Letter sent from the Association of British
Insurers to Norman Baker MP, 4th November 2003
Direct Tel. 020 7216 7522
E-mail Jane.Milne@abi.org.uk
Direct Fax. 020 7216 7525
4 November 2003
Property and Home Insurance in Lewes
As you know the Statement of Principles came into effect on 1 January
2003 and sets out the approach insurers will take in offering flood cover
in future. I attach a further copy for ease of reference. Essentially
the degree to which insurers can provide cover is determined by the level
of risk (ie probability of flooding) applying in an area. In order to
support this approach ABI has worked very closely with the Environment
Agency to establish the level of risk applying in each catchment and in
coastal areas in England and Wales, taking account of existing flood and
coastal defences. This improves our understanding of risk significantly
on the information given by Indicative Floodplain maps. The data, which
is the best available from any source to date, was circulated to insurers
over the summer once the considerable technical and legal issues had been
resolved. Insurers are now building this into their underwriting models.
The EA dataset has enabled us, in effect, to filter out large numbers
of postcode sectors (that is EC2V 7 or SW1A 0 for example) and full postcodes
within those sectors where flooding risk is less than 1.3% annual probability.
Insurers will compete in the usual way for new business in these areas,
notwithstanding the fact that they are in the floodplain.
The dataset identifies full postcodes such as BN7 where EA has assessed
that some or all of the properties face a probability of flooding of greater
than 1.3% p.a.. It is of course possible that even within such a postcode,
which typically covers 15-30 properties, there may be individual properties
that face a risk lower than the 1.3% p.a. threshold, due to topography,
design features etc. Any customer who considers that this applies to their
situation should provide their insurer with evidence that supports this
assessment. Insurers need to manually override their systems to accommodate
individual customers in such circumstances, and this "exceptional"
treatment can give rise to operational difficulties. I would always advise
people to use the services of a broker in managing in this process. Internet
or telephone direct services are designed to meet the needs of the "average"
customer and are for the most part deliverec without the direct support
of underwriters with the knowledge and authority to make decisions on
individual cases. Brokers are able to access insurers via their own networks:
a good broker will present all the pertinent facts enabling an underwriter
to come to a quick decision on an individual case.
ABI has also secured data from EA on the areas which will be protected
by planned defences for which there is a firm commitment of funding. This
information enables insurers to commit to continuing cover for existing
customers in these areas, as described in the second category under the
Statement of Principles. This is a considerable undertaking and insurers
are not able to extend the undertaking further to include new business
since this could substantially increase their exposure to unmanaged risk.
The single exception is the undertaking in respect of homes (and certain
small businesses) changing ownership where insurers will stay on cover
for the new occupant, subject to suitability (for example, no record of
fraudulent insurance claims). ABI members included this provision to address
the potential difficulties that could arise in the property market in
these locations, and we have made this undertaking clear to the Council
of Mortgage Lenders. Individual companies do of course remain free to
take on new business more widely should they wish to do so. As you know
it is very unfortunate that the proposed schemes for Lewes have not yet
secured full funding and that therefore most properties in the town therefore
fall into the third category under the Statement of Principles, where
insurers have undertaken to use best efforts to remain on cover for existing
customers only. I know that you continue to press for early resolution
of this and we fully support you in these efforts as insurers are equally
concerned to achieve better management of risks for their customers.
In the meantime there are certain specialist services available for people
who have been flooded or are in high risk areas, which can be accessed
through specialist brokers such as Bureau Insurance Services of 43 St
Leonards Road, Bexhill-on-Sea, East Sussex, TN40 1JH, telephone 01424
220110. They will normally survey the property, for a fee, allowing specialist
underwriters to make a detailed assessment in order to price the cover.
Anyone dissatisfied with the price or terms being offered by their existing
insurer under the Statement of Principles (which specifically does not
restrict pricing or terms, in compliance with Competition Law) could seek
a competitive quote via this route.
You will understand that the low cost, low margin insurance products
offered via standard distribution routes cannot accommodate such an approach.
It is an unfortunate reality that people living in low risk areas are
not prepared to For the future we continue to work with EA to see how
we can more closely define the areas facing high flood risk including
the possible use of GIS based data. Unfortunately not all insurers are
yet in a position to use this. I hope this reassures you that we have
made considerable progress over the last few years and continue to strive
for improvement.
I would be very interested to hear of progress on funding for the Lewes
flood alleviation schemes, and will keep members briefed so that your
constituents can benefit as fully as possible under the terms of the Statement
of Principles.
With best wishes
Yours sincerely
Jane Milne
Head of Household and Property
Note: The letter was made available by Norman Baker with clearance
for unrestricted distribution. The original and cover are held by Tom
Crossett of Lewes Flood Action.
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