Dr. Swenja Surminski:

I thank the Chairman for inviting me. It is a pleasure to share what I hope will be some useful insights. In terms of my background, as the Chairman mentioned I worked in the insurance industry and have seen it from the private sector side in terms of arranging flood insurance and working with flood victims, a point which is important to consider. There is a human side and a business angle in terms of an insurance company making a commercial decision on whether to provide insurance. There is a public finance aspect which is probably where this committee comes in. There is also a climate and flood risk dimension, which is important to clarify at the outset. It is a multidimensional issue and the stakeholders involved all come from very different angles and follow very different premises, which is what makes it so difficult to find a solution.

There is no silver bullet for arranging flood insurance. In my submission I highlighted the fact that there are a large variety of insurance concepts around the world.

I have had the dubious pleasure of being involved in discussions in some EU countries, in the US and in developing countries where efforts are being made to design flood insurance. Closer to home, I have been involved in the Flood Re discussion. It is important to highlight that various concepts are floating around and that almost every single concept has its flaws. Almost every country is discussing the possibility of reforming or redesigning it. I say that just as a statement. I know it is not very helpful because the committee would probably have loved to be given an example of something that is working very well. It is a particular challenge in light of the need to bridge the gap between current risk - what is of concern to stakeholders such as businesses - and future risk in terms of climate change and rising flood risk. I think that is the first aspect of the matter.

My key message is that when we talk about insurance, we need to consider both of its dimensions - the risk side, which relates to issues like information, prevention and planning, and the compensation side, which relates to how it is organised. In most of the existing schemes across the world, these sides are not really closely integrated. My observation is that it is really important for us to tie them together as we go forward. We need to make sure the compensation side is closely linked to our understanding of risks. This reflects on the previous speaker's comments about who decides, judges or takes a stance in terms of risk levels. It is important to consider that aspect of the matter. It is of fundamental importance that the risk side and the compensation side are closely linked into the future.

The next point I would like to make relates to the design of insurance that is fit for the future. Three key principles usually need to be borne in mind. The first of those principles, affordability, relates to the requirement for home owners and businesses to be able to pay for insurance. The second principle, availability, is provided for through the private sector, is provided for publicly, or is provided for through a mix - usually in the form of a public private partnership. The third principle, financial sustainability or solvency, is quite an important aspect of the matter. I refer to whether the scheme is actually solvent in terms of paying out claims and is likely to be around not just for the next year but for the next five to ten years, at least.

I would add the issue of vulnerability and exposure as a further factor on the risk side. Obviously, one faces certain trade-offs when one is designing an insurance scheme. For example, one must make a decision on whether the scheme is affordable for everyone. One must consider the affordability of insurance for newer properties by comparison with insurance for older properties. One must look at whether it is affordable for people who are extremely vulnerable and for small and big businesses. Many decisions that are almost normative need to be made. A decision needs to be made on who decides what is affordable, for example. I was involved in a survey of small businesses across England. When we asked them about the affordability of flood insurance, we got a wide spread of responses. It is important for us to recognise that when we are considering who should decide how much an affordable insurance policy should cost and who should set the rate system.

The issue of availability is related to the question of how much the public is expected to intervene and be involved. As I said, there are schemes in which the public is basically providing all the funding and is reinsuring the schemes. For example, flood insurance is the second largest public liability on the public budget in the US.

That is one extreme and then there is the case of completely privately arranged flood insurance in other countries, such as in Scandinavia. That deals with the question of to what extent is there a degree of intervention.

Financial stability is obviously a question for the regulator and it is important to recognise that the regulator has certain parameters in terms of setting risk levels beyond which an insurance company cannot go. For example, if an insurance company underwrites flood insurance risk up to a certain level, it needs to prove that it is able to manage and respond to those claims and that is often in conflict with the local decision of accepting a certain level of flood risk. For an insurance company, that decision is driven by regulatory settings and then facing the local demand for insurance cover. It is important to recognise what potential the role of the regulator could play in this.

The final issue is vulnerability and exposure and the risk aspects. I often think that going forward an insurance system, flood risk management and planning are important but what is probably needed most is a resilience broker. It is almost like an independent body that shares the information, ensures transparency in risk data and co-ordinates prevention while also having a role in ensuring access to insurance and providing case-by-case advice. That is often missing. Going forward, that is an interesting aspect in order that there is not just a focus on an insurance broker but potentially a resilience broker who could fill that role.

There are couple of issues I could highlight in the context of the advantages and disadvantages of certain systems but they could be picked up in the discussion.