Oireachtas Joint and Select Committees
Thursday, 23 November 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Scrutiny of the Flood Insurance Bill 2016
We meet to discuss No. 5 on the agenda, scrutiny of the Flood Insurance Bill 2016, which is Private Members' business in the name of Deputy Michael McGrath. In attendance we also have Mr. Jer Buckley, public relations officer, National Forum of Communities Flood Committee; Mr. Pat O'Connell, president, Cork Business Association; and Mr. Paul Kavanagh, managing director, McCarthy Insurance Brokers. I welcome everyone to the committee.
Today, in accordance with Standing Order 141(2), the committee will scrutinise the provisions of the Flood Insurance Bill 2016. Today's meeting will consist of three sessions. In session 1, Deputy Michael McGrath will outline the Bill to the committee and that will be followed by a short presentation by Mr. Jer Buckley who is representing the National Forum of Communities Flood Committee. Mr. Pat O'Connell and Mr. Paul Kavanagh are also attending.
In session 2 we will hear from Mr. Kevin Thompson, chief executive officer and Dr. Swenja Surminski, senior research fellow at the Grantham Research Institute on Climate Change and the Environment, which is part of the London School of Economics and Political Science.
In session 3 we will hear from Deputy Michael D'Arcy, Minister of State at the Departments of Finance and Public Expenditure and Reform, who has special responsibility for financial services and insurance; and Deputy Kevin Boxer Moran, Minister of State at the Department of Public Expenditure and Reform who has special responsibility for the Office of Public Works and flood relief. They will respond to the debate.
I wish to advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
Session 1 is to conclude by 11 a.m. I invite Deputy Michael McGrath to make his opening statement.
I welcome all of the witnesses. It is nearly a Cork takeover this morning, which is great to see.
I am delighted to bring the Flood Insurance Bill 2016 to the committee for legislative scrutiny. By way of background, this Bill was introduced in Dáil Éireann in January 2016 and passed Second Stage in late November 2016, which is just over a year ago.
Communities all around the country have experienced the devastation of flooding. We have witnessed yet another year of extreme weather conditions from the floods in Donegal to Storm Ophelia. In the past 24 hours we have had further flooding in County Laois, which is another reminder of what is to come.
These weather conditions are likely to continue and will require a multifaceted response from the State. This Bill focuses on the key area of flood insurance. At its core, this Bill is designed to ensure that households and businesses can access flood insurance in areas where the OPW has completed flood relief schemes. I wish to acknowledge the work of the Irish National Flood Forum that has Mr. Jer Buckley, PRO, Mr. Paul Kavanagh and, indeed, Mr. Pat O'Connell from the Cork Business Association. They have consistently highlighted this issue over the past number of years.
There is a clear need for intervention in this area. There are many households and businesses in the country that have been denied flood insurance. This is despite the fact that comprehensive flood relief schemes have been completed by the OPW and are working. In addition, when insurance is provided, it often comes with a large price tag attached or with overly restrictive terms and conditions, particularly with a significant excess applied.
Over the next number of years the OPW is expected to invest around €430 million in flood relief schemes located around the country. This investment is most welcome. The OPW has already invested heavily in certain areas and the schemes have proven successful. The very least we can expect from the insurance industry is to meet us halfway by ensuring that flood cover is reinstated in these communities. It is unfair to leave households and businesses in the precarious position of having to live without flood insurance. For many small businesses the effect is more far-reaching. If a company cannot obtain flood insurance they may be unable to obtain finance from the bank and the business cannot grow. Homeowners who wish to sell their property and move to another area for work or otherwise may have the sale impeded because of the inability to access adequate insurance. In my own city of Cork, I know of house sales that fell through because the purchaser was unable to demonstrate to the bank that he or she could get insurance cover, including flood cover and cover for subsidence which is a key issue in our area. Certain areas are essentially designated as blackspots by the insurance industry and insurance cover is extremely difficult to secure. Not only does the absence of flood insurance cover leave many households in the lurch, it can also impact job growth and development in local areas.
I will now refer to the specifics of the Bill. This Bill requires insurance cover to be provided in circumstances where the OPW has completed flood relief schemes to the required European standard under the 2007 directive. The Bill will make it unlawful for an insurance company to discriminate against people and businesses in areas that now have a low probability of flooding as a result of public investment.
Low probability, as defined under this Bill, is an area certified by the OPW as having a one in 100-year flood risk or better. Where there is a concern that an insurer is acting contrary to the requirements of the Bill, property owners will be able to lodge a complaint with the Financial Services Ombudsman. On completing a review of a complaint, the Financial Services Ombudsman will have the power, if appropriate, to direct an insurer to offer insurance at a price and on such terms as it considers fair, reasonable and appropriate.
This Bill clearly outlines the role of the Central Bank in the application of the legislation. The Central Bank shall have the power to carry out an assessment of how an individual insurer deals with insurance applications from individuals in the relevant areas. It will also be empowered to direct an insurer to change its practices or take the necessary steps to ensure compliance with the legislation. If necessary, the Central Bank could seek an enforcement order in the High Court and an insurer could be subject to significant fines.
The insurance industry continues to tell us that 98% of all home insurance policies have flood cover. I am sure they will reiterate the point before the committee this morning. Like a lot of statistics, this one only tells part of the story. It covers all areas of the country, including areas where there the risk of flooding is extremely unlikely. It ignores the unknown number of properties that do not have insurance because flood cover is denied or flood cover comes at a very significant cost. It ignores the businesses that cannot obtain flood cover and, as a result, cannot grow.
There is no doubt that, like the motor insurance market, more transparent and independent data is needed. We need accurate data on insurance coverage in areas covered by the memorandum of understanding between Insurance Ireland and the OPW. There is no point in including areas where flood cover is not an issue. Including these areas only serves to conceal the problem. My Bill targets the areas where the flood relief schemes have been installed to the one in 100-year standard. For areas with less protection we need to find other solutions. This Bill does not seek to solve the problem of providing cover in areas that remain at risk of flooding. It is unreasonable to expect the industry to deal with the issue on its own.
Leaving the data issue aside, we now have a serious disagreement between the OPW and the insurance industry on whether flood defences should be demountable or permanent. Demountable defences need human intervention to activate while permanent flood defences do not need such intervention.
First, it must be acknowledged that permanent defences are simply unsuitable in many areas and demountable defences are an appropriate substitute in such cases. The industry will tell us that, because human intervention is required, demountable defences are insufficient. This is despite the fact that demountable defences are common throughout Europe. I am glad that the insurance industry is consulting with the Government and the OPW in respect of this issue. I call on them to resolve the issue swiftly. I cannot accept any assertion that demountable defences are unreliable, or unreliable to an extent that they place too much risk on insurance companies. I have not seen evidence to support this claim.
In conclusion, flood insurance is a critically important issue. The Bill is a genuine attempt to resolve the matter. I would prefer a situation where legislative intervention was not required. If the insurance industry does not want legislation in this area then it knows what it needs to do. The industry must act reasonably and respond to public investment by reinstating flood cover, on reasonable terms, in the communities that have benefitted from OPW schemes. I shall leave it at that by way of introduction. I look forward to our engagement this morning and to hearing from the witnesses.
Mr. Jer Buckley:
I thank the Chairman and members of the committee for the opportunity to address it today on what we believe to be essential legislation. We have been dealing with this problem over the past ten years and both Houses of the Oireachtas jointly commissioned a three-year report, which was published in 2015. It is probably one of the most comprehensive studies into flood insurance. I will be using part of that report in our presentation today. I take this opportunity to congratulate the Members of the Houses who contributed to this report because it is an extremely good document and very comprehensive. A huge number of groups and stakeholders fed into it.
The Irish National Flood Forum, INFF, is a voluntary group set up by three people in Skibbereen in 2010 as a result of flooding in the town. We are a charitable organisation. We work on a voluntary basis and we try to build community flood resilience that enables communities to achieve better flood alleviation and to reach their full economic and social potential, returning hope where once there was none. We like to engage with the local authorities and stakeholders and all Government agencies in a respectful way. That is key. That is our motto. That is our modus operandi.
We are going to try to paint a picture for the committee with regard to the Flood Insurance Bill 2016 and why it is needed. We will drill down into some of the figures which are widely quoted by Insurance Ireland and by different Departments. We will drill down through them and Mr. Kavanagh will show the committee exactly what is happening on the ground in towns which have been flooded and in which, despite major alleviation schemes having been put in, flood insurance cannot be resumed.
The Office of Public Works, OPW, has invested heavily in new flood defences. Some €41 million was invested in Clonmel in a scheme which was completed in 2013. In Fermoy, €35 million of taxpayers' money was spent on a scheme which was completed in 2014. I emphasise that the scheme in Fermoy was tested heavily during the floods of 2015. It was shown to be extremely good and there were absolutely no flooding problems in 2014 and 2015. In Mallow, €39 million was spent in 2014. These three schemes alone amount to €115 million. In all of these towns home owners and businesses in the centres of the towns, near the rivers, have massive issues when trying to get flood insurance. It is just impossible.
It is planned to spend €100 million over the next five years. These schemes are being built to the international standard to which Deputy Michael McGrath made reference. These schemes are some of the best in the world. They are the newest schemes in the world. We have now got an agency, the OPW, which has a level of expertise. We have a flood conference in Athlone on Saturday 25 November. Experts from Holland and Scotland are coming. They have viewed these schemes and have said that they are some of the best schemes they have seen in Europe, yet we have problems getting flood insurance in these towns.
Despite such large investments of taxpayers' money, communities are still experiencing difficulties obtaining flood cover. In the schemes I have mentioned, areas remain blighted and, in some cases, insurance has actually been withdrawn after a scheme has been completed. There have been instances of people losing their flood cover after a scheme has been completed. The INFF's concern is that, while OPW schemes bring high standards of physical protection, without changes in the level of flood insurance cover societal resilience will remain compromised. The objective of the scheme is incomplete, in spite of the OPW's level of technical excellence. One of the things which we find is that there is, rightly, a huge focus on schemes. Capital works schemes are brought in. A community can wait for ten years for a scheme to be delivered but after all that time, all that level of expertise and all that money spent, it still cannot get insurance.
One of the major points we want to make here today is that there are no independent studies by Government whatsoever with regard to the level of flood insurance cover. All data that the Government is using, whether for press releases or decisions made in the Department of Finance, have not been independently verified. It is not only the INFF saying this. An Irish Examiner article of 21 August 2017 was headlined "Motor insurers investigated for possible 'price fixing'", an RTÉ report on 4 July was titled "Irish-based motor insurers raided by EU competition officials" and an article in the The Sunday Times of 2 July had the headline "Insurance firms ordered not to lie". These are not my statements, they come from very reputable media outlets which are calling into question the bona fides of the insurance industry in respect of the facts and figures it delivers. Despite this we, as a country, accept its data without independent verification. That problem must be addressed.
The INFF is concerned with property owners, farmers and small businesses. We really feel we are discriminated against. We pay our full rates, our property tax and our inheritance tax. We continue to wait for our flood schemes and when they are delivered we still cannot get our insurance back. If one has a business on which there is inheritance tax to be paid and one is in a town such as Fermoy where one cannot get flood insurance, how does one borrow the money to pay one's inheritance tax? It cannot be done. One starves one's business of capital to pay the inheritance tax or the rates, which affects one's ability to invest in one's business in the future. Home owners are unable to raise mortgages or loans on their properties or to sell them. Businesses and farmers cannot expand because they cannot borrow money to renovate.
This next point is very important. New industry and new commerce are reluctant to invest in blighted areas. If the current situation is allowed to continue, we will be looking at towns around Ireland, and indeed cities like Cork city, where we have had flood schemes delivered and we will be asking why they are not thriving. The reason they will not be thriving will be because those in the area cannot borrow money. Money is the fuel for future investment. It is the petrol in the car which drives the business. We are talking about home owners as well. There is a huge lack of housing in this country. Would it not be great if elderly people living in large houses could trade down allowing young people to buy their homes? It is obvious. We would all be for that. However there could be elderly people in Fermoy or Mallow who want to downsize but they cannot sell their houses because the young people who want to buy them cannot get a mortgage because there is no flood insurance.
Insurance refusals are a huge issue and they are not based on science. Through the catchment flood risk assessment and management, CFRAM, study, Insurance Ireland is, quite rightly, getting information from the OPW. There is an exchange of information which we would hope would lead to a building of trust but also to an expectation that insurance companies will play their roles. They are not playing their roles however. If one lives less than 500 m from a river it does not matter whether there is a scheme in place, no matter how strong. The companies will refuse cover. No account is taken of topography. There could be a river 100 yd. from one's house and, despite the house being 100 ft up a hill, one will be refused cover. Little or no account is taken of new flood defences.
I will move onto the lack of transparency. While we are talking about lack of transparency I will be referring to the document on slide 6 a lot - the 2015 report of the Joint Committee on Environment, Culture and the Gaeltacht on flooding and property insurance in Ireland. We have seen instances of insurance companies retaining partial claims. We have seen instances where companies have failed to advise claimants that they can appoint their own assessors. For example, if a person in Mountmellick had a problem today, the insurance company would appoint its own assessor but would not necessarily tell the individual affected by the flooding that his or her policy gives him or her the right to have an assessor appointed on his or her own behalf. The company would not tell him or her that, which is a breach of consumer protection rights.
These concerns are echoed in the report, which I would encourage all members to have a look at because it is a fine piece of work. I am afraid, however, that it will be left on a shelf and not dealt with. The report of the Joint Committee on Environment, Culture and the Gaeltacht on the 2015 study, this three-year study into the lack of flood insurance, states "If, after examining the various models, no adequate solution can be reached, the State could consider the merits of introducing legislation that would compel insurance providers to provide flood insurance to everyone." That is stated in the document.
After the three-year study, the committee came to that finding. The work on this started in 2012 and it was published in 2015. It is now 2017 and the situation has not improved in the town centres. That is why we need Deputy Michael McGrath's Bill.
The Irish National Flood Forum, INFF, contends that all potential solutions have been exhausted. The report was comprehensive and three years in the making. It has been published for two years. The OPW's best effort to deal with this issue through the memorandum of understanding process is in operation for more than three years.
The 2015 joint committee report noted the OECD recommendation that it is important to identify uninsured populations and sectors of the economy which are financially vulnerable and assess the reasons they lack insurance. That has not happened.
Ms Josephine Feehily, former chairperson of the Revenue Commissioners, at a hearing of the Committee of Public Accounts on 21 February 2013, said that "flooding will impact on property tax valuations". This represents potential loss of income to the State when it comes to the next self-assessment for property tax, with those affected by flooding putting in lower valuations.
Mr. Eamonn Downey, former chair of the Irish Claims Consultants Association, asserted in the 2015 joint committee report that there was a lack of transparency. He alleged insurance companies retain part of agreed claim settlements incorrectly. The retention practice is not evident abroad, in Belfast or Bristol. Mr. Downey also alleged insurers have ignored the consumer protection code by not advising home owners who notify a claim of their right to retain their own representative. This was confirmed by a Central Bank investigation of insurance companies. When it reviewed 188 flood claims, it found incidents of potentially unfair settlements, a lack of transparency by insurance companies with retaining partial claims, and a failure by insurance companies to advise claimants that they could appoint their own assessor.
Kildare County Council stated in this report that, despite the council having delivered a scheme, insurance is still not available in that area. The Society of St. Vincent de Paul is not a commercial enterprise but one that understands people living in disadvantaged areas. Its representative, Mr. Brendan Dempsey, told the committee that the society believes the lack of flood insurance can only be addressed through legislation. The Irish Brokers Association reckons up to 50,000 households have no flood insurance, despite this famous 98% statistic being trotted out by insurance companies regularly.
One of our member groups in Ballinasloe, County Galway, carried out a local audit on a flood relief scheme in Derrymullan where €1.2 million was spent on flood defences in 2011. Out of 130 houses, our member group found 60 homes still without flood insurance. The committee can see in the presentation a picture of the flood defence walls. It has no demountable barriers on it and it has only one gate at a stage along the wall. That wall has protected Derrymullan since 2011 and there has never been a breach. However, in 2017, 60 home owners still cannot get flood insurance there.
I plead with Members to support this Bill as it is badly needed.
Mr. Paul Kavanagh:
I am a member of the INFF, the Cork Business Association, the Cork Chamber of Commerce and the Fermoy Forum which looks after businesses and home owners alike.
Prior to flood defences being built, Clonmel, Mallow and Fermoy were under water 15 times in 30 years. Every time there was a flood, these towns appeared on television screens just like Mountmellick last night. I was a victim 30 years ago when my house in Fermoy was flooded. Thankfully, I had flood cover then. As soon as I made a modest claim, however, my cover was taken away. Now 30 years on, there is still no flood cover being offered by Insurance Ireland members on that house, despite the fact that close on €40 million of taxpayers' money has been spent by the Office of Public Works, OPW, on making Fermoy as dry as snuff, as described by the former Minister of State, Deputy Seán Canney. No Insurance Ireland member offers flood cover to houses which previously flooded in Fermoy, Mallow or Clonmel. They are blacklisted, or red-listed, as they are all red zones on the various geocoding machines which insurers use to form their risk analyses.
Thankfully, through much hard work, I have convinced two foreign home insurers to work with our brokerage exclusively and look favourably on flood defence works completed over two and half years ago. Up to 80% of Fermoy's flood defences are permanent. They are mounds and are not demountable. There have to be demountables or every town will end up looking like a castle. Hundreds of millions of euro of taxpayers' money has been spent on demountable barriers. However, as Mr. Kevin Thompson of Insurance Ireland has said, it does not recognise demountable barriers. That is a damning indictment.
When Insurance Ireland starts bamboozling us with figures on the increasing number of properties it may now be covering for flood, I do not know whether to laugh or cry. The properties it might now cover may never have had a flood. A person may get a quote on an insurance website but that does not mean he or she gets flood cover. If the assumptions that person ticks on the declaration state his or her house is within 250 m or 500 m of a water source, then he or she has no cover. It is similar to the conditions used by some airlines where a person is asked to tick boxes just to buy the airline ticket. How many people actually read the terms and conditions?
Why not get a list of the 84 houses in Fermoy identified by the OPW ten years ago and audit them independently? I have spoken to my broker colleagues in Mallow and Clonmel and they concur with my findings. Several Dáil Members, including Deputies Fitzmaurice and Healy, have similar findings.
When it comes to commercial insurance, the stories are even worse because the majority of business premises in Fermoy, Mallow and Clonmel are all close to rivers. Not one of them has flooded since the demountable barriers went up but not one of them has got its flood cover back. To the contrary, several of them have had their cover withdrawn completely or an excess imposed on them since the works were completed. I have a list of 28 such businesses in Fermoy which we insure ourselves. Only seven have flood cover. Of that seven, they all have an excess. Five have an excess of €2,500, one has €5,000 and one has an excess of €20,000. An excess is the amount a business will have to pay upfront before a claim even becomes a claim.
The remaining 21 have no flood cover. These people cannot get loans or mortgages and they cannot sell properties because a purchaser will not be able to get flood cover. I cannot get flood cover for them. Nobody can get it for them, including Insurance Ireland. For new businesses, there is no flood cover available. Last December, I met the former Minister of State, Deputy Canney, and his Department secretary and I gave him documents which prove conclusively that not alone are Insurance Ireland members not getting flood cover, but cover is being withdrawn from businesses even if they have never had a claim. There is also proof of new businesses being denied cover, which documentation I also gave to the Minister of State.
We could not get flood cover at our new offices in Fermoy. If we could not get it, who will? Slide number 10 is a photograph of flooding at Ashe Quay, Fermoy. The line indicates the wall height. Half of the barriers were up and the water did not even rise above the wall. In the middle of the photograph is Fermoy Tourist Office which was built by the OPW and was denied flood cover by all Insurance Ireland members. In compiling these documents, I undertook a great deal of work in a data protection and business sensitive manner. With the permission of five business people in Fermoy and the critical information blacked out I was able to supply the proof to the former Minister of State. I am sure that he has shared that information with the current Minister of State, Deputy Boxer Moran, and so the Department is aware that I am telling it as it is. My colleagues and others in Clonmel and Mallow have similar stories to tell.
We have offices in Cork city with no flood cover and similarly in west Cork. There is a huge expectancy in Skibbereen, Clonakilty, Bantry, Bandon and Cork city that when the OPW completes its excellent works flood cover will be available, but nothing could be further from the truth. The late property developer, Owen O'Callaghan, told me that several multinational stores that his company were trying to attract to Cork city had been advised not to come to Cork as they would not get flood cover. It is the Government's vision to have the cities, towns and rural communities of Ireland up and running economically with full employment for all 26 counties. This can only be achieved if new, viable businesses are allowed to open and expand without flood restrictions being foisted upon them.
I am trying to persuade commercial business insurers at home and abroad to recognise the demountable defences but because Insurance Ireland will not recognise them, foreign insurers think there is something fishy going on. I have made this a personal crusade. Many individuals within Insurance Ireland companies agree personally with me on this issue. These decisions are made at the top. Attitudes need to change. The consumer protection code states that the consumer must be treated fairly. I do not believe they are being treated fairly and for this issue to be resolved, the Bill must be passed immediately.
Mr. Pat O'Connell:
I thank the committee for the opportunity to state why we support Deputy Michael McGrath's Bill. The Cork Business Association, founded in 1957, is a not-for-profit organisation representing almost 200 businesses in Cork city. Membership consists of a mix of local indigenous businesses and national and multinational retailers. As an organisation, we cover a wide sectoral base, including the retail, hospitality, financial, property, insurance, catering, educational and service industry sectors. A significant number of our members are on the city centre island, circled by the north and south channels of the River Lee. The flood relief works proposed by the OPW are due to begin in 2018 and have been widely welcomed by businesses in Cork. Current estimates for the cost of these works is €140 million to €150 million, the largest ever flood scheme proposed in this country and a significant investment of taxpayers' money. Confidence in these works has been taken from the OPW’s track record of very successful schemes delivered in Mallow, Fermoy, Clonmel and Waterford. These have all been designed to meet a one in 100 year event and in all cases have proved very effective to date.
Since March 2014, a memorandum of understanding has been in place between the OPW and Insurance Ireland which allows for the exchange of flood defence data. Many inadvertently believed this transparency and delivery of robust flood defences would naturally lead to realistic flood insurance being reinstated. Alas, Irish insurance companies, unlike their UK counterparts, have not shown the same level of social responsibility. Given the massive investment of taxpayers' money, estimated to be in the region of €500 million over the next few years, the openness of the OPW in sharing information, the track record of OPW and given that insurance by its nature is the management of risk where the premiums of the many pay for the losses of the few, surely we as taxpayers and clients have the right to expect more from our insurance industry. Insurance is not a solution for possible loss. However, being able to transfer or share risk, traditionally done through insurance, is critical to the economic success of business, communities and regions. The abdication of responsibility in this instance by the insurance industry is truly reprehensible.
The late Owen O'Callaghan, a prominent and active member of the Cork Business Association and one of Cork city's largest developers, said on several occasions that many retail operations have bypassed Cork city because they are unable to get flood insurance. If the current status quopersists when the OPW works in Cork are completed, how are we as a business organisation expected to encourage and recommend existing businesses to expand and spend thousands upgrading their premises? How do we expect inward investment, whether domestic or foreign, to our city when our insurance industry shows no faith in the flood defences. There are already areas suffering dereliction and neglect following the last flooding. Business owners have been unwilling or more likely unable during what was the worst recession to hit this country to raise the funds to repair the damage. Many have suffered physical or psychological illness from the anxiety and stress. The immediate and future circumstances of many have utterly changed. The human and economic cost has left many business owners broken or broke.
Let there be no doubt the current status quois unsustainable. On behalf of myself and my colleagues, I thank the committee for the opportunity to put forward our views on this issue and to raise some important questions about the provision of flood insurance. Our sincere hope is that these questions, views and concerns can be addressed in a meaningful way. We are happy to answer any questions from committee members.
I thank the three witnesses for their very comprehensive opening statements. I also thank Deputy Michael McGrath for bringing the Bill forward, which the Labour Party will be supporting. I hail from the town of Mallow. It would not be fair to say that I was born in the flood but I was certainly baptised in the flood. I live less than 100 paces from the River Blackwater. If I threw a stone from my house, it would pretty much land in the Blackwater. I have first-hand experience of flooding incidences on the Munster Blackwater and I know that the schemes that have been put in place in Mallow and Fermoy demonstrably work. There is clear evidence that they work.
There is no ambiguity about that whatsoever. The system of demountables that has been put in place has been extremely successful. I know of only one breach, which was in a very particular location and was due to an electrical fault on a pump, in the past ten years, and it has since been fixed. I, therefore, see no reason whatsoever for any entity or party to hold back flood insurance from any premises or business within the floodplains of Fermoy and Mallow. I concur with Deputy McGrath that we should not have to seek a legislative solution to this issue.
What is the perception of the three witnesses of the memorandum of understanding and how it is operating as it relates to the OPW and Insurance Ireland? It appears to me that it merely seeks to share information and does not go beyond that. There does not appear to be any statement of principles. For instance, when the OPW kicks the tyres on a successful flood alleviation project, the OPW's word does not seem sufficient within that memorandum of understanding, MOU, to give assurances to any constituent member of Insurance Ireland that it can proceed to provide insurance in any areas covered by flood alleviation works. There seems to be a complete flaw in that regard. That is my first point and my first question.
My second point - I would like the witnesses' perception of this - concerns something I find incongruous and contradictory about the involvement of a global player such as Arup. Arup's consulting engineers were engaged to assess the flood relief scheme in Mallow. The Lagan Group provided the consulting engineers on the second phase. Arup is a globally recognised company. It did not come to Mallow and carry out the works it did without itself having insurance. There are more than 100 names, including some very big ones, on the list of Insurance Ireland's members. Starting with the As, there is Accenture, American International Group, AIG, and Alliance; going down the list, there is Lloyds and Banco Bilbao Vizcaya Argentaria, BBVA. It is fair to assume that any one of these members of Insurance Ireland probably provided Arup with some degree of cover for the works it carried out. Therefore, it seems to me a contradiction that Insurance Ireland is happy to provide cover for consulting engineers who might provide works and kick the tyres on the works carried out, which then pass muster, and does not then provide cover after the fact, after the works have been successful - it is incontrovertible that they have been successful - for the people who benefit from the very schemes provided by companies such as Lagan and Arup. There is an inherent contradiction here. Furthermore, we are at a disadvantage here because Insurance Ireland always comes before the Oireachtas with one person as the representative of all of these insurance houses. I contend that we need to hear from individual voices who have provided insurance cover in the past but who do not have the guts, quite frankly, to come before us and give an account of their actions. I would like to hear from the witnesses how they perceive the contradictions I have just outlined.
I want to ask another, more specific question. It is a very simple question. Forgive me if it is a stupid one. I have always thought that the principles of insurance cover were such that an insurance house or company was legally obliged to provide a quote and therefore had to provide cover. Mr. Kavanagh spoke about the issue of excess but, regarding instances of people I know and people he knows not being able to get insurance, I always thought there was a provision governing the principles of providing insurance that one had to at least provide a quote for cover. Perhaps the witnesses could provide me with some information on that.
I will leave it at that for now. With the Chairman's indulgence, I might come back in for one more bite of the cherry.
Mr. Jer Buckley:
I will give the Deputy my interpretation of the questions he asked, and perhaps my colleagues will want to feed in afterwards. The memorandum of understanding was drafted by a very eminent civil servant, who is now retired, called Tony Smith. He did his best to set up an agreement between the insurance industry and the OPW whereby there would be a frank and open exchange of information. However, there is no buy-in from Insurance Ireland and no pressure. I would describe the memorandum of understanding as providing only for the exchange of information. There is no commitment to reinstatement.
The Deputy's point about Arup is extremely well made. Arup engineers were involved in building probably one of the most iconic buildings in the world, the Sydney Opera House. These are the types of companies we have coming into Ireland. As I have said before, we have some of the best schemes in the world. We have three experts coming to our national conference on Saturday, including Liesbeth van Riet Paap, a senior civil servant with Rijkswaterstaat, which is the Dutch equivalent of the OPW. Holland is a country that is partly below sea level. They say that if we lived in Holland we would drown, and if the Dutch lived here they would feed the world. The fact of the matter is they have worldwide expertise, and that is why we have invited them to our conference to speak. Ms van Riet Paap has visited Fermoy and can see absolutely no problem. The demountables are recognised as workable systems right across Europe, but insurance companies in Ireland are being let off the hook.
Regarding the provision of quotes, Mr. Kavanagh probably has more expertise than I do, but what we are finding is that insurance companies will quote a household but put in exclusions. They will quote the household and give it house insurance but they will exclude flood insurance, so one has house cover but no flood cover. In other words, the household has a policy that will protect it from fire but not flooding.
Mr. Paul Kavanagh:
Mr. Buckley is correct. There is only one compulsory insurance in Ireland, namely third-party motor insurance, which is required under the Road Traffic Act 1964. There is no other compulsory insurance. As I pointed out earlier, one can get a quote for a house on any website - some of them will blank it out if the proper postal code is put into the machine - but one will find that if one's premises is within 250 m or 500 m of a water source, which could be a stream, all flood cover is unfortunately excluded. The only principle to which I can refer in insurance is that the premiums of many are supposed to pay the claims of a few.
I have one final question. Mr. Kavanagh referred earlier to the risk profile. The risk profile, as I understand it, has become so low. Is there something that needs to be done from an OPW point of view regarding mapping? I am aware of mapping that has been used by insurance companies. They sit at the desk, a customer phones them, they look at the map and they say the customer has been kicked out of the system because the map in the first instance is the guide they use. Could we do something to address the mapping issue beyond the mere desktop? In other words, if we started drilling down into the histories, the amount of moneys that have been spent on demountables, flood alleviation works, arterial drainage and so on, we could start to create a more accurate picture of what is actually happening in reality.
I contend, and I would like to hear the witnesses' perceptions and opinions on this, that the OPW probably has to push harder against Insurance Ireland, in terms of how the memorandum of understanding actually operates.
Mr. Paul Kavanagh:
I agree with the Deputy's interpretation. Meetings did not even take place until the flood forum started to rattle the cage a bit. I asked on several occasions who were the individual representatives of the insurance companies, to be told off the record that he or she was gone and there was nobody at the time. Where this information was going and how high up the line it was going is very questionable. The memorandum has no teeth whatsoever. It does not force anybody and is only a sharing of information. The OPW needs to push harder from its side and the Minister needs to push harder. To give an example, slide 11 from our presentation shows a map of the town of Fermoy. The slide has red lines, the area within which we identified as the red zone, or the blacklisted zone. If one found the geocoding maps, and if one was able to get them, they would vary as to the parts of the map covered, but none would give cover within the red lines. They all vary. The CFRAM map is more detailed and needs to be forced into geocoding. One of the flaws is that the OPW still considers this section of Fermoy to be flood A rated, which means Cork County Council still sees Fermoy as being flood A rated, which means a house or a development with an apartment cannot be built within the zone. Planning permission will not be obtained without really pushing the boundaries. There needs to be a big push on the back of this, which is why we welcome the Bill in an effort to move this on.
Mr. Kavanagh mentioned Cork County Council. Historically, very clear protocols were set in place, whereby early warning systems in place for local authority staff are in towns such as Mallow and Fermoy. It is pertinent we are speaking about Mallow and Fermoy because they will have a bearing on what happens in Cork city down the line, in terms of their early warning systems, which are now so robust that the response times of staff in local authorities are extraordinary. They are par excellence. This is because of the historical nature of flooding events. What I am trying to glean, and we will have an opportunity to ask the Minister, is where the local authorities actually feed into the OPW processes on early warning systems and those exchanges of information. What Mr. Kavanagh has articulated is that there is still a gap between Insurance Ireland and the OPW on a raft of issues that need to be articulated and highlighted.
Mr. Paul Kavanagh:
As I understand it, the OPW has to hand over each project to the local authority and then the OPW is out of the situation. The Deputy mentioned a pump failing. Now there are three pumps in every pumping station, so if the first pump goes the second kicks in, and if that goes the third kicks in. We had a complete display of this from the OPW and it is absolutely state-of-the-art.
I will be very brief, as I have to attend another meeting in ten minutes. That is the nature of this place, unfortunately. I welcome the presentations and I will return, hopefully in time to hear Insurance Ireland presenting before the committee. It sent in its opening speech. I do not know whether the witnesses have had the opportunity to read it, but it is interesting because for the first time it admits demountable defences offer the same protection and risk as fixed defences, but it states the missing part of the puzzle, in its opinion, and perhaps the witnesses will give me their comments on this, is the human intervention in erecting demountable defences. Insurance Ireland states the discussion with the OPW needs to get onto this.
It is now admitting that demountable defences work and offer the same protection as fixed defences but there is a human element. It has given us some examples of where demountable defences have failed because of human intervention. All of the examples given are from the UK. None of them is from Ireland, interestingly enough. This tells its own story. One example given is a delay in 2007 in Upton Upon Severn in erecting the demountable defence because it was not deployed in time due to severe disruption to the transport infrastructure, itself caused by flooding. Will the witnesses give us comments on this, now that Insurance Ireland is admitting demountable defences offer the same protection as fixed defences?
Mr. Jer Buckley:
It is very interesting to see this movement with regard to demountable defences. This movement is very current, within the past week, and it is not a coincidence that we are before the committee today and Insurance Ireland is accepting demountable defences. It just shows the power of an Oireachtas committee investigation into something such as this, and what can be brought to bear. I do not believe the insurance companies come to the table with clean hands. I do not believe they have any willingness whatsoever to move. They will keep kicking the can down the road, which is why we need Deputy McGrath's Bill to pass.
The Deputy's point on the fact Insurance Ireland is now using human error as an excuse is interesting. This does not cut the mustard. There is human error if someone forgets to press the brake in the car. There is human error with regard to all insurance policies, but Insurance Ireland cannot give any example in Ireland to date, despite the worst flooding this country ever saw in 2015. Schemes in Clonmel worked perfectly with demountable defences. Schemes in Mallow worked perfectly, and they were fully tested, and there was the scheme in Fermoy. Between these three schemes alone, €115 million was spent. They are up and operational since 2014 and 2015, and we are in 2017 and the insurance companies still refuse cover.
It is essential that any committee member questioning the insurance industry drills down through the figures, because the insurance industry will blind them with figures today. They will give percentages and phrases such as "98% cover", and state they are not in the business of insuring an uninsurable risk. We are not speaking about an uninsurable risk. We are speaking about a risk that has been mitigated by some of the best flood defence schemes in the world, and we cannot get over this hurdle. We are talking about the whole centre of Fermoy having no flood insurance. If 98% of homeowners and businesses have flood cover, how on earth can we have this map, based on a survey, with all of the red zones shown? The whole centre of Fermoy is blighted with no flood insurance.
I agree with this analysis and it is something we have spoken about. I know of Mr. Buckley's personal experiences and the difficulties he has had in Cork. It is interesting that just before Insurance Ireland comes before the committee on the back of the Flood Insurance Bill it is admitting that demountable defences offer the same protection but putting in the caveat of human intervention. Based on the presentation it will give us, it states we need to look at strategies to address the issue of human intervention. This is a case of kicking the can down the road. It also states detailed work needs to be progressed in a very prudent manner to ensure insurance companies are not taking on excessive risk that would undermine their solvency.
Mr. Jer Buckley:
Two weeks ago, I was in a very famous stadium, which used to be called Lansdowne Road. It is now named after a famous insurance company, and €100 million from that insurance company went into sponsorship of the stadium. To me, this does not indicate a company at risk of insolvency. We have to call a spade a spade. There is not a willingness, and there will not be a willingness, by insurance companies to come to the table and address these issues in a proper way. The only way forward is Deputy McGrath's Bill. We are talking about a situation that has not been going on for just the past two, three or four years. We are talking about a situation that has been going on for the past ten years.
It cost €1.2 million of taxpayers' money to defend 130 houses. We surveyed the estate and of the 130 houses, 60 are without flood insurance. Nevertheless, we are being told that 98% of homes have flood cover. These figures have to be verified.
A point was raised about what could be done under a memorandum of understanding. One of the things that could be done is that Insurance Ireland could inform the OPW of the streets and communities in respect of which its members are refusing to provide flood cover. That is not a proviso and I am still arguing vehemently that Deputy Michael McGrath's Bill should go through. If insurers are claiming to cover 98%, perhaps we should turn the cart around. Perhaps the time has come for insurers to draw up a list after a scheme has been completed and admit that they are not insuring in particular areas. That would allow us to get to grips with this. There is no data. Heavy-hitting Departments - including the Department of Finance - are making serious decisions on the basis of data that has been given to them by Insurance Ireland and that has not been verified.
Mr. Jer Buckley:
What kind of Ireland are we going to have? In five to seven years' time, we will be wondering why Fermoy and Mallow are not thriving. A new scheme costing €35 million is being done in Skibbereen. Having waited ten years, people there think they are going to get their insurance back, but there is no commitment in that regard. Unless this Bill goes through, we will be back to the table asking why there is no flood cover despite the €35 million investment in Skibbereen and the 12-year wait of the people there, including the two years it will take to complete the scheme.
Mr. Pat O'Connell:
When the memorandum of understanding came out in 2015, many of our businesses cheered because they thought they were getting their insurance back. It was a fabulous PR job on the part of the insurance industry to give the impression that it was engaging closely with the OPW. The Cork Business Association has engaged with the OPW since 2009 on the upcoming flood defences in Cork to ensure that they work for businesses and people in the city and to give our support. The whole idea of a memorandum of understanding is that there is a result at the end of it. However, there is no substance to the memorandum, which is merely a commitment to share information. There is no commitment to do something at the end of it in the context of bringing in realistic insurance for flood areas where there has been a level of work by the OPW which is as good as anything in the world. I find it strange that the Irish insurance industry looks at the UK, where flood insurance has been brought back in, and says "They have had a problem over there". We have a problem here whereby five or six schemes have been put in already with no issues. We have had an incredible track record.
It is strange that we are before the committee this week and, suddenly, demountables are no longer a problem. Now, it is the human element. I drove from Dublin last night through miserable weather. Insurance companies expect me to press the brake pedal when I come to a red light. I am sure they expect me not to overtake at 160 km/h coming up the motorway. That is the management of risk and it is built into their pricing. It should not be an issue or a smoke-screen. There are businesses in Cork city that are on their knees because they borrowed heavily and provided personal guarantees after the most recent floods. I spoke to a prominent business person in Cork last week who had made the final repayment on a loan to redo a premises after the last flood. The figure mentioned was horrendous. That business has no insurance now and the considerable sum that should have been invested to drive the business forward is gone.
Businesses in Cork, which had flood insurance that was withdrawn following the flooding, borrowed significant amounts of money and put themselves into substantial debt and were then flooded again. As a representative of the Cork Business Association, is it Mr. O'Connell's view that we are going to spend €150 million on flood defences-----
Mr. Pat O'Connell:
That is also despite the incredible track record of the works already carried out by the OPW. We do not have to go to England to see flood defences; we have them in our own country and they work well. Demountables, solid walls and mounds work. There is no issue with flood schemes. Fermoy did not flood this morning. There is no issue there because they work.
I thank the witnesses for their presentations and Deputy Michael McGrath for bringing the Bill before us. If he was not bringing forward legislation, I would have done so because we have had a lot of experience of flooding in Mayo. I can identify with everything that has been said about the absence of flood insurance for businesses, particularly in the context of Crossmolina where we had the most recent flood event. Huge losses have been experienced and there is an ongoing refusal to provide flood insurance. Is there any improvement that can be made to the Bill from the perspective of witnesses? I will go to the witnesses one by one.
Mr. Jer Buckley:
We are not experts in drafting legislation. All Bills can be improved, but the thrust of this one and the aims it sets out are honest and true. I have no objection to anyone looking at the Bill and saying that we might need to tweak it here or there but I read through it with Deputy Michael McGrath and I do not see a problem with it. There might be a case for looking at the verification element of the Bill. As it works its way through the Houses, the Bill will become a very fine piece of legislation. I am very hopeful that it will pass.
Good. What the witnesses said speaks to two things having regard to our findings on the motor insurance industry. One relates to the cartel in operation within the insurance industry. Does any insurance company differ from the others or is there an absolute uniformity of approach to flood insurance?
Mr. Paul Kavanagh:
It could be seen to be that way but they all use different geocoding maps and have used different engineers to analyse the situation. Some companies use the same ones and some of them have changed. We would like them to work more closely with the OPW and to use the CFRAM maps. The word "cartel" is a dirty one and I do not think any of us can use it in that context. When one poses the question to the representatives of Insurance Ireland, the answer is "No, you are not getting flood cover in Fermoy". It is the same in Mallow and a list of other places I have. It is a pity Deputy O'Brien had to leave because not one house in the Lough in Cork, where the distance is 10 m, has flood cover unless it was bought when it was built in the late 1940s or early 1950s. Those people are being charged enormous sums of money. Elderly people come to us with bills of up to €1,500 for insurance they should be getting for €350. We have to tell them we can do nothing for them because they have been blanked out.
Even though people have lived in the property for 50 to 60 years and have never been flooded, they are blanked out because the insurance companies do not wish to provide cover in that area.
I want to examine this. Mr. Kavanagh has stated that people who always have had flood insurance suddenly have their flood insurance cover withdrawn after the State has made a significant investment and put measures in place. Why is that?
Is Mr. Kavanagh saying that the works that are being done under State investment are working against the people living in the area if it is informing the decision-making processes of the insurance companies? Would the area be better off having no flood defences and then the people would hold on to their insurance?
Mr. Paul Kavanagh:
There have been instances of that. However, in a survey conducted of the people of Fermoy, the vast majority are happy that there are no flood waters coming in and that there is no water coming up the toilets, as there was in Mountmellick last night. The word "insurance" has nearly fallen off the agenda because many people did not have flood insurance cover or, because they have had a previous claim, the flood cover was taken from their insurance policy.
Now, three years after the investment, the flood defences have been tried, tested and proven, there are three pumps in operation instead of one, and Cork County Council engineers are working 24-7-365 out of County Hall, observing the River Blackwater, and have answered all the questions that have been put to them by the companies. We have not seen that letter from Insurance Ireland that has been read out here. I would hesitate on the side of caution to see what is behind the letter because last year Insurance Ireland quite categorically said that they did not recognise the State investment in flood prevention measures. What has changed overnight? I would say it is the work the Joint Committee on Finance, Pubic Expenditure and Reform and Taoiseach has done and the introduction of this Bill by Deputy Michael McGrath.
I would say Mr. Kavanagh is right there. I want to address the problem on the data, because we came across a similar problem consistently right through the hearings we had around insurance and not having the raw data available. In the opinion of the witnesses, how can we get correct data and do the analysis that is needed on those data? Do the witnesses see that as the role of the Central Bank of Ireland?
Mr. Jer Buckley:
I would suggest that there are two ways in which we could do it. Let me pre-empt my remarks by saying it is not easy to get data on whether somebody has flood cover. Nobody who owns a home or a business wants to say he or she is financially weak or vulnerable. If we ask whether there is household flood cover, we may not get an answer to the question. One ways that the Government could gather the data is through the Central Statistics Office, CSO. The CSO is a reputable organisation and has a long and proven track record and history of gathering data, and there is legislation that gives it the powers to collect the data properly. This is one way this could be done.
The former Minister of State at the Department of Finance, Deputy Seán Canney, was the first Minister to insist that Insurance Ireland meet the Office of Public Works, OPW, more regularly and not just once a year. I believe it is far more frequent than that now. Under the memorandum of understanding, could we reverse the cart and tell Insurance Ireland that we are not interested in where it is providing flood insurance cover, but would like an answer as to where it is not providing insurance cover? We must put the pressure back on the insurance companies to come up with the data as to where they are not providing insurance cover, because Insurance Ireland would know where the insurance cover is not being provided. If there is to be an open, frank and honest exchange of information, we could reverse the question and find out where insurance cover is not provided, because it knows but it is not sharing that information.
Mr. Jer Buckley:
The source is the Houses of the Oireachtas Joint Committee on Environment, Culture and the Gaeltacht 2015 report on flooding and property insurance in Ireland. I am a huge fan of this document. I am a huge fan of both Houses of the Oireachtas. I believe politics works and this is proof of it. What I do not like is when an in-depth study goes on for three years, the report is published and it is then left on a shelf.
Mr. Jer Buckley:
I think the Irish Brokers Association, IBA came up with that figure, which we are quoting. We have audited areas ourselves, and we must be careful when doing an audit to build trust. We also have to be careful when sharing the information because we do not want to flag up a particular neighbourhood that has an issue. I think that would be very unfair and would put them at a disadvantage. We know ourselves from having gone into areas and checking them out, and our survey in Galway proves that, where 60 of the 130 households in an area where flood protection measures were built in 2011 today still cannot get insurance.
I think Mr. Buckley is exactly right. The insurance industry is exploiting the fear that people feel around insurance, for instance, that if they have insurance this year, they may not have it next year. If they do not have insurance, they suffer the implications of that. There is a collective fear in small towns such as Crossmolina where people do not know what the future holds. We had major rainfall in recent days and the small retail businesses have to weigh up whether to buy in stock for Christmas. As Mr. Buckley said, it is paralysing the growth of small towns, never mind the individual fear of residents and their families and of vulnerable elderly people as well.
I welcome this Bill. We will continue to contribute to it in every way we can to expedite its passage through the Oireachtas. I look forward to having Insurance Ireland before us. If Mr. Buckley were to put one question to Insurance Ireland in the next session, what would it be?
Mr. Jer Buckley:
I would ask Insurance Ireland to explain this map and why home owners and businesses on the streets marked in red cannot get insurance today. How does Insurance Ireland measure that up with its national statistics given the Fermoy or Mallow schemes, which are in Deputy Sherlock's constituency, in the second of which a massive culvert was built in 2014, at a cost of €39 million? How many places in Mallow are not now being insured? Clonmel is another example, where €41 million was spent on a flood protection scheme.
We must be forensic in our approach and drill down through the figures because the insurance companies will produce all sorts of statistics for those asking the question. The insurance companies will look at the issue from a national point of view, but we must look at it from a local point of view and from the point of view of a community that has experienced flooding.
Mr. Jer Buckley:
I believe this Bill will work. When legislation was introduced to ban smoking, people said it would never work. It has worked. The bottom line is that we will be the first country in Europe with a Bill such as this, but why should Ireland always follow other countries. Why do we not take the lead? We are good leaders. We are a small dynamic country and we can lead. We do not always have to copy what is outside. We can adapt the Bill if needs be. This is a solid Bill coming from a Deputy with vision and knowledge and who understands flooded communities. I see no reason it cannot do what it sets out to do. I do not think insurance companies should be afraid of it. In effect, insurance companies are reducing the size of the insurance cake by refusing to collect premia. This Bill is only looking at areas where there has been substantial investment in flood defences. It is not asking insurance companies to take on an uninsurable risk.
I welcome the witnesses. Although I am not a member of the joint committee, as a representative of Cork South-West I want to contribute to this debate because this legislation and the vision underpinning it should be supported. I commend my colleague, Deputy Michael McGrath, on the introduction of the Bill before the committee. It has been pointed out, correctly, that the Deputy has a vision. As a party, Fianna Fáil does not just talk the talk. We are actually walking the walk. Many people talk about the lack of flood insurance, but Fianna Fáil is doing something about it.
How do the witnesses view the position in west Cork at the moment? I am contacted every day by people who cannot get insurance, including some in towns where works are under way or have been completed. It is a very serious situation.
Mr. Paul Kavanagh:
As the Deputy is probably aware, we have offices in most of the towns in west Cork. As she has rightly suggested, it is devastating to see what it happening in these locations. We are trying to help people where we can, for example, by making a case for them. I repeat my earlier warning that if this Bill is not accepted, there will be no flood cover in the towns of Skibbereen, Clonakilty, Bandon and Bantry when these works have been completed. That is a damning indictment of the whole thing. I support the Bill because I have listened to my clients and the Deputy's constituents. They are the same people. I have heard the same complaints. That is why I am here.
There are serious problems with flooding in County Limerick, as there are in County Cork. I expect that the witnesses are reasonably familiar with the issues involved. In addition to tidal flooding, there has been flooding along the River Shannon as it flows down from Lough Derg. I have encountered many people who are unable to get flood insurance because their properties are on flood plains. I hope I am not going over old ground.
Have the witnesses had an opportunity to study in depth the draft CFRAM study that has been published? If so, what are their views on the study? Have they noted any significant changes from the previous maps that were prepared? Everyone agrees in principle that flood defences should be put in place. Various types of flood defences are possible. Permanent defences can be erected and demountable barriers can be installed. I have been asking my colleague about the precise nature of these possibilities. It is probable that there is an in-between option as well. I refer to incarnations involving return valves, etc. I would like to hear the views of the witnesses on the current CFRAMS maps.
From a practical perspective, do they think it is legally possible under EU directives to force or oblige insurance companies to provide insurance? I agree with the principle of this legislation, which is to require insurance companies under their own models to provide insurance if certain types of flood defences are in place. I would like to see that happen, but I am concerned about practicalities and legal aspects such as compliance with EU directives. I appreciate that the question of the practical implications on the ground is a difficult one. I welcome this initiative.
Mr. Jer Buckley:
The beauty of the study is that it highlights areas where there are possible risks for the future. In the context of the whole idea that we would designate flood plains for planning reasons, the CFRAM study clarifies to county and city councils what areas are at risk and sets out the details of historic flood events in those areas.
Mr. Jer Buckley:
That is not taken into account at all by insurance companies. They also have a massive plus here. In line with an EU directive from 2007, this country has completed a nationwide study of every community that is at risk of flooding. More than 300 communities have been graded under the CFRAM study. Unfortunately, the insurance industry has taken a very cynical approach to the hard work that has been done by the OPW. It has used the memorandum of understanding under which information is exchanged to geocode areas in that study. I think that is a very cynical approach. I would prefer the industry to take a more open and positive approach.
I will cut to the chase regarding the question I am asking. Is there a route, parallel or otherwise, through the new CFRAM study that is coming out? A draft version of it has been made available to people. Individuals in my local area in Limerick city have looked at the CFRAMS and found that changes to the old maps have been made in the new maps. What I am saying is that it is a living document.
Does it present an opportunity to put manners on the insurance industry and to ensure people who may be affected by events that are expected to take place once in 100 years, according to the CFRAM study, would have to receive insurance quotes?
Mr. Jer Buckley:
In addition to talking about studies, we have been talking today about flood schemes on which significant sums of money, in one case, €41 million, have been spent. Some €50 million has been spent on mapping. Some €100 million will be spent on capital works schemes and a further €100 million will be spent next year. If businesses and home owners in areas where protection schemes have been completed cannot get insured, how on earth are we going to get them over the line with regard to the CFRAM study? That is precisely why this Bill is needed.
I would like to add a different voice to this debate before I ask Deputy Michael McGrath to wrap up this part of the meeting. Even though most of those from whom we have heard so far this morning have Cork accents, this is truly a national issue. I know the witnesses respect that. We are mindful that people in the midlands have been affected by the horrific flooding of their properties in recent days. A huge flood relief programme on the River Nore in Kilkenny city has been completed and is working. If that had not happened, properties all around the centre of the city and on the margins of the city would have been flooded. In spite of that scheme, there are properties that are still failing to get proper full insurance cover or are being loaded with premiums that are so excessive that they do not bother to get insurance. I do not think that is acceptable.
I agree fully with the points that have been made about the lack of data. A similar point was made when we were discussing vehicle insurance. I commend Deputy Michael McGrath on the introduction of this Bill which sets out a way forward in this respect. The committee has a keen interest in this issue and wants to pursue it further. I have no doubt that as a result of the focus that has been placed on this Bill, it will be possible for some changes to be made. It is definitely more difficult to fight this issue because of the attitude of the insurance companies which have let the citizens of this country down when it comes to insurance cover. This point also applies to other forms of insurance that are provided.
There is a need to break what seems to be a cartel and its power over the future cover of people who are affected, and this Bill will deal with that. Deputy McGrath has shown great leadership and is a visionary in this area.
That is the kiss of death if ever there was one. I will be brief. I thank sincerely our witnesses for the effort they made to be here and for the work they have put into this over a prolonged period. It has to be acknowledged that they have brought the issue centre stage in terms of the political agenda. That in itself is an achievement and now we want to achieve progress and get the issue dealt with.
In advance of today's hearing the Oireachtas Library and Research Service produced a document which is a very good summary of all the different strands to this issue. We will share this with the witnesses. It has included a good table with the key statistics. I agree with the witnesses that it is about probing these statistics and asking the right questions, and that there is a need for independent validation. The first job that has to be done in any analysis is to validate the data. Mr. Jer Buckley and I would have discussed previously the estimate of the number of homes without any insurance policy. The Library and Research Service has the reference to it in this document. It comes from a Department of Finance report in 2010 which estimated that 33%, or 570,000, of households were estimated to have no household insurance. That is aside from the issue of flood cover. On Mr. Kavanagh's point, many people do not even know whether they have flood cover in their insurance policy. I would not know that. I would have to dig out the policy schedule, examine it and see if I have flood cover. I believe people would not know that. They may know in the areas affected because it would have been brought to their attention that they no longer have flood insurance cover.
The statistics from Insurance Ireland, which we need to probe, show that 98% of all household insurance policies have flood cover, which we touched on earlier, and that 83% of property insurance policies in areas which recently completed flood defences have cover, but that is those that have policies. There are many that do not have policies for a variety of reasons, but in some cases the reason would be that they cannot get flood cover and there is little point in having a policy. That has to be probed. Insurance Ireland says it is at 89% coverage where the defences are permanent and at 78% for demountables. It is even acknowledging that in areas where schemes have been completed and there are demountables, more than one in five of those in such areas who have a household insurance policy have not been given flood cover. It has acknowledged that even in its own statistics, which are not validated.
There is no information on the issue of excess, which is a key element in any insurance policy. We can quote these statistics about the percentage that have flood cover, but if one has to cover the first €2,000, €5,000 or €10,000 of one's policy, that raises serious questions about the value of that cover.
We have to bear in mind the consequences for people of having no flood cover. We spoke about households and for them it is largely piece of mind. If they are not going to be flooded again, not having insurance for it is a piece of mind issue, but it is more than that if they have to sell the property because a prospective purchaser will have to demonstrate to the bank from which he or she is borrowing that, before they get the mortgage, that they can take out an adequate insurance policy in respect of the property. That would include flood cover, certainly in areas where there has been a risk of flooding in the past. We spoke about the consequences for businesses, and it is a key issue for them. I know of a number who have no cover, not just flood cover but no cover at all, and who are taking a crazy risk because they are potentially liable, including when it comes to personal assets, homes and so on.
The key thrust of the Bill is what we have to bear in mind and section 3 is the meat of it, so to speak. It states that insurers cannot and shall not discriminate as between people and businesses in areas where schemes have been completed and in areas where there is no risk of flooding anyway. That is the key measure. They cannot discriminate on the question of, first, whether an insurance policy is offered and, second, on the price at which it is offered other than to the extent reasonably justified by the current risk profile associated with a property. That is a very fair presentation for the industry and one that should not be too onerous on it to comply with. The adjudicator on whether it would be reasonably justified is ultimately the ombudsman. Similarly, they cannot differentiate on the other terms either. That is a key point.
On Deputy O'Brien's comments about what Insurance Ireland representatives will tell us and what is in their opening statement in order that the witnesses know for the record, the key line, which is probably not altogether new but might signal some progress, is that they say they accept that at this early stage in their cycle, the OPW demountable defences appear to be performing well. They then go on to state the caveat about human intervention and cite the four instances in the United Kingdom where they claim there was a failure of demountables because of human intervention and so on. We will question them.
I should say to the witnesses that this Bill, before proceeding to Committee Stage, which is the next Stage, requires a money message from Government. I do not expect them to be aware of all the technicalities but the Ceann Comhairle has made a ruling, not just relating to this Bill but on a number of other Bills, that where the Bill potentially involves the expenditure of public money, which in this case is very modest and in respect of which the only additional expenditure is potentially extra resources for the Ombudsman to deal with cases, and given that there is a role for the Central Bank in the Bill, from which I assume the interpretation is that the Bill imposes potential additional costs, for the Bill to proceed, the Government has to provide a money message to this committee. That is a decision of Government so it is an issue on which we will press it.
I thank the witnesses again for their contributions and we will continue to work on this issue. The information they have armed us with and the practical information on the ground is extremely helpful. We will use it as best we can in the next session.
In this session, the joint committee will hear from Mr. Kevin Thompson, chief executive officer of Insurance Ireland, and Dr. Swenja Surminski of the German Research Institute, London School of Economics. I welcome the witnesses to this meeting.
I remind witnesses and members of the privilege notice which I read out earlier.
I invite Mr. Thompson and Dr. Surminski to make their opening remarks.
Mr. Kevin Thompson:
On behalf of Insurance Ireland, I thank the Chairman and members of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, for the opportunity to contribute to its assessment of the Flood Insurance Bill 2016.
As the representative body for the insurance industry, our members underwrite the vast majority of flood insurance premiums in Ireland. Our members also have extensive experience of flood defence policies internationally and their interaction with insurance cover.
I will keep my remarks brief and cover the policy context of the current Government flood policy before addressing the Flood Insurance Bill 2016 directly. I will also provide members of the committee with a brief overview of how Insurance Ireland responded to Hurricane Ophelia. We will then be available to discuss these issues with the members present today.
Regarding the recent severe weather events, Insurance Ireland members, along with most other businesses nationwide, closed offices on Monday, 16 October for employee safety reasons. Claims management teams deployed their individual weather catastrophe plans. This included walking through first response procedures; refreshing claims handlers on those procedures; deploying telephony surge protocols and activating first notification of loss protocols, enabling claims personnel and customers to complete initial registration online. Staffing levels within the first notification protocol teams were closely monitored over the following days.
Insurers, therefore, undertook several measures to ensure policyholders and claimants were dealt with in a timely and efficient manner and are now focused on the resolution and timely payment of claims. It is worth noting that the majority of Ophelia-related claims are low value, where private dwellings were not rendered uninhabitable and therefore the need for interim payments did not generally arise. As expected, the majority of losses occurred in the south, with the following geographic spread observed to date: Cork, 30% claimants; Tipperary, 10%; Wexford, 7%; and Waterford, Limerick, and Kilkenny, between 5% and 6%.
Regarding policy and key trends, Insurance Ireland is committed to working with the Government, the Office of Public Works, OPW, and other agencies of the State to support the policy of a sustainable, planned and risk-based approach to mitigating flooding. Insurers play an important role in working with the Government and its agencies to help meet the needs of those who require flood insurance. Insurers want to underwrite risk and they want to broaden coverage and that has been borne out in recent years with 98% of home policies in Ireland having flood insurance. In 2014, Insurance Ireland signed a memorandum of understanding, MOU, with the OPW. At its core, this MOU creates a system whereby the OPW shares information on the defences it has completed, and Insurance Ireland members take this information into account when underwriting these risks and seeks to ensure cover in these protected areas.
Insurers work to a fixed one in 100 year standard of flood defences. Where defences have been completed to this standard in what are known as defended areas, coverage rates for flood insurance increased.
We would like to be clear about how we arrive at our figures. The only reliable measure on which we can collect data is the percentage of policies that have flood cover. This is the only reliable baseline data. There are a lot of properties which for any number of reasons are not insured and as such they will greatly skew the coverage rates. We believe the policy is working and, although it is gradual, progress is being made in a sustainable manner for both communities and insurers.
Regarding demountable defences, a key feature of the discussion on flood defences has been around the issue of demountable defences or schemes that have a demountable element. From an insurance perspective, the human intervention required to put in place flood defences is a key variable and one which is difficult to resolve. We accept, at this early stage in their cycle, that the OPW's demountable defences appear to be performing well. However, there have been a number of demountable failures in the UK in recent years. For example, in 2007, the Upton-upon-Severn demountable defences were not deployed in time due to the severe disruption of transport infrastructure caused by flooding. We had a similar instance in 2012 in Kempsey, Worcestershire, where a faulty sensor caused the failure of a demountable defence. The sensor had become waterlogged due to heavy rainfall and then two pumps that were designed to start automatically failed. Another example is York in 2015. Finally, a temporary steel defence was not erected in Llanrwst in Wales. We have also experienced this situation closer to home. In 2011, there was a failure to deploy a demountable defence for the River Dodder.
We have been working with the OPW and the Government to get to a place where progress can be made on the demountable issue. I am pleased to be able to update the committee that our discussions are making progress. Insurance Ireland has informed the OPW and the Department of Finance that the following detailed negotiations with our members agreed that once demountables defences are erected in a timely fashion and correctly installed, they offer the same protection and risk as fixed defences. The missing part of the puzzle is the human intervention to erect the defences. We are beginning to look at strategies to address the issue of human intervention. This is detailed work and needs to be progressed in a prudent manner to ensure insurance companies do not take on excessive risk that would undermine their solvency, this in turn is to ensure that they have sufficient revenues to meet the needs of their future claimants.
On the Flood Insurance Bill 2016, given the policy context and the current issues being worked through, it is our considered opinion that the proposed legislation will not achieve its stated aim of building coverage in defended areas. We recognise the concerns that exist in parts of the country where flood cover is not yet available. However, when looked at in national and international contexts, we have a sustainable model for flood protection that is linked to an appropriate national policy. The interdepartmental flood policy group stated last year that the current focus on prioritising flood defences in areas at risk and working with insurers through the OPW is the best approach The memorandum of understanding, MOU, is working. It is our firm belief that it will continue to work into the future.
Finally, there has been a lot of discussion about a national scheme similar to Flood Re in the UK. We caution against such an approach. Flood Re has estimated that the average cost to repair an impacted dwelling is between £20,000 and £45,000. In the UK Flood Re only applies to residential properties built before 2009. Also, in the UK, Flood Re covers approximately 2% of policies. It is our belief that the Department of Finance estimate that a Flood Re system would result in a levy of between 9% and 16% being imposed on every household policy every year is on the light side. It could easily be envisaged that such a levy could rise above 17%.
I thank the committee for the opportunity to appear before them today. We look forward to discussing the proposed legislation with members.
Dr. Swenja Surminski:
I thank the committee for the invitation. In 2015, I gave evidence here which triggered my interest and led to a project that I did with the Environmental Protection Agency. I am quite grateful to be here and hope that my work will contribute to this debate. Part of my work involves working with University College Cork.
Before delving into the technical details it is important that we recognise that flooding is a real concern and threat. Yesterday and last night flooding occurred and it is ongoing. Often when one conducts research one views it through a very technical lens. It is really important that we understand the concerns of the businesses and home owners who struggle to get insurance cover.
My remarks will be structured around three points, which are mainly based on my policy paper that I am sure the committee has seen before. I will commence with my understanding of the underlying problem, which is why we are having this welcome and much needed debate. As I always say, there is a cause and a symptom. While there is certainly a need to provide some interim solutions that will help people who are struggling to get flood insurance, it is important to understand the threat of flood risk and the related decisions in terms of planning policy and investments made to defend areas. I know from my work here that a lot of progress has been made. I wish to underline the fact that the OPW has made significant progress and the amount of data available has increased significantly. Also, a lot of effort has been made around climate adaptation. Clearly, however, this does not resolve the issue for the people who are currently struggling and that is the problem the Bill tries to address. Overall, it is important to recognise that the flood insurance market works for the large majority of people in this country. That is not an understatement because, compared with a lot of other countries where there is no flood insurance market or where all of the flood insurance is provided through the government, that is certainly an achievement. That does not resolve the problem for the people who are currently struggling but it is important to keep that in mind when considering ways to address their current problems.
I will outline my observations so far. In terms of addressing the problem of businesses and home owners struggling to access flood insurance, it looks to me a little like a blame game between the industry on one side and either those affected but also, to some extent, the Government on the other side. My intervention here is to identify ways to resolve the blame game.
I value the debate that the Bill has triggered and to some extent, the debate is overdue. The legislation, however, raises two questions. First, is intervention through a Bill necessary? Clearly, there is need for action, more investment, better transparency, data sharing and a stronger commitment by the industry and support for those who struggle to access insurance. It is clearly an issue that needs to be addressed. The second question, however, is whether the Bill addresses this matter. I believe the Bill as currently drafted does not address the problems. I will highlight a couple of points. While members have more experience than do I when it comes to drafting Bills, on looking at the text, the current wording raises a few questions. For example, I refer to the aspect of what is reasonable in trying to understand how insurers can reasonably discriminate. The legislation generates many questions such as who would make that judgment and decision, who would agree on flat-risk profiling and who would become the arbitrary body.
The Bill only considers one problem, that is, where insurers are apparently or supposedly not taking into account the existence of new or existing defences. That is a frustrating issue and it is clearly not right. I do not think one needs a Bill to resolve the matter and will outline a couple of ways in which this matter could be resolved. It is key to understand where the underlying information issue sits because there is the big issue with how current is the information and how current are the maps that are being developed.
How good is the information held by the insurance companies themselves and how transparent is it? Outlining those questions, it will be clear that many have no clear answer. That is the key issue here. We do not have a transparent approach to rating flat risk, and there is no transparent approach to showing how that flat risk is evaluated by insurers and how it is communicated to home owners.
Before I give a few suggestions on how this might be addressed, I will conclude my remarks on the Bill. I feel that in its current version, the Bill might have an impact on the market which should not be underestimated. Among the possible responses are lower coverage levels, so insurers might just review their existing provision of cover to properties, and there could be some concern on solvency. We should recognise that if flat insurance is provided through the private market, then there must be some space for insurers to do their assessment and pricing. From discussions, I realise that is recognised by the Bill's supporters but the mechanism as currently provided for in the Bill would not work. The alternative would be to have a national insurance system, as in the US, where this issue is resolved because there is agreement on flat maps and flat risk and rating. This can raise many other questions, however, and I do not know if flat insurance is the way to go.
Where do I see the potential to resolve these underlying issues? We often hear about the memorandum of understanding. It is a step in the right direction but I do not think that it works as well as it could or should. There must be a more transparent approach. My recommendation would be to take the memorandum of understanding as a starting point but to revisit it and devise a new version. We cannot hide from risk data and modelling. Next year, a new insurance flat risk model for Ireland will be put into the market and there will be much new information coming through that. It might raise some concerns with people worrying that it might lead to higher premiums and make the situation worse. That is not how a flat insurance market should work. We need to understand how insurers consider risk data and how it impacts on price and on underwriting decisions. That transparency is necessary. There must also be greater sharing and speedier sharing - there is a delay with data about new defences being made available and then put into a flat risk models used by insurers which is unhelpful - but the insurers must also be more proactive. I can say that because I used to work in the insurance industry before returning to academia.
I work with many insurance companies internationally which also underwrite here. There is an overarching commitment and recognition that insurers want to play a role as society's risk manager. Ireland has an opportunity to hold the industry to account on that because clearly there are issues where that does not work. The main issue where this could be adjusted easily is that of transparency. Will this resolve the problem for those currently struggling to secure insurance cover? It should, in the longer term, but now it does not. There should be a discussion around options around deductibles, ensuring that even in high risk areas people can still access insurance, perhaps not flood insurance but insurance as such, because if someone cannot get any insurance then there is really a problem. We also need to track the scale of the problem. How many people are currently affected? How many will benefit from new defences? There is not much understanding or clarity on this question because different figures are being produced and it is not enough on which to base a strong intervention.
I will finish by reiterating that issues need to be addressed but by resolving the distrust and the lack of transparency, we could get quite far. If that does not work, there is a strong case for the Bill but we are not there yet. I hope my remarks are taken as encouragement to go back to the drawing board with the memorandum of understanding and make it work to begin with.
I welcome the witnesses and thank them for their contributions and opening statements.
I will start by addressing Mr. Thompson. I do not know if he saw much of the earlier session that we held with the Irish National Flood Forum and the Cork Business Association. The key question that emerged from that session is one of which Mr. Thompson will be aware. There are towns where the Office of Public Works completed flood relief schemes several years ago and these schemes have proven successful, having been tested against very severe weather conditions and flood events which would have flooded the areas in the past. There is a map of Fermoy in County Cork which Mr. Thompson may not have seen, on which all the areas within red lines have been denied flood insurance cover despite being located in a town where a very significant public investment of €35 million has resulted in an effective flood defence system being put in place. Why do the members of Mr. Thompson's organisation continue to deny people and businesses flood insurance cover in situations like this?
Mr. Kevin Thompson:
Flood coverage is actually increasing. We have given our statistics which illustrate that to the Office of Public Works. For fixed defences, we are up to a coverage rate of 89% and the rate for the demountables is 75%, which gives us an average of 83%. From our perspective, the memorandum of understanding is working. Coverage rates are increasing and we would envisage that they would continue to increase over time. Nevertheless, we recognise that it takes time for coverage rates to increase and get to a level that the public demands. Equally, insurers must act in an prudent manner. They must be cognisant of their solvency and the risk they take on. To increase the coverage rates, it would help if the industry to return to a more profitable state. Once that happens, capacity will increase and new capital will come into the market with new providers, which will increase coverage.
There are also situations in particular areas where certain insurers will have reached their concentration limits in the context of their own risk appetite. In the management of their own capital, the committee will appreciate, certain insurers in a given area will decide that they have taken on as much risk as they can there. That is why it is important to encourage new entrants into the market, in order to provide additional capacity so that over time we can increase the coverage rates. We firmly believe that the Office of Public Works is working as is the memorandum of understanding between ourselves and the Office of Public Works. That is borne out by the coverage rates.
I also recognised some of the comments of earlier participants. There were two observations. One related to the industry's breach of consumer protection codes on loss assessors. We tell people that where there is evidence of breaches in specific cases, this should be brought to the Central Bank.
We would encourage participants to do that.
On the issue of retention limits, it is important for the committee to understand why they exist. Insurers make an advance payment to an affected claimant to allow him or her to conduct remedial work at no financial loss to himself or herself. They withhold a percentage of the claim amount until such time as they have confirmed that the works completed by the third party are to the required standard, following which they release the moneys. The consumer is in no way disadvantaged, from a financial point of view in particular, by retention limits.
Mr. Thompson mentioned in his opening statement that the only reliable baseline data he has is the percentage of policies that have flood cover. Does he have an up-to-date estimate of the percentage of homes in the country that do not have an insurance policy in place?
The 2010 estimate is that one third, 33%, do not have insurance cover but there is no up-to-date figure in that regard. The statistics quoted by Mr. Thompson regarding the percentage of property insurance policies that include flood cover relate to households that have a policy in place. Mr. Thompson also said that in areas where flood schemes have been completed, 83% of property insurance policies include cover against flood risk and that that percentage increases to 89% in areas where the flood defences are permanent and decreases to 78% in areas which have demountable defences. In regard to policy excess, we heard from earlier witnesses of significant excess amounts being in place. The percentages provided by Mr. Thompson are industry numbers rather than numbers provided by any public body and so we have to take Mr. Thompson at his word. What criteria are used by Insurance Ireland members to determine excess regarding flood cover?
Mr. Kevin Thompson:
It is impossible for me to comment on the underwriting criteria of Insurance Ireland members. That is a matter for individual members. Each of them will have a different underwriting criteria in terms of how they approach any risk. The underwriting approach of each insurer will determine whether it takes on a risk in the first instance or takes on a risk with terms or excesses appropriate to it. Generally, the criteria used is the claims history of the house, the location of the property and whether it is in an area that is a defended or undefended and the claims history in that area, particularly in relation to flooding. Numerous criteria are used. Each underwriter will have its own underwriting criteria to which it works within its risk appetite.
If there is a high excess amount attached to a policy an insurer could claim that the policyholder has flood cover, but it comes at a very high price if the policyholder is taking the hit for the first X thousand of euro in the event of a flood event occurring.
Mr. Kevin Thompson:
The industry did not develop geo-coding. We believe it is redundant. Insurers use Eircode now because it is a more precise tool in helping insurers identify a property's location. Geo-coding was a crude tool in that it did not allow for elevation. It captured a particular area but there could be numerous houses within that area. At one end of the spectrum a property could be in a low-lying area close to a river and at the other end it could be on an elevation but each would be captured within the same geo-coding. We are now using Eircode which pinpoints the location of an individual house. We believe Eircode is effective and should feed through in terms of how companies assess underwriting risk and should be to the benefit of consumers.
Does Mr. Thompson have any data on the number of homes or businesses whose flood cover was withdrawn at the point of policy renewal even in situations where schemes in their areas have been completed by the OPW?
On demountables, I recall that when the OPW put draft plans on display for the Cork flood relief scheme in the summer of 2014 Insurance Ireland issued an immediate statement to the effect that permanent fixed flood defences built to a standard of one in 100 years as of 1 January 2012 are the minimum that should be implemented if insurance is to be a viable proposition in the areas to be defended. Has the position of Insurance Ireland changed since then? If we are to invest up to €150 million on demountable defences for Cork, what assurances do businesses and homeowners have that flood insurance cover will follow? The same applies to other communities around the country where flood schemes are planned, involving demountables.
Mr. Kevin Thompson:
In regard to Cork specifically, we would need to see the final plans and what has been agreed regarding a particular scheme before we could comment on it. In regard to fixed versus demountable defences, Deputy McGrath is correct in terms of our commentary in 2014 but things have moved on slightly. Since then, we have been in extensive dialogue with the OPW on demountables. As per my statement, we recognise that demountables to a one in 100 years standard, if deployed correctly, provide the same level of coverage as a fixed defence. We are not in contention on that issue. The concern of the industry is in regard to the deployment of demountables. We are in discussions with the OPW around the protocols of deployment and, more important, if those protocols fail, what redress will be available. As stated earlier our goal is to increase coverage. That was the purpose of our signing the memorandum of understanding, MOU. We are working with the OPW to increase coverage.
Mr. Kevin Thompson:
Yes. In 2011, a demountable defence on the Dodder was not deployed. There was also an incident in Limerick and Shannon recently whereby a gate was not opened to allow flood waters to pass through. One could argue that these are isolated cases. Insurers need to know what the protocols are in regard to every demountable scheme and, equally, what redress will be available if they fail. The difficulty we have with demountables is that if one fails there will be a high financial impact arising in that regard. We need to know the protocols around demountables and we are working with the OPW on the matter.
Is Mr. Thompson confident that through its work with the OPW, Insurance Ireland will reach the point of being able to recognise demountables as of equivalent standard to permanent defences and will treat them equivalently in insurance terms? How close are we to that point?
Mr. Kevin Thompson:
We will engage in detailed conversation with the OPW. Resolution of this issue will take time. As stated we are already in dialogue with the OPW on how failures in regard to deployments are to be addressed. We entered into this discussion in good faith and we will continue it in good faith.
I thank Dr. Surminski for her opening statement in which she referenced transparency a number of times.
She said there could be a lot of progress regarding transparency and that this might go a long way to resolving the issue. Can Dr. Surminski explain, in practical terms, what needs to be done to achieve what she believes can be achieved? On the principle of flood cover being provided in areas where schemes have been completed by the State to the required European standard, have been tested and have been successful, what can be done to ensure those communities can get access to flood cover on reasonable terms?
Dr. Swenja Surminski:
Regarding transparency, there are certain elements, for example, when one starts with a flood insurance policy or the policy documentation. This has been one of my concerns and the same applies to the UK. There is just no indication of someone's risk level on policy documentation. A person renews his or her policy, receives the policy document and pays a premium but it does not really tell him or her anything about the specific risk. There is no reason why insurers could not do that. The next step involves explaining what options would exist, for example, if an insurance company assessed the risk and the consumer did not agree. It creates that first step and there then needs to be a process. The latter exists in some countries. For example, there is a mechanism in Australia where there are certain forms policyholders can complete if they disagree with that assessment and they can then launch that appeal to Insurance Australia and start a dialogue. This is just an example but one needs to start somewhere with transparency. When it comes to pricing, clearly, that is a commercial decision on the part of insurers. Transparency is more difficult in this area because one is not pricing just for floods but for the entire package. Again, however, it could be argued that there could be greater transparency regarding how the rates might be affected by flood risk. That works in other countries as well, so these are two examples.
In a situation where there is evidence of a flood defence scheme being put in place, being tested and working, there is no reason why that should not feature in the flood risk models insurers use. Having said that, there are lots of other potential reasons which might count against an insurer underwriting in that particular region and which might have nothing to do with flood risk. Again, this comes back to the point about transparency. There could be a mechanism whereby there is a degree of disclosure regarding the decision about not granting cover. There needs to be an explanation attached to such a decision. From experience, I know it is quite difficult to then pinpoint where the efforts are exhausted because the question arises as to what one expects from a shop owner, for example. How many efforts does a shop owner need to make before he or she comes to the conclusion that there is no insurance cover available? This is something that needs to be looked into to because if someone has called ten insurers or five brokers, does that mean that the person is uninsurable? There is probably a mechanism - possibly with Insurance Ireland - that could be simplified and some sort of signposting - such as a dedicated service for people who are struggling to access insurance - put in place. These are things that have been tried and explored in other countries, so there is scope to do that.
I thank the witnesses for their presentations. In respect of the profitability of flood insurance, Dr. Surminski's submission indicates that in Denmark, 15% of premiums are associated with flood insurance. What percentage of premiums here are associated with flood insurance?
Mr. Kevin Thompson:
We do not make the business decisions. We are only the representative body. Individual insurers make those decisions. Each individual insurer will quote a price based on a household policy and there will be certain lines of cover in that which the customer will choose. Generally, flood is a standard peril that is included in the policy and the insurer would price around that accordingly . Insurers judge the profitability based on the overall claims that come in during a given year versus the premiums they take in.
I am just trying to get at an aggregate figure for the industry regarding what is happening in respect of profits because, usually, if one follows the money, one can get the answers to some of the questions. How much is involved? What are we looking at in terms of flood insurance and what are the payouts with regard to the premium costs?
Mr. Kevin Thompson:
To provide some context in terms of the moneys we are talking about, the industry has paid out over €1.3 billion in respect of severe weather events, the majority of which have related to flooding. That provides the context of the quantum of numbers we are talking about and the premiums we must collect to meet those demands. As I mentioned in my opening statement and in response to Deputy Michael McGrath, the challenge here is that, in terms of flood insurance, the probability is low but once it happens, the impact is high. The financial impact can be very high. That is how insurers have to price accordingly, particularly for areas that are more exposed to this type of peril. That is the quantum of money we are talking about - over €1.3 billion in claims.
Mr. Kevin Thompson:
I can draw it out clearly for the Senator. If she looks at our fact file for previous years, she will see that the industry has been substantially loss-making across all lines of business. We are finalising our 2016 figures and I think they will indicate that the industry, as a totality, has been in a loss-making situation. That has been reported by the Central Bank as well. The figures are out there. We are taking in less in premiums than we are paying out in claims. Those are the facts.
So the raw data that we talked about so much in the other situations is now available. We have the percentages and all of that with regard to the data, and I acknowledge what Mr. Thompson has said here, but it is difficult to get a proper picture of where we are. We are told that 50,000 households are without flood insurance. Does Mr. Thompson agree with that?
Mr. Kevin Thompson:
I do not know to be honest. What we are saying is that, from an insurance perspective, we have a high penetration rate in terms of insurance coverage than most European countries and a high penetration rate in terms of flood coverage compared to other countries and our coverage rates are growing.
Let us have consider the position. My concern relates to the businesses that cannot get insurance in the towns where activity has stagnated on foot of the fact that, despite the investment which has been made, it is not possible to get insurance. I will not even go in the direction of where the OPW has not carried out or completed works. Can Mr. Thompson give us a map of the streets in the areas in which, as matters stand, insurance cover will not be provided? Let us forget about percentages. I just need to know the areas where flood insurance will not be provided. Can the committee get this information?
Mr. Kevin Thompson:
We do not collate that information. It is down to each individual insurer to price risk accordingly in the areas presented to it. We do not collate that information. We collate at an aggregate level. It is very simple. We ask our members the number of household insurance policies they have issued and, of those policies, the numbers which include flood cover. We do not go into any more detail than that. It is up to each individual insurer.
That is the problem. Transparency is so important in this area, as it is in other insurance areas as well. We know that whole areas are being refused insurance and yet an organisation such as Mr. Thompson's does not think that information is valuable.
If whole areas of the country are excluded from insurance that is a problem. That is why Deputy McGrath's Bill is so important. It must be enacted so that insurance cover can be obtained for those areas and for the individuals living within them.
Mr. Kevin Thompson:
There are two things there. First, as an industry we support the ambition of Deputy McGrath's Bill, which is to increase coverage. We are not in dispute on the ambition of the Bill. Our firm view is that the memorandum of understanding, MOU, has increased coverage and continues to do so. We are working with the Office of Public Works, OPW, to increase the coverage even further. I did not say the data were not valuable. Obviously, data are valuable. The point I am making is that, as an insurance body, we do not collate information around particular underwriting protocols or the reasons behind individual companies' underwriting decisions. That is proprietary to them. We do not collect that information. We collect information at a very high level which does not infringe any of the proprietary rights of our individual companies. That is the reason.
If the memorandum of understanding was working, however, we would not be here today and there would not be whole areas telling us that they are not getting insurance. It is obviously working for someone but it is not working for the individual businesses and residences. That is part of the problem. Will Mr. Thompson explain why, if someone has been getting insurance continuously on a yearly basis, the insurance company would decide not to cover him or her any more after the works are done and the investment is made? Why would that be the case?
Mr. Kevin Thompson:
I cannot comment on individual cases. I can only comment of the memorandum of understanding and the terms. I would argue that the memorandum of understanding is working. Coverage rates have been increasing since the MOU was agreed. I accept that there is a bit of a way to go but the trajectory is moving in the right direction. Coverage rates are increasing and it is our view that they will continue to increase.
We will only know that when we see the actual maps rather than the percentages. The lack of data and transparency really muddies the water. On that basis I really welcome this Bill. I will leave my questioning at that.
I will return to the demountable defences for a second. Mr. Thompson gave clear examples, four in total, which are all from the UK. Let us work through the examples. In 2007 in Upton-upon-Severn "the demountable defence was not deployed in time due to severe disruption to the transport infrastructure caused by flooding." What does that mean?
Mr. Thompson spoke about protocols for deployment. To what extent are Insurance Ireland and its constituent members drilling down into the deployment protocols in respect of pending or rising flood waters? Take, for example, the Blackwater flows through Mallow and Fermoy, where there are demountable defences. To what extent have Insurance Ireland's constituent members seen at first hand or examined the protocols which exist in respect of those two towns' defences?
Mr. Kevin Thompson:
From memory, we know anecdotally that at least some of our members have been to look at the Fermoy scheme. We know that. From Insurance Ireland's perspective, we have our flood working group, which is made up of representatives from each of our member companies. That working group engages with the OPW in discussions about demountable defences. To address the Deputy's point, those discussions involve protocols, but a high level. They also try to get into the protocols in respect of individual schemes. The discussion is continuing in that respect but, equally, it continues around what will happen should those defences fail for whatever reason, whether through lack of human intervention or otherwise, and where liability will arise. These are the issues we are trying to work through with the OPW. In answer to the Deputy's question, yes, we are trying to gather as much information as we can through our interaction with the OPW so that we can bring clarity and solutions.
As I said in the previous session, I live in Mallow. I know Mallow and Fermoy intimately. I know that there is incontrovertible evidence that there are currently no risks in Mallow. It is a similar case in Fermoy. I am a little bit worried that Insurance Ireland is depending on the OPW, and on the information which flows up directly from local authorities to the OPW, to make decisions. I am worried that insurers are not actually going out on the ground when flooding events occur. I contend that Insurance Ireland's flood working group depends solely on what comes through from the local authorities, via the OPW and into this forum which Insurance Ireland has with the OPW. Mr. Thompson used the word "anecdotally". I do not want to up the ante on the rhetoric but "anecdotally" does not cut the mustard. I hope the witness will bear with me.
It is easy to deploy resources when there is a flood pending. It does not involve a big cost. It is a matter of sending somebody down to observe. Insurance Ireland's members need to be on the ground observing what is happening in real time for themselves. Insurance Ireland's members hold 95% of the domestic insurance market and 85% of the international life insurance market in this country. I do not see why they cannot go down to places such as Fermoy, Mallow and other areas which have been covered by capital works carried out by organisations such as the Lagan Group and Arup. Arup is a global leader. It carried out the flood alleviation works in Mallow.
Arup recently conducted a study with Lloyds of London on offsetting or mitigating against risk for catastrophes owing to climate change in global cities. Lloyds is a member of Insurance Ireland. I acknowledge Mr. Thompson will not be able to respond to this but when Arup was doing the flood alleviation works as consulting engineers, its cover for insurance was being provided by one of the witness's constituent groups. I find it incongruous that Arup could be covered by one of Insurance Ireland's constituent groups and the works could be stood over but that after the fact, the people who rely on those works could not be covered by one of his constituent groups. Can Mr. Thompson understand the level of anger that exists in this regard? I believe some members of Insurance Ireland have already decided they absolutely and utterly will not provide flood cover regardless of what protocols Insurance Ireland puts in place or are covered by the memorandum of understanding, MOU. They have just taken a corporate decision. Mr. Thompson himself mentioned the profitability and risk profile earlier and because of that, they are just not going to get into or are withdrawing entirely from this market.
Mr. Kevin Thompson:
There is a lot in there Deputy. I will try to get to each point. On the exchange of information, Deputy Sherlock is right and we have our OPW working group. Information flows from the local authority and the Office of Public Works, OPW, to ourselves. Equally, though, we have our members who are on that working group and information flows through them too.
Mr. Kevin Thompson:
We have the relevant people, subject matter experts from our member companies, who sit at our side of the table. The OPW is there and we are actively exchanging information. The other concern which the Deputy raised was on getting people on the ground. To be fair to the insurers, they deploy loss assessors on the ground when they know to do so through a weather warning or whatever. Storm Ophelia was a case in point where the industry mobilised very effectively to make sure it had people on the ground to assess what was coming and ultimately what happened post the storm. The same thing happened in County Donegal. To be fair, the industry does mobilise in this regard. There is an exchange of information and we are in a process in which we seek to get to the right result.
I take Deputy Sherlock's point. We are in a free market and individual companies will make their own decisions. I come back, however, to my earlier comment. We are trying, with the MOU, to create an environment and a mechanism to share data that will give a degree of comfort to each company to increase their capacity and their acceptance of risk in this area. That is not to say that every company will do it and companies also may do it in different degrees. This comes back to my other point that if we can get the environment and the exchange of information right between us and the OPW and the relevant schemes, the likelihood is that we will attract in more players into the market. I also note the comments of the earlier contributors to the effect they already have attracted in two new players. That is welcome. We only see the OPW facilitating that more and more. If we can get the right framework through the MOU, we can do that. We are working hard to exchange information and to be fair to our members, they deploy people on the ground. They have more knowledge, through their claims experience and through their interaction, than we do in Insurance Ireland. We rely on their expertise when we engage with the OPW.
I will come at this another way. Mallow and Fermoy are classical examples of where the State has expended vast taxpayer resources to ensure that flood plains and the people in those areas are protected. They have worked. Does Mr. Thompson agree they have worked?
They have worked to date. Mr. Thompson is qualifying it. He remains to be convinced about the very protocols that have been tried and tested in towns like Mallow over decades, not years. This constitutes decades of corporate memory of the local authority where staff intergenerationally has clear systems put in place in both those towns. They are typical of examples throughout the country where flood works have been carried out. Mr. Thompson still appears to be doubting those very protocols because he said that Insurance Ireland deployed staff in Storm Ophelia. I defy anybody to have gone out on the Monday of Storm Ophelia because one would not put anyone outside the door on that day. He is referring to deploying after the fact and not before the fact. There must be a greater degree of willingness on the part of Insurance Ireland to drill down further and to start talking to local authority officials. As somebody who lives in the town, the process by which one would do that is not as formal, as formulaic or as systematic as I would like. I live 100 paces from the Blackwater River and I still have not seen the evidence of this happening in real time. Mr. Thompson has stated there are two processes, one being Insurance Ireland's own working groups and the other being through the OPW process. I would bet any money that the next time there is a pending flood in Mallow, one will not see any constituent member of Insurance Ireland going down there to talk to local authority officials or taking notes on whether the demountables are working. Incidentally, they clearly are working but I guarantee there is no process in place for that.
Mr. Kevin Thompson:
To be fair, what I am saying is there is a process in place and we do exchange information. We exchange information from our members, we give it to the OPW and vice versa.We have a formal structure in exchanging information. To the Deputy's point, if people can contribute more information that is fine.
No, I do not mean not after the fact. I refer to Insurance Ireland being serious about increasing coverage from 83% - the figure Mr. Thompson mentioned earlier - as there is still 17% to go. The members of Insurance Ireland cover 95% of the market. Mr. Thompson has told us that he wants to extend and grow the coverage. However, everything he is saying points to there still being many hoops to be jumped. Can Insurance Ireland or its constituent members give us an undertaking? In his own submission, Mr. Thompson has poured doubts over whether the legislation will work and over the Flood Re example in the UK. He is saying that the MOU is everything. It is the ship on which the insurance industry will sail. We have kicked the tyres on the MOU and no one here is absolutely convinced that the MOU is working. What we are trying to do, piecemeal, is work through a system whereby Insurance Ireland's members can be absolutely and utterly convinced that they have witnessed at first hand how the demountables are working because the witness is throwing doubt over the demountables. That is the evidence Mr. Thompson is giving here and he has cited two Irish examples. I want to ensure that Insurance Ireland and its members will be confident that the human error protocols that are put in place, for instance, by Cork County Council are so robust as to ensure the risk is absolutely and utterly mitigated. The only way I can be convinced of that is if people from the insurance industry are deployed on the ground when the early warning system kicks in and that there is a transparent protocol, to speak to Dr. Surminski's point, whereby we can all see that the insurance industry has been down there and is satisfied that the systems have worked.
Mr. Kevin Thompson:
There are two things. We are working with the OPW to understand the protocols. That is one side of it and we will take any recommendation on board that will help us to understand the protocols better. We have no objection to that. The second side, as I referred to in my statement, relates to what happens when a demountable fails. Where will the liability rest then because of a failure or lack of human intervention? At the end of the day it is a protocol.
Equally, however, we accept that if protocols are deployed in a robust fashion and we understand them, insurers may be able to do something with that. We are working through that at the moment with the Office of Public Works, OPW. We believe that the memorandum of understanding, MOU, is working. We also believe that if the MOU was not in place, coverage rates would be far lower. We would be in a worse situation. Progress has been slow, but it has moved in the right direction. We have a high penetration rate compared to other European countries. Our figure of 98% is far in excess of other European countries. The flood cover that we actually provide is also in excess of other European countries.
In regard to doubts around Flood Re and the Flood Insurance Bill 2016, we are only adopting a cautious approach. We know what is working. We do not want to go down an avenue which undermines the good work that has been done to date, and I think it is only right for us as an industry-----
Chairman, I want to be very clear here. There is nobody talking about discarding the MOU here. However, all the MOU provides for is an exchange of information. There are no obligations inherent within the MOU. Would Mr. Thompson agree?
Consider for instance the UK model, in which there are eight guiding principles. I am not going to articulate what the principles are, but it could be contended that some of them could, in principle, be incorporated into the MOU as well. We would not be distorting competition. This would allow for pricing that reflects risk, which would deal with the excess issue. This would allow investment in flood risk-management activity and sustainable long-term approaches to flooding insurance.
We have to kick the tyres on the MOU, because that is the only avenue that we have, as individual Members of the Oireachtas, to advocate for those who do not have flood insurance at the moment. Insurance Ireland needs to come a little bit further more quickly.
Some of Mr. Thompson's language is encouraging, I will say that. He talks about a rate of coverage of 83% and efforts to increase that rate. We need to see the evidence of that much sooner. That is why my final question to him is this; has he received any correspondence, or had any discussions, with any of Insurance Ireland's members who stated absolutely and utterly that all the demountables in the world would not change their position of not providing insurance cover? Have any of Insurance Ireland's members ever come to Mr. Thompson and said that they would not provide cover, regardless of how much is spent and no matter what is done on rivers, river basins, arterial drainage schemes or whatever? Have any of his members said that they are getting out of that market and coverage is not going to happen?
Mr. Kevin Thompson:
Our members nominate individual subject matter experts to sit on our working group. I deal with the working group. Everybody with whom I deal on it is committed to advancing the MOU in dialogue with the OPW. That is the interaction we have, and we are entering into that process in good faith. I repeat my earlier comment. We do not get involved in the individual pricing or underwriting criteria for individual companies. As Insurance Ireland, we do not go there. We try to create a framework within which our members can operate to achieve better results in flood coverage. That is what we do.
I wish to clarify something for my own benefit. They may not have said it to Mr. Thompson, but it could be the case that there is an insurance company that has taken its own decision not to provide flood cover again, but it has not told you about it.
Chairman, I wish to make a suggestion, and I mean no disrespect to Mr. Thompson. The individual insurance companies appear to make their own executive risk decisions. We need to get under the floorboards and find out exactly what they are doing. The committee should make a suggestion to bring in a number of the larger companies and see exactly what they do. I can only speak from my own perspective. The insurance companies have a job to do, but the assessment of this intangible risk is causing problems. I can demonstrate with my own situation. I am based in Limerick city. We have had repeated flooding since 2009, and if we had flooding tomorrow, I can tell you where that flooding will be. It will be in Castleconnell, Montpellier, Annacotty, Saint Mary's Park, Corbally, probably Mountshannon Road, and maybe the Dock Road. In other words, a few defined areas.
I know people who are living in houses that were never flooded. For example, Annacotty is beside Castletroy, a large built-up area, and it was not flooded. Yet, I had people telephoning me, young couples who had bought houses and qualified for house insurance. Then, overnight, they were told that companies would not cover them. Overnight, they have an issue with their house being insured for flooding, and an issue with the marketable title of their house. Mr. Thompson says that there is an 83% rate of coverage, and Insurance Ireland is looking to increase that. Would it be fair to say that the 17% who are not covered are concentrated in a few areas where there are a lot of people without coverage? Would that be a fair comment?
I think it would be fair speculation. There is 83% coverage, but I suspect that when one looks under the floorboards at that 17%, there is probably 100% non-coverage in a few defined areas. The question I am getting at is this. How many of the people who made an insurance claim after Storm Ophelia will be re-insured by the insurance companies? How many will not be re-insured?
We have had cases where people are flooded and they claim on their insurance. There are schemes that are run through the Red Cross, the local authorities and the Department of Employment Affairs and Social Protection. However, they can only claim on those once they have first claimed on their insurance. They could be waiting for months. Many of those people, once they claim on their insurance, can never get insurance again. The witness makes the point that insurers dealt with claims in Storm Ophelia quickly. The question I am asking i, how many of those people will get their insurance renewed?
Mr. Kevin Thompson:
The short answer to the Deputy's question is we, as Insurance Ireland, do not give out that information. It is down to each individual company to come out with it. What I can qualify is that we see no evidence, from our perspective, whereby when people have incurred a claim, their policy has been cancelled or cover has been withdrawn.
It is more subtle than that. If a person's renewal date is 1 January 2018, and a claim was made because of Storm Ophelia in October, when that person comes to renew in January the policy will not be renewed or the premium will be crazy. I want to distil this down. In the main, the 17% not covered are on flood plains or areas exposed to flooding. The question is what can we do in terms of goodwill from the insurance companies. Insurance Ireland is the representative body, and I am not dealing with specific issues of how risk is assessed.
What can be done at this point with the insurance companies, with regard to the new CFRAM study about to be published and with regard to putting in place flood defences? Perhaps Insurance Ireland can have a part to play to bring about a sense of urgency to allow the Minister of State look for OPW funding to get flood relief schemes under way. Obviously, he goes to the Department of Finance to get the funding. What can the insurance industry do to assist the Minister of State with responsibility for the OPW to get the requisite funding to put in place flood defences and honour its side of the bargain, whereby if they are put in place the industry will reinsure and continue house insurance? We can talk about everything, but this is the basis of it.
Help me to help get people reinsured. This has become an abstract discussion. The insurance companies will state it is all about risk. The bottom line is people who have been flooded, such as those in Mountmellick today, will claim on their insurance because their beds, furniture and carpets have been destroyed. Perhaps these are people in their 50s or 60s or perhaps they are young couples. They are desolate. What can we do to get them reinsured?
Before we continue on this, I want to let the committee know there have been a couple of developments in recent minutes. The Senator mentioned Mountmellick. We have had an apology from the Minister of State, Deputy Moran-----
The rescheduling of the Finance Bill means it will start at 12.47 p.m. with the Minister of State, Deputy D'Arcy. Deputy Michael McGrath must be there also. This means we really have only two minutes left, so that was probably the last question. We will reschedule the final module of today's meeting for another day with the Ministers of State, Deputies D'Arcy and Moran.
Mr. Kevin Thompson:
We are precluded from using CFRAM maps. We do not use them for underwriting.
With regard to giving support to a Minister to increase funding, over the years we have always looked for increased funding in terms of flood defences, and we have been quite vocal about this. To be fair to the OPW, it has looked to spend its allocation on flood defences. When we bring it back to what we can do, we have entered into the process with the OPW in good faith. Prior to the memorandum of understanding, we had no visibility on the engineering standards of flood defences. This made it very hard for us to provide coverage. We are in a different space now, and we are getting this information. Three more defences are coming on line, on which the OPW will exchange information with us and we will look to provide coverage. I totally agree with the Senator that the danger is that it goes into an abstract area. People are affected by this and it is traumatic. Our goal is, and I can only state it so many times, to increase coverage.
As a gesture of Insurance Ireland's genuine intent to solve this problem and make the memorandum of understanding work, will it request the insurance companies to provide insurance where works have been done and investment has been made? Mr. Thompson says there is no problem with the OPW work. Could this not happen? We need to see it working on the ground. This could be done overnight.
Mr. Kevin Thompson:
I fully understand the intent behind the Senator's question to try to increase coverage as an industry, but we cannot mandate our members to act as a collective. This cannot be done. What we can do is try to help create a framework and environment whereby we exchange information to allow the companies to increase their coverage on an individual basis as they see fit.