Mr. Michael Horan:

On behalf of the members of the IIF I welcome the opportunity to address the joint committee on the problem of flooding with particular reference to household insurance.

The floods in June 2012 led to 1,260 claims costing €54 million. There were 627 household claims costing €15 million, 487 commercial property claims costing €38 million and 146 motor claims costing €1 million. There have been seven other significant flood events since 2000. The cumulative cost of these eight flood events was €697 million. At the time, the November 2009 floods represented the single largest insured loss ever in terms of overall cost, at €244 million. However, the new record did not last long as it was closely followed by the December 2009-January 2010 freeze, which cost €297 million. A further freeze in December 2010 cost €224 million.

Whatever side one is on in the climate change debate, there is no disputing the fact that in the past decade insurers have seen more frequent and costlier weather-related losses, not just in Ireland but globally. To have the largest weather-related losses in such close succession has put significant pressure on the property insurance market. However, insurers have repeatedly displayed their resilience and as a result injected over €1.2 billion back into the economy following these weather events.

In general, we believe insurers have coped extremely well with these weather events, with rapid responses to claims notified by policyholders, quick inspection of damage and approval of remedial work. Insurers’ responses have included 24-hour telephone helplines, subsidising alternative accommodation and the provision of emergency funds. When a property is badly damaged by flooding, it is necessary to dry, clean, repair and restore it. This may take some months due to the time it takes for properties to dry out after being flooded. It is insurers’ experience that in the boom years homeowners invested heavily in upgrading the fit-out of their homes, installing high-quality kitchens, wooden floors and electronic equipment, which has resulted in a large increase in the cost of flood claims.

A feature of recent flood events was that local businesses and residents were given little or no warning. That is a serious shortcoming in flood-prone areas, which needs to be addressed urgently through the development of better early warning systems when there is an imminent risk of flood. The recent floods also highlighted the fact that too many agencies are involved in flood risk management. They comprise the Office of Public Works, OPW, 34 local authorities supervising watercourses and drains, Waterways Ireland, the ESB - which owns 13 of 15 large dams - various Departments, amenity groups, recreational clubs and environmental and wildlife interests. The number of agencies involved can lead to confusion and inaction in managing flood risk.

Flood insurance receives considerable media attention but availability of flood cover is not a problem for the majority of householders. The insurance market offers flood cover as a standard feature of household policies and the IIF estimates no more than 2% of policies have flood cover excluded. The flood cover penetration rate is very high by international standards. Penetration rates in many markets abroad are as low as 25%. When assessing risks, insurance companies analyse the history of the property and any flood prevention measures implemented by the OPW or local authority in an area. Some people will pay a higher premium because the flood risk is higher, while others have a higher flood excess on the policy. Exclusion of cover is generally a last resort and usually only arises where a property has suffered previous flood damage and it is overwhelmingly likely that future flood loss will occur. Insurance offers protection against a risk but not a certainty. It is not tenable to ask policyholders in general to absorb the cost of inevitable losses.

There are 12 insurers with offices in Ireland offering household insurance, with others without an Irish office also offering insurance under Single Market rules. There is no shortage of suppliers and the market is very competitive. As things stand, policyholders in low-risk areas already subsidise high-risk areas. In the absence of this approach, flood insurance would become unaffordable in some parts of the country where flood insurance is still available but flood risk is above average.

Insurance companies operate in a global market and spread their risks around the world using numerous specialist reinsurance companies. It is therefore vital that the insurance industry acts with prudence on flooding risks to ensure that affordable reinsurance cover is maintained.

The OPW is the lead agency for the Government's flood risk management programme. The IIF welcomes the recent engagement of Deputy Brian Hayes with the insurance industry in his capacity as Minister of State with special responsibility for the OPW. Insurers are major stakeholders in mitigating the economic effects of flooding. However, minimising the financial impact of the cost of floods to property owners is critical to the sustainable provision of insurance.

The IIF has had constructive discussions with the OPW over the past year. We appreciate the constraints within which the OPW is operating. However, even within these constraints, we believe there is much that can be achieved. Our efforts are aimed at improving the management of flood risk in Ireland, with particular reference to the construction of flood defences. It is also important that the OPW communicates reliable information on flood defences to insurers in a format that is easily accessible so that underwriters can satisfy themselves that flood defences comply with acceptable and measurable standards when assessing risks. In practical terms, insurers need to have confidence in the OPW's review of standards and commitment to the maintenance of flood defences once completed, as well as the items listed in my presentation. The OPW has begun to develop some sample data, which it has forwarded to us. We are now considering it with our members.

At a more general level, the IIF advocates the various items listed under point 13 of my presentation document, the more significant of which include the following: more investment in structural and non-structural measures so that the OPW can fulfil its brief as the lead agency for flood risk management; the establishment by the OPW of a national flood liaison and advice group comprising all stakeholders, including the insurance industry, to advise on planning strategies, flood risk management, etc.; more transparency on capital projects - that is, a clear, publicly available flood relief capital works programme specifying priorities, budgets, targets and timelines; and swifter completion of structural defences.

The Government's response to flood risk management in recent times dates back to 2002 with the establishment of the flood policy review group. In 2001, the OPW was given the responsibility of being the lead agency for flood risk management. The review group identified a work programme involving approximately 24 projects with an estimated cost of €444 million, to be delivered over ten to 15 years. In the seven years after the OPW was given responsibility for flood risk management - that is, up to 2011 - it was allocated a capital budget of €257 million, but has spent only €188 million.

The OPW's project implementation process has six stages, which are listed in the document provided. It can take more than ten years for a project to go through this process. In 2008, the OPW commissioned Goodbody Economic Consultants to undertake a value-for-money and policy review. The consultants' report stated that the OPW’s implementation programme had not met its targets for a number of reasons, including manpower deficiencies, the diversion of OPW resources to deliver unforeseen projects and the relatively lengthy design and planning process for projects. Given the current state of the public finances and the embargo on recruitment, we are concerned that these shortcomings may not be addressed and may even get worse in the future.

In 2008, the then Department of the Environment, Heritage and Local Government published draft planning guidelines and invited submissions from interested parties. We made a submission in November 2008 in which we highlighted that the guidelines were largely a copy of the UK guidelines which had failed to discourage development in flood-prone areas. We suggested that the Scottish planning guidelines offered a more sustainable model and called for the establishment of a flood liaison and advice group with representation from all interested stakeholders, including insurers. The deficiencies we identified in the guidelines are listed in my presentation document.

The insurance industry wishes to preserve the widespread availability and affordability of flood insurance as far as possible. High penetration levels generally are necessary if the current model is to survive, with low-risk areas subsidising higher-risk areas. The continued availability of flood reinsurance is vital as it allows insurers to provide cover for catastrophic risks by spreading costs over time. Government investment in structural defences is needed to preserve flood insurance in high-risk areas. Government action is also needed on non-structural measures such as addressing deficiencies in the planning guidelines. We appreciate the increased engagement on the part of the Minister of State and the OPW but current levels of investment in and implementation of flood defences also need to improve. I would be happy to elaborate on any aspect of this presentation on which members have questions.