Prevention is cheaper than the cure

On the last Friday in November I visited Cumbria. Seeing the devastation first-hand, and talking with both AXA customers and non-customers really brings home how the floods affect people’s daily lives. The events had touched everyone in some personal way – be it directly because their home or business had been flooded – or because the problems with the local infrastructure had significantly disrupted their routines.

Floods like this are apparently one-in-a-thousand-years events, which seems a strange and glib assessment when all of us have seen the increasing incidence of floods over the last decade. I suggest a different way of looking at this statistic. If there are a 1,000 towns like Cockermouth in the UK, then it’s likely that one of them will flood every year – with the resulting cost to our industry, to the government and the devastation to people’s lives. Actuaries will tell me this is not totally correct. My answer to that is: “It is correct enough!”

What a timely backdrop, then, for a meeting with MPs that I hosted last week on the subject of flood prevention and the importance of the new Flood and Water Management Bill.

It is a simple fact that investment in flooding mitigation infrastructure now will avoid much larger clean-up costs in the future. So, to be able to continue to offer insurance for flood-related events, our industry must have modern and relevant legislation in place and be confident that the government of the day will honour its funding commitments. Given the need for public spending cuts to deal with the budget deficit, this becomes an increasingly important issue.

The Flood and Water Management Bill is a vitally important piece of legislation. The Bill clarifies roles and responsibilities, and strengthens the procedures for the monitoring and assessment of flood risk. It also addresses some of the issues related to the problems caused by surface water drainage.

Climate predictions indicate that the UK’s weather is likely to get more extreme, and this means the prospect of more flooding. If we are to tackle this, we must strengthen our plans for mitigating flooding; and when prevention has not worked, we must have in place an effective system for dealing with the aftermath of a flood.

I think the Flood Bill can deliver this, but I am worried that – with the next general election only a few months away – we may run out of time. In my view, it is an imperative that the Flood Bill becomes a priority for this parliamentary term.

Over time, the bill will deliver organisational change rather than require extra budget from an already stretched exchequer purse. Indeed, if the Pitt recommendations are implemented in full, the cost of dealing with a serious flooding episode will be much reduced. We all know, only too well, that prevention is always cheaper than cure.

We should also recognise that many agencies are involved in dealing with floods. The Fire Service is often the first to respond and it is essential that its staff have clearly set out responsibilities, and that they are sufficiently funded and trained to deal with serious flooding. A statutory duty on the Fire and Rescue Service would underpin all that activity and give some assurance to the public and insurers about cohesion and quality of response that can be expected.

Meanwhile, I am encouraged by recent announcements that more funding is being found to support local communities. I hope this trend is able to continue, given the financial squeeze to come. Many of you won’t be surprised when I tell you that the Environment Agency’s own figures suggest that £1 invested in flood defences saves £7 in flood damage.

Building regulations play a critical role in protecting new and existing properties from flooding. Planning permission should not be granted where the effects of new development increases the likelihood of flooding on existing domestic and commercial properties. Where permission is granted in areas of increased risk, then flood-resilient measures must be a requirement of the development, though they will never be a substitute for investment in critical flood mitigation infrastructure.

In the UK, unlike in other European countries, property insurance typically includes flood protection as a matter of course, and I want that to continue. But to do so will require a long-term flooding strategy to be in place, with the requisite level of funding and some behavioural changes from us all to protect us from the worst effects of flooding and climate change.

The long-awaited Copenhagen summit is now in full flow, and while it will not focus specifically on flooding, it will hopefully provide the framework for global co-operation on various issues in the future. We have a lot to lose, both as an industry – where risk management is key to our future prosperity – and personally.

In Cumbria, I felt incredibly proud of our industry’s response and our people’s dedication to their customers. I was also moved by the predicament of the communities affected, particularly at this time of year. One thing that bemused me, though, was the body of what I would term unregulated parties trying to drive a wedge between customer and insurer under the pretext of helping to manage claims – for a small fee, of course. Perhaps it is time for the industry to come together to define what role – if any – loss assessors should play. Another issue for us all to address as we enter a new decade. IT