Mr. Kevin Thompson:

Insurance Ireland prepared the following brief statement. On behalf of the members of Insurance Ireland, I welcome the opportunity to address the joint committee on the provision of insurance in areas at risk of flooding and subsidence. Insurance Ireland, the leading voice of insurance, represents 95% of the domestic insurance and 85% of the international life insurance market.

Insurance Ireland members pay out more than €5.4 billion in claims each year to Irish customers and contribute over €1.6 billion in tax to the Exchequer per annum. Property claims costs exceeded €400 million in 2013. There were over 100,000 property claims in 2013 when one adds up the cost of claims arising from all insured perils. Household and small business policies are package policies covering a range of perils such as fire, storm, flood, theft, subsidence, and escape of water, such as burst pipes following a freeze. We have experienced 14 major weather events since 2000. The claims cost of these events are highlighted in the submission to the committee, with the largest for flooding costing €244 million in November 2009.

The total cost of claims for the period since 2000 is €1.445 billion.

The winter storms of December 2013 to February 2014 were the most recent major weather events. Taken together, claims costs resulting from these storms amounted to approximately €157 million. There were just over 30,000 claims, predominantly storm but also some flood claims, arising from these storms, with approximately 70% by number and cost resulting from the storms in February 2014, which climaxed with Storm Darwin on 12 February. Insurers rose to the logistical challenge of dealing with more than 30,000 claims in such a short period of time and worked hard to ensure that policyholders' claims were handled quickly.

Of the above 14 major weather events, eight were floods. The total cost of these flood events was €697 million. There are, in addition, many smaller, localised pluvial, fluvial and tidal flooding events on an ongoing basis. Flooding can arise from a number of sources – pluvial, fluvial, coastal inundation, blocked drains, burst water mains and dam failure.

Capital expenditure on flood risk management over the years 2001 to 2014 averaged €28 million per annum. This is far short of what is needed. To put this in context, the cost of the 2006 Kilkenny flood defence scheme alone was €48 million. Adequate investment in flood defences is vital. The increased frequency of flooding in recent years highlights the need for action to be taken now in the affected areas so that flood defences are constructed to the desired standard of one in 100 as quickly as possible.

Flood insurance is widely available in Ireland and the household insurance market is very competitive. Flood is a standard peril in household insurance policies. All policyholders pay a contribution - low-risk areas subsidise high-risk areas. Some people pay a higher premium or have a higher flood excess because the flood risk is higher. Exclusion of cover is a last resort. 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.

Insurance Ireland's goals are, as far as possible, to preserve the widespread availability and affordability of insurance and to partner with Government and the OPW in particular to achieve this. The elements necessary for the sustainable provision of insurance are investment by Government in structural and non-structural measures, flood mapping and accurate data to facilitate risk assessment, high penetration levels to prevent adverse risk selection, continued availability of re-insurance and the addressing of deficiencies in the planning guidelines.

Insurance Ireland has constructive engagement with the OPW on flooding through our joint working group. In addition, the memorandum of understanding, MOU, which we have with the OPW involves the OPW sharing flood defence data on previously completed schemes with Insurance Ireland so that insurance companies can take this into account when assessing flood risk. The MOU is the start of a process which will help our members make flood insurance more widely available in areas benefitting from flood defences built to the desired standard of one in 100.

Finally, there are small pockets of the country which are prone to subsidence, but the problems on the south side of Cork city are the most long-standing and well known. These areas are prone to subsidence due to the effect of naturally occurring water or leakage from underground pipes on the limestone which is characteristic of these areas. The problem is exacerbated by the fact that the underground pipes are clay pipes which are susceptible to cracking when, for example, development takes place. In effect, the resulting underground erosion causes downward movement of the ground supporting properties.

Individual insurers make their own underwriting decisions on subsidence based on their own company claims experience. They also consider the claims history of individual properties and the relevant geographical and geological features of the area when deciding what premium to charge and what terms and conditions to apply. Insurers may charge a higher premium or impose a higher subsidence excess on the policy or, in some cases, may have to withdraw cover. Subsidence claims are by their nature very costly and insurers take these actions in the interests of policyholders in general to keep premiums affordable. Insurance is about covering people against the risk of something happening rather than against inevitable events. Subsidence in some parts of Cork city is, unfortunately, inevitable due to the prevailing ground conditions exacerbated by the presence of underground clay pipes.