an indemnity,” Chartered Institute of Loss Adjusters executive director (technical) Malcolm Hyde says. “Improvements that increase the cost of repairs are not generally recoverable under the terms of the policy. However, some flood-resilient repairs may not increase the cost or may only marginally increase the cost, and grants may also be available.”

Earlier this year the government announced £2.6m in grants to help more than 500 households in high-risk areas to pay for anti-flood measures such as air brick covers and waterproof doorways. But based on the insured losses, the grant funding is a drop in the ocean.

In March, parliament’s Environmental Audit Committee called for the government to increase funding for flood defences and pay for a national programme to help with resilient repair. The committee said that, over the next 25 years, spending on flood defences to protect homes should rise from its current annual £600m to somewhere near £1bn.

The committee’s chairman, Tory MP Tim Yeo, added, rather vaguely, that the government needed to be “imaginative and establish new and sustainable sources of funding and support” to help homes in need of flood protection. In these straitened times, “new and imaginative” sources of funding may well put the emphasis for implementing and paying for resilient repair back onto the insurance industry.

Clauses on resilient repair

Biba wants insurers to include clauses promising resilient repair in the event of flood damage. “We’re saying properties should be revalued on a resilient-repair basis, one where the policyholder can be offered a premium based on it,” Biba technical services manager Steve Foulsham says. “Effectively, customers would then have a choice of resilient repair or a normal repair.”

In a bid to offer a choice, Axa has introduced two distinct policies: the Marks & Spencer Green policy, which will rebuild severely damaged property in line with level four of the CSH, and a normal replacement policy. “But sustainability costs more than replacing as is, and that has to be paid for,” Williams says.

But if the expense means that most insurers are reluctant to commit fully to resilient repairs, and customers baulk at taking on the cost and living with flood-resistant materials or solutions, such as ceramic tiles on concrete floors instead of carpets on wooden floors, or installing electrical sockets a metre off the floor instead of by the skirting board, the industry is left with the question: what should insurers do to effect change?

“It comes down to perhaps explaining to people who are in areas of increased risk, ‘Okay, you don’t want your sockets half way up the wall but do you want insurance or not?’,” Foulsham says. “We want flood cover to continue to be available. The best way to do that is to look at risk management of properties and educate policyholders to look at resilient repair to mitigate future claims.”

Williams echoes that view. “The biggest successes we’ve had [in recommending resilient repair] are when a customer realises he or she will have a higher excess or no cover at all,” he says.

“But even in high risk areas, where a customer has already suffered a flood loss, a lot of people think it’s a once-in-25 year happening that won’t happen to them again.”

In practical terms, higher excesses are, of course, effectively no insurance at all and insurers have faced mounting criticism that they are leaving customers without cover. In some cases, customers have reported excesses upwards of between £20,000 and £50,000.

Increased excesses highlight the limitations of how far insurers can drive a change in homeowners’ attitudes.

In turn that raises the question of whether the government should introduce legislation to compel either insurers or homeowners to ensure properties are better protected in flood risk areas, either through building regulations or some other mechanism. The industry is sceptical about the merits of legislation, however.

“It would be difficult to accomplish change through the building regulations,” Humphries says. “For a start you would have to define precisely what is meant by resilient repair. And if you legislate for resilient repair it still has to be paid for, either through the insurance mechanism or by the customer.”

Humphries believes that insurers cannot and should not dictate to customers about resilient repairs. “Insurers can offer green replacement products, but you cannot drive a product without product demand, and while the industry needs to make more information available to customers about the merits of resilient repair, it is up to customers to decide what they want,” he says.

Biba’s Foulsham is equally wary of the merits of imposing change through legislation.

“Yes, you can make changes to the design and build of new-build properties, but building regulations don’t cover fixtures and fittings. About 70% of the cost of reinstating on flood damaged properties is fixtures and fitting; things such as skirting, kitchens and floor coverings.”

“Ultimately, legislation isn’t the answer; it’s a question of education,” Foulsham adds. “If we’re going to suffer more floods, and that is certainly what environmentalists predict, then all of us – that’s Biba, the ABI and the Environment Agency – need to start educating policyholders about how to minimise damage.” IT