A.B.I. Statement of Principles on the
Provision of Flood Insurance
General Policy
 It
is the intention of ABI members that flood insurance for domestic properties
and small businesses should continue to be available for as many customers
as possible. The premiums charged and other terms - such as excesses -
will reflect the risk of flooding but will be offered in a competitive
market.
This statement of principles will apply from 1 January 2003 but is subject
to review in the event of significant external shocks such as withdrawal
of flood reinsurance. Successful operation of the principles is dependent
on planned information on risk levels and investment being available from
the relevant flood defence authorities.
Areas currently defended to DEFRA standards
The majority of properties in flood risk areas are already protected
to the Department of Environment, Food and Rural Affairs' indicative minimum
standard of 1 in 75 years for urban areas, or better. The level to which
properties are defended above this will vary considerably and premiums
will reflect different degrees of risk; but flood cover will be available
as a standard feature of household and small business policies.
High risk areas where improved defences are planned by 2007
In a number of locations the risk of flooding is unacceptably high. Existing
flood defences provide less protection than the Department of Environment,
Food and Rural Affairs' indicative minimum standard of 1 in 75 years for
urban areas. Where improvements in flood defences sufficient to meet these
standards are scheduled for completion within the next 5 years, insurers
will maintain flood cover for domestic properties and small businesses
which they already insure. The premiums charged and other policy terms
- such as excesses - will reflect the risk.
If a domestic property in this category is sold the current insurer will
continue to provide cover, subject to satisfactory information about the
new owners of the property, especially their previous claims record.
Where a small business is sold the current insurer will consider whether
to continue to provide cover; this will depend heavily on the proposed
new use of the premises and the previous claims record of the new owner.
High risk areas where no improvements in defences are planned
There are other locations where the risk of flooding is unacceptably
high - and in some cases they have been shown to flood frequently - and
no improvements in flood defences are planned. Here insurers cannot guarantee
to maintain cover, but will examine the risks on a case by case basis,
use their best efforts to continue to provide cover and will work with
the owners of domestic properties and small businesses which they currently
insure to see what action could be taken by the property owner, the Environment
Agency and the local authority, which might make the property insurable
in some form. This action might include the use of accredited products,
flood resilient materials and temporary defences to defend the property.
Action from Government
The implementation of these principles will depend on action from Government
as detailed below with:
- an annual review of progress:
- actual expenditure on flood defences to meet or exceed that set out
in the 2002 Spending Review;
- implementation of the improvements in the system of flood defence
planning set out in DEFRA's consultation "Flood and coastal defence
funding review";
- full implementation of PPG25 (Planning Policy Guidance on Development
Planning and Flood Risk), with full reporting of the level of compliance
by local authorities and consideration of administrative processes in
the planned review of PPG25 in 2004;
- the Environment Agency's flood asset database to be available to insurers
by the beginning of 2003, and publicly available as soon as possible;
- early improvements in the flood warning system, and implementation
of the Cabinet Office's recent emergency planning review;
- full and detailed consideration, including a benefit/cost analysis,
to be given to integrated drainage management for England and Wales,
similar to that in operation in Scotland;
- implementation of realistic solutions to sewer flooding including
increased investment in improvement programmes and adoption of water
companies and sewerage undertakers as statutory consultees in the development
planning process.
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