Comment - flooding: Passing the buck on floods


There is demonstrable lack of interest on all sides when it comes to improving buildings' flood defences and risk profiles. The industry, government and homeowners all need to work together, argues David Walker.

You might think that anyone whose home has been flooded would take steps to make the same event less likely in the future. It is human nature to protect where you live and, even if you can acquire insurance, it does not protect you from all the potential emotional trauma that flooding can cause.

It seems, however, that the public views things differently. Statistics show that 72% of homeowners who have already been flooded see no reason why they should protect their property against a repeat occurrence. Instead, they would prefer to rely on the insurance industry to pick up the tab. Of those who applied for quotes last year, just 28% had put in place any form of flood defences.

Before jumping to any conclusions about what this tells us about the UK today — and certainly before we press the 'moral outrage' button — it might be best to look at this issue from the other side. Insurers can be equally bad and I have first-hand experience to prove the point.

Despite not having personally suffered any incident, the block of flats where I live is situated on the River Thames and represents a flood risk — a fact my insurer quite rightly took into account when setting terms. The residents, therefore, looked into some simple self-help, including airbrick covers and floodboards.

These measures cost £2500 and the residents were willing to invest a further £10 000 to make the property resilient for up to 1.2m of water. In return, a reduction in premium was requested. Unfortunately, the insurer would not even enter into a discussion about this.

In the industry's interest
The war against floods is being fought on many fronts where different interest groups can help each other. While it is never a 100% fail-safe solution, everyone agrees that prevention is far better than cure; yet what are people actually doing?

As well as cutting investment in this area, the government consistently refuses to exempt householders from VAT when they pay for their own flood protection. It seems that all the main stakeholders — government, the public and the insurance industry — are passing the buck to someone else.

This situation offers the insurance industry a great opportunity for a bit of enlightened self-interest. Not only are there obvious business benefits in encouraging self-reliance and reducing the amount of flood exposure, it would be great for public relations: a community being seen to influence citizens' behaviour in a positive way. Is this not part of what David Cameron's 'big society' is supposed to be about?

Obstacles to the insurance industry taking a more proactive position when it comes to flooding have been overstated and, once you have the right underwriting and information technology frameworks in place, it can be far less time-consuming than people think. In fact, much of it depends on simply asking the right questions.

Yes, flood victims are not a homogenous group. There are some properties, places and individuals that need very careful consideration before any sensible insurer would accept a risk. Assessing them can be expensive in terms of the time taken and insurers would want to put a strict cap on their aggregate exposure to any one at-risk area.

Most risks, though, are not like this. As a rule of thumb, experience shows that properties for which flood claims came to less than £10 000 can be written electronically as long as the right questions are asked. Finding out what flood prevention measures the homeowner has taken not only helps rate the risk, it sends out a clear message.

Community risk reduction
A homeowner in a high-risk location who reduces their exposure will pay less and be given more favourable terms, even though their premiums may still be higher than the average householder. The results can be even better if they work with neighbours and other local residents to reduce risk on a community basis. The underwriter, meanwhile, gains access to more business. This is the kind of win-win opportunity that my own insurer spurned.

By way of illustration, look at this real-life example. A customer was flooded in 2003 when a nearby river burst its banks. She took exceptional preventative measures, including installing airbrick covers and flood boards, while also putting in raised concrete floors with sump pumps and non-return valves on drains. As a result, the property did not flood at all in the heavy rains of 2007.

The customer was then able to obtain cover with a standard £1000 excess for a previously flooded property. Had she not taken these measures, her excess would have been at least £15 000.

Why does this type of solution not happen more often? Is it because most insurers view non-standard cover as more trouble than it is worth? Yet we are in an industry where what is considered pioneering eventually becomes standard.

We are some years away from the government and industry agreeing a 'pooled' approach to flooding but in the meantime it is possible to genuinely help make the UK a better, more self-reliant country concerning flood cover — though only if we take the initiative. If not, we can hardly complain if the public and government rely on us to pick up the pieces.

David Walker is chief executive at Avantia

Differentiating flood victims

Flood victims are not a homogenous group. This simple grid illustrates, at a very basic level, a way to differentiate between customers. There are many other criteria to take into account and this is just an example of the factors that the programme has to weigh up. While the physical risk can change horizontally, the moral risk can change vertically.

  No defences Put in place defences
Lived in property when it flooded Increased moral and physical risk Reduced moral and physical risk
Did not live in property when flooded (recently bought or considering) Standard moral risk, increased physical risk Increased moral risk, reduced physical risk
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