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Association of British Insurers

I am pleased to report to the House that the Association of British Insurers (ABI) has agreed a revised Statement of Principles on flood insurance taking into account commitments made by the Government on our programme to manage flood risk. It updates the existing Statement introduced in January 2003. The revised Statement, which is attached, will come into effect on 1 January 2006, and reflects the continued partnership between the industry and the Government. In relation to the commitments made under the Statement of Principles, Government have significantly increased investment in flood management since 1997 and is committed to levels of spend of £570 million a year throughout the 2004 spending period to 2007–08. This is over £250 million a year more than in 1997. The Environment Agency is committed to delivering a programme of efficiencies that will be re-invested in flood management so as to maintain outputs in real terms. We are on target to deliver increased protection to over 80,000 houses since April 2003 and Operating Authorities have a forward programme of works which is planned to deliver the reduction in risk agreed with the ABI. The Environment Agency has published on their internet site an interactive flood map for England and Wales which shows the areas of land that could be at risk of flooding from rivers and the sea. The Agency is continually working to improve and update the information on flood defences and its flood mapping, and is committed to sharing this with all stakeholders. Water and sewerage company plans to reduce public sewer flooding problems formed an important part of OfWat's price review for the period 2005–10. Over the next five years, almost £1 billion will be invested in the public sewer network to reduce significantly the risk of properties being flooded by sewage. The Government have published its first response to the ‘Making space for water' consultation including commitments to review and strengthen the planning process in flood risk locations, initiate pilot projects to develop integrated drainage partnerships in urban areas, encourage the uptake of property level resilience measures and to give the Environment Agency a strategic overview role for all types of flooding. ABI UPDATED STATEMENT OF PRINCIPLES General policy"It is the intention of ABI members that flood insurance for existing domestic properties and small businesses should continue to be available for as many customers as possible. The premiums charged and other terms—such as excesses—will reflect the risk of flooding but will be offered in a competitive market. There is separate ABI guidance on flood risk and new development.""This revised Statement of Principles will apply from 1 January 2006 but is subject to review in the event of significant external shocks such as withdrawal of flood reinsurance. Successfuloperation of the Statement is dependent on action by the Government to manage flood risk effectively." Current position"The majority of the 2.2 million properties in flood risk areas are already protected to a minimum standard of 1.3 per cent. annual probability (one in 75 years) or better. However, around 15 per cent. of properties in the floodplain have a significant chance of flooding (greater than 1.3 per cent. annual probability). In some of these areas there are planned improvements to flood defences to reduce the risk, but there are other areas where there are no plans for improvement.""Despite these risks, insurers have continued to provide flood cover for the vast majority of customers in the UK." Insurers' renewed commitment Areas where flood risk is 1.3 per cent. annual probability (or one in 75 years) or less:"Flood cover will be available as a standard feature of household and small business policies. The level to which properties are defended above this standard will vary considerably and premiums will reflect different degrees of risk. Highly populated coastal areas, in particular, should be protected to a higher standard because of the potential consequences should a flood occur." Areas of significant flood risk (greater than 1.3 per cent. annual probability or one in 75 years) where improved defences are planned:"Insurers will maintain flood cover for domestic properties and small businesses that they already insure where improvements in flood protection schemes sufficient to reduce the likelihood of flooding to 1.3 per cent. annual probability or less are scheduled for completion within the next five years. This will operate as a rolling five-year commitment provided the Statement of Principles remains in force. Delays or disruptions could take a scheme beyond the five-year commitment. The premiums charged and other policy terms—such as excesses—will reflect the risk.""If a domestic property in this category is sold the current insurer will continue to provide cover, subject to satisfactory information about the new owners of the property, especially their previous claims record. Where a small business is sold the current insurer will consider whether to continue to provide cover; this will depend heavily on the proposed new use of the premises and the previous claims record of the new owner." Areas of significant flood risk (greater than 1.3 per cent. annual probability or one in 75 years) where no improvements in defences are planned:"In these areas, insurers cannot guarantee to maintain cover, but will examine the risks on a case-by-case basis. Insurers will use their best efforts to continue to provide cover and will work with the owners of domestic properties and small businesses which they currently insure to see what action could be taken by the property owner, the Environment Agency and the local authority to make the property insurable in some form. This action might include the use of accredited products, flood resilient materials and temporary defences to defend the property." Action from Government Continued operation of this Statement will depend on Government progress on the five key actions set out below, with an annual review of progress against specific performance targets, and a more comprehensive assessment after three years:"Reducing the annual probability of flooding each year for a substantial number of properties in the UK, a proportion of which currently have a significant chance of flooding (greater than 1.3 per cent. annual probability).""At least maintaining investment in flood management each year, so that outputs can be sustained in real terms, with a commitment to evidence-based discussions on future funding needs, taking account of climate change and other factors affecting risk.""Implementing reforms to the land-use planning system to ensure that new developments do not lead to an increase in national or local flood risk.""Communicating flood risk effectively, including providing higher quality and more detailed information on flood risk, and on existing, new and upcoming flood protection schemes.""Developing an integrated approach to urban drainage that alleviates the risks of sewer flooding and flash-flooding."