Tithe an Oireachtais. An Comhchoiste um Chomhshaol, Cultúr agus Gaeltacht. Tuasascáil ón gcoiste maidir le Tuiliú. agus

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1 Tithe an Oireachtais An Comhchoiste um Chomhshaol, Cultúr agus Gaeltacht Tuasascáil ón gcoiste maidir le Tuiliú agus Árachas Maoine in Éireann, 2015 Nollaig 2015 Houses of the Oireachtas Report of the Committee on Flooding and Property Insurance in Ireland, 2015 December ECG019

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3 CONTENTS Contents...2 Réamhra (Preface) Executive Summary BACKGROUND TO THE POLICY ISSUES Weather-related insurance risks the global context Climate change in Ireland in the 21 st century The Irish insurance market Irish insurance in the European context Issues identified by the Joint Committee Cost of flooding Households excluded from flood cover Problems with geocoding and zoning by insurance companies The Insurance industry and remedial works undertaken by the State or policyholders POSITION OF THE IRISH INSURANCE INDUSTRY Cost of flooding Households excluded from flood cover Cost of insurance premiums The insurance market Profit margins of insurance companies Insurance industry s view of flood risk management Public agencies engaged in flood risk management Criticisms of State flood defence programme by Insurance Ireland State under-investment in flood defences Response by OPW on expenditure on Flood Relief works Length of design and planning process for projects Planning Guidelines on flood risk management The Committee s response to the insurance industry s position P a g e

4 3.10 Lack of communication between public agencies and the insurance industry Insurance industry measures to improve cover Insurance industry requirements for sustainable provision of insurance Flood defences: call for the OPW and the property insurance industry to co-operate on design and standards Founding of Insurance Ireland - OPW Working Group Progress of the Insurance Ireland OPW Working Group Flood maps and CFRAMS (Catchment Flood Risk Assessment and Management) Flood warning systems INSURANCE CLAIMANTS POSITION The situation of property-owners excluded from flooding insurance Issues arising from geo-coding Competition in the insurance market Insurance claimants problems in claiming Retention of insurance payments Failure to advise claimants of right to their own representative Problems in comparing insurance quotes Central Bank findings on household property claims resulting from water damage Response of Insurance Ireland to Central Bank s findings RURAL DWELLERS DIFFICULTIES WITH FLOODING AND INSURANCE Farmers excluded from flood cover due to incidence of summer floods Summer flooding in the Shannon catchment area Lake water levels Flood warnings Essential maintenance work on the Shannon OPW response to evidence given to the Committee on the river Shannon Shannon maintenance: silt and trees OPW response on Shannon silt and trees River Shannon: Solution proposed Provisions for farmers affected by disruptive weather events: case of Argentina P a g e

5 6. STATE AUTHORITIES ROLE IN FLOOD REMEDIATION Local authority Flood Remediation works Length of time taken to implement Flood Remediation works: local authorities Habitats Directive constraints Local authorities and CFRAM River management and water level updates Public Procurement Process Role of the OPW (Office of Public Works) in Flood Remediation Role and responsibilities of the OPW in relation to flood risk management OPW expenditure on Flood Relief works Whether OPW should have the final say over other agencies? EU COUNTRIES PRACTICES ON FLOOD RISK INSURANCE EU: different systems of insuring against flood risk UK: agreement between government and insurance industry Belgium: Caisse Nationale des Calamités / National Disaster Fund France: Caisse Centrale de Réassurance (CCR) / Central Reinsurance Fund Ireland, Belgium, France, and the UK situation pre Countries in which government plays a role in disaster insurance SOLUTIONS PROPOSED BY WITNESSES AND COMMITTEE MEMBERS Co-operation between Insurance Ireland and the OPW in designing flood defences Greater State investment in flood defences Prohibition of building on flood risk areas Better warning of imminent flooding Legislated protocol obliging insurers to give cover Flood Disaster Fund / Levy Trust Fund / Levy for the benefit of uninsurable households (NTMA) Solidarity Levy Scheme Opposition to a levy River Shannon: proposed Strategy to Reduce Summer Flooding Other measure proposed P a g e

6 9. Postscript: Recent Developments Memorandum of Understanding between Insurance Ireland and the OPW What information has the OPW provided to Insurance Ireland to date? Joint Insurance Ireland / OPW Flood working group Nationwide Flood Warning System Flood Mapping / Risk Assessment UK Flood Reinsurance scheme Committee s Recommendations Appendix 1 - Glossary Appendix 2 Official Report, Video Recordings, Witnesses Appendix 3 Orders of Reference of the Committee Appendix 3 Members of the Joint Committee P a g e

7 RÉAMHRA (PREFACE) Tá scríob agus doineann thar meán ar fad ag teacht ar Éirinn ar na blianta deireanacha agus tá codanna den tír go háirithe á bhfágáil faoi uisce arís agus arís eile dá dheasca sin. Féadfaidh gur ag éirí orthu a bheidh na deacrachtaí sin sna deicheanna de bhlianta atá romhainn amach mar go bhfuiltear ag tuar go méadóidh ar an mbáisteach a thitfidh in Éirinn, agus creidtear go mb fhéidir gurb é an t-athrú ar an aeráid is cúis leis sin. In recent years, Ireland has witnessed a number of extreme weather events, and flooding has become a recurring problem in certain parts of the country in particular. It is possible that these problems may intensify in the coming decades as increased precipitation is forecast for Ireland as a possible result of climate change. Cuireadh fianaise faoi bhráid an Chomhchoiste um Chomhshaol, Cultúr agus Gaeltacht go bhfuil na mílte gabháltas a fágadh faoi uisce roimhe seo díolmhaithe anois ó chumhdach árachais. Éiríonn deacrachtaí airgid as an méid sin mar go luíonn sé ar ghnóthaí agus ar an margadh tithíochta. Ina cheann sin, cuireadh in iúl don Choiste gur díolmhaíodh gabháltais nár bádh féin nó go bhfuil méadaithe ar a bpréimheanna. The Joint Committee on Environment, Culture and the Gaeltacht heard evidence that thousands of previously flooded properties are now excluded from insurance cover. This gives rise to financial problems as businesses and the housing market are affected. Furthermore, the Committee heard that even properties that have not been flooded have been excluded or had their premiums increased. Tá an Comhchoiste ag iarraidh go mbeadh cumhdach árachais ar fáil go forleathan fós agus acmhainn ag úinéirí maoine in Éirinn air. D éist sé le fianaise ó ionadaithe an tionscail árachais, ó éilitheoirí ar árachas The Joint Committee is concerned that insurance cover should continue to be widely available and affordable to property owners in Ireland. It heard evidence from representatives of the insurance industry, 6 P a g e

8 agus ó chomhlachtaí Stáit a bhíonn ag gabháil d oibreacha leasúcháin tuilte. Ina theannta sin, d éist sé le roinnt de phobal na tuaithe a luíonn deacrachtaí ar leith orthu mar gheall ar thuilte. insurance claimants and State bodies engaged in flood remediation works. It also heard from some rural dwellers who have experienced a particular set of problems in relation to flooding. Ar scór na bpléití a rinne sé ar an ábhar, tá roinnt moltaí leagtha amach ag an gcoiste a chabhróidh, dar leo, leis na deacrachtaí sin a réiteach agus a chinnteoidh go mbeadh teacht ag gnóthaí agus úinéirí maoine ar chumhdach árachais tuilte inacmhainne. On foot of its deliberations, the Committee has set out a number of recommendations which it believes can contribute to resolving these difficulties and ensuring that businesses and property owners have access to affordable flooding insurance coverage. Ba mhaith liom buíochas a ghabháil le gach duine agus gach eagraíocht a chabhraigh linn agus sinn ag breithniú an ábhair seo. Ní fhéadfaimis tuarascáil chomh cuimsitheach agus chomh héifeachtach céanna a dhéanamh murach iad. Ba mhaith liom buíochas a ghabháil leis na páirtithe leasmhara go léir as páirt a ghlacadh, as obair i gcomhar linn agus as na moltaí a thug siad, a bhfuil cuid mhaith acu áirithe ag an gcoiste sa tuarascáil seo. I would like to thank all the individuals and organisations who contributed to our consideration of this subject and without whose input it would not have been possible to produce such a comprehensive and effective report. I would like to thank the various stakeholders for their participation, cooperation and suggestions, many of which the Committee has included in this report. Ba mhaith liom buíochas a ghabháil le comhaltaí an Choiste as an obair a rinne siad chun an tuarascáil a ullmhú agus le foireann Rúnaíocht na gcoistí agus Seirbhís Leabharlainne agus Taighde an Oireachtais as an gcomhairle agus as an gcúnamh a thug siad don Choiste le linn an I wish to thank the members of the Committee for their work in preparing this report and the staff of the Committee Secretariat and the Oireachtas Library and Research Service for their advice to the Committee and their assistance in compiling the draft report. 7 P a g e

9 dréacht-tuarascáil a chur le chéile. Mar fhocal scoir, iarraim ar an Aire Comhshaoil, Pobail agus Rialtais Áitiúil, an tuas. Alain Ó Ceallaigh T.D., ar an Aire Airgeadais, an tuas. Micheál Ó Nuanáin T.D., ar an Aire Stáit ar a bhfuil freagracht speisialta maidir le hoifig na noibreacha Poiblí, an tuas. Síomón Ó hearchaí T.D., ar Bhanc Ceannais na héireann agus ar pháirtithe leasmhara eile staidéar a dhéanamh ar an tuarascáil seo agus go háirithe ar na moltaí a rinne an Coiste. Táim féin agus an Coiste ag súil le dul i mbun pléití le gach páirtí ar an ábhar seo sa gharthodhchaí. To conclude, I call on the Minister for the Environment, Community and Local Government, Mr. Alan Kelly T.D., the Minister for Finance Mr Michael Noonan T.D., the Minister of State with special responsibility for the Office of Public Works Mr. Simon Harris T.D., the Central Bank of Ireland, and other interested parties to study this report and in particular the recommendations that the Committee has put forward. I and the Committee look forward to engaging with all parties on this subject in the near future. Michael McCarthy TD Cathaoirleach 14/12/ P a g e

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11 1. EXECUTIVE SUMMARY The heard evidence that thousands of previously flooded properties are now excluded from insurance cover. This gives rise to financial problems as businesses and the housing market are affected. Furthermore, the Committee heard that even properties that have not been flooded have been excluded or had their premiums increased. It is possible that these problems may intensify in the coming decades as increased precipitation is forecast for Ireland as a result of climate change. 1 The Joint Committee is concerned that insurance cover should continue to be widely available and affordable to property owners in Ireland. It heard evidence from representatives of the insurance industry, insurance claimants and State bodies engaged in Flood Remediation works. It also heard from some rural dwellers who have experienced a particular set of problems in relation to flooding. Ireland has a model of property insurance in which flood cover is bundled with all other risks. This model results in a high availability (penetration rate) of flood cover and has been described by the European Commission as the most appropriate model. This model is also used in the United Kingdom, France and Belgium. Insurance Ireland 2 witnesses explained to the Joint Committee that insurance offers protection against a risk but not against a certainty. Insurance cannot cover policyholders against an inevitable event as the cost of premia would greatly increase for all policy holders. Insurance Ireland stated that high penetration levels of flood cover are necessary to ensure the continuance of the current model whereby low-risk areas subsidise higher-risk areas. The continued availability of flood reinsurance is vital as it allows insurers to provide cover for catastrophic risks by spreading costs over time. 1 See, for example, Adaptation to Climate Change: Issues for Business (August 2010, p.7) published by Forfás, available online at: FINAL.pdf 2 Since the Committee commenced it deliberations, the Irish Insurance Federation has been renamed Insurance Ireland. For the purposes of simplicity and clarity, the new title shall be used throughout the report. 10 P a g e

12 The roles of the insurance industry and State authorities are complementary in that the State, through its lead agency, the Office of Public Works (OPW), manages flood risk, constructs structural defences where necessary and, through local authorities, carries out non-structural measures such as clearing watercourses and drains. These measures enable the insurance industry to provide cover against the risk of flooding. Insurance Ireland submitted that more Government investment in structural defences is needed to preserve flood insurance in high-risk areas, and that current levels of implementation of flood defences need to improve. According to Insurance Ireland, deficiencies in the current Planning and Flood Risk Management Guidelines (November 2009) 3 should be addressed. In this regard, it called for a prohibition of building on flood plains. Other elements identified by Insurance Ireland as necessary for the sustainable provision of insurance are availability of flood mapping and accurate data to facilitate risk assessment; high insurance penetration levels to prevent adverse selection, and continued availability of re-insurance. The OPW responded by outlining the considerable investment that the State has made in the construction of flood defences. The OPW estimates that over 5,000 properties have benefited from this investment, with the estimated benefit in terms of damage and loss avoided amounting to almost 900 million. Their witness said that the insurance industry has also benefited from this investment as its large claims payment costs for flooding, which amounted to almost 700 million since 2000, would have been much higher but for the remedial and defence works undertaken by the OPW. Also, funding of 21.6 million has been provided since 2009 in respect of 400 projects in the minor and coastal protection scheme. The OPW estimates that more than 2,400 properties (in addition to the ones mentioned above) have varying levels of protection as a result of this expenditure. The OPW witness stated that the current Catchment Flood Risk Assessment and Management (CFRAM) programme to identify, assess and map flood risk nationally will, once it is completed and implemented, enable the insurance industry to take decisions based on the fullest assessment of that risk. 3 Available online at: 11 P a g e

13 Kildare County Council witnesses outlined the local authorities complementary role in flood risk management and concurred that CFRAM will make a major contribution to their operations. Insurance Ireland has supplied information to the OPW to ascertain whether the OPW can match its priority areas with locations where insurers have made significant pay outs on claims. The idea is that if effective measures are taken, which will include insurance industry participation in design and an agreed standard of the built defences, there will be greater availability of cover in areas that previously posed a problem. The claims cost associated with flooding, subject to frequency and climate change issues, should decrease and therefore the insurance cost should decrease. The Committee heard from organisations representing those who have been excluded from flood cover, or are at risk of being excluded, with the result that it is not possible to get mortgages on their homes and the value of their homes plummets. Among the issues raised by these stakeholders was the problem of householders located in geocoded areas who had been refused cover or had their premiums increased even though their property had not been flooded. Since the Committee was informed by insurance industry witnesses that geo-coding pinpoints a property, it is at a loss to understand the reason for the problem. This issue requires a systematic investigation by the Central Bank of Ireland to determine its extent and advise on the appropriate measures. The Committee s key concern was to discover how policyholders located in a geo-coded area that identifies their properties as liable to repeat flooding can exit from this category and have their flood cover restored or their premiums reduced. The insurance industry witnesses explained that a letter from a local authority engineer certifying the standard of flood defences would not suffice; insurance underwriters needed in-depth technical data and participation in design, as described above. Committee members were also informed of insurance company practices which some witnesses claimed placed obstacles in the way of claimants. These include retention, failure to advise claimants of their right to their own representative and unsatisfactory settlements. Retention is the term for the insurers practice of providing advance payments relating to the costs of repair / reinstatement (which allows repairs to be undertaken) and paying the balance on receiving of a final invoice from the claimant. 12 P a g e

14 Subsequent to the Committee hearings, the Central Bank of Ireland conducted an inspection into a small sample of actual insurance claims and found that such problems were experienced by a number of claimants. The Committee also heard from rural dwellers who are excluded from insurance cover because of increased summer flooding of the River Shannon, and who do not see the restoration of insurance as a realistic prospect. According to the Irish Farmers Association (IFA) witness, the core issue is not insurance, but the failure of the State to put in place an effective river maintenance programme, to remove the impediments in the Shannon and to return to the pre-1970s lake water levels. They urge the reduction of the water levels to the lowest level consistent with navigation purposes so that the river is able to take additional water at critical times, an effective flood warning system and essential maintenance work to be carried out on the Shannon including removal of silt and trees. The OPW responded to their points by affirming that a body of European and national legislation governs what can and cannot be done on environmental grounds. The authorities are obliged to enforce the EU Habitats legislation. Issues around the environmental impact of removing the silt, such as the disturbance of various plants, flora and fauna, are regulated under the Habitats Directive and its ensuing legislation. Pending the outputs from CFRAM, when the OPW will have a proper model of the river and a proper understanding of the water levels and how the water levels in the lake and the callows are interconnected, the OPW will not be in a position to make decisions on works in the Shannon catchment area. An issue that came to light during the hearings was the wish of the insurance industry for more information exchange and co-operation between the industry and the State authorities on flood mapping and on the design of Flood Remediation works. On the initiative of the Joint Committee, a Working Group was established with the objective of: matching the insurance industry s priority areas with State planning for Flood Remediation works; and informing the industry of the technical standards of the State works so that insurance underwriters can take this into account in assessing risks. 13 P a g e

15 Thus far, it would appear this work is producing very positive benefits, and in March 2014, a Memorandum of Understanding was signed between Insurance Ireland and the OPW on the sharing of information regarding completed flood defence works. The anticipated outcome of this arrangement is that the insurance industry will have greater understanding of the extent of the protection provided by completed OPW flood defence works and will reflect this in assessing the provision of flood insurance to householders in areas where works have been completed. The Committee s ambition is that this may lead to the inclusion of properties that were previously excluded from insurance and to the reduction of premiums to more affordable levels. However, if this ambition is not realised, other solutions may need to be considered, including a partnership between the insurance industry and government. In this regard, the Committee heard several proposals from witnesses and from the Committee s own members (see section 8). Ireland has an insurance model described as the most appropriate in an EU report. 4 Several countries with insurance models similar to that in Ireland have experienced problems faced here and have implemented partnerships between the insurance industry and government. The schemes implemented in the United Kingdom, Belgium and France are described in this paper (see section 7). In 2008, a Statement of Principles agreement was established between the UK government and the Association of British Insurers (ABI). This agreement aimed to keep insurance costs down for those households in flood risk areas. The ABI agreed to offer such households affordable home insurance in return for government development of new flood defences and reinforcement of existing ones. In July 2013, a new scheme was introduced to cover losses of UK householders who can no longer afford insurance cover. Under the new arrangements, a new non profit making insurance fund, known as Flood Re, will be established to provide insurance cover to 500,000 households in the worst affected parts of the UK. Under Flood Re, every household in the country will pay a small 4 Natural Catastrophes: Risk relevance and Insurance Coverage in the EU, European Commission, Joint Research Centre Scientific Support to Financial Analysis Unit Institute for the Protection and Security of the Citizens, September Accessed at: 14 P a g e

16 levy (of 10.50) on their insurance premium to fund a pooled subsidy for those most at risk of flooding, to ensure they can still obtain affordable home insurance. Belgium has a Caisse Nationale des Calamités (National Disaster Fund) from which claimants can get repairs after disasters such as natural disasters (floods, earthquakes, discharge or overflow of public sewers, landslides and subsidence of soil). However, the National Disaster Fund intervenes in very limited circumstances. France has its Caisse Centrale de Réassurance (Central Reinsurance Fund), which is a reinsurance company entirely owned by the French Republic. It is responsible for designing, implementing and managing instruments to meet the coverage of exceptional risks in the service of its customers and the public interest. These include reinsurance of risks of natural disasters. Solutions proposed by witnesses or Committee members Co-operation between Insurance Ireland and the OPW in designing flood defences; Greater investment by State authorities in flood defences; Prohibition of building on flood risk areas; Better flood warning; Legislated protocol obliging insurers to give cover; Flood Disaster Fund / Levy; Trust Fund / Levy for the benefit of uninsurable households; Solidarity Levy Scheme; River Shannon - Solutions proposed: o The introduction of a system of allowing river water to move on when heavy rainfall is forecast and occurs; o That essential maintenance work to be carried out on the River Shannon. 15 P a g e

17 Other Measure proposed The Joint Committee advocates that the Central Bank of Ireland conduct an inspection into a significant sample of properties which have no history of flooding yet have been refused cover or had their premiums increased. This inspection should lead to a determination of the appropriate measures to be taken in these instances. 16 P a g e

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19 2. BACKGROUND TO THE POLICY ISSUES Insurance against flooding is important to protect households from the impacts of heavy rainfall. Flooding involves very significant financial costs and often entails having to live elsewhere for months while properties are dried out and refurbished. For those without or those denied insurance, flooding can result in severe financial hardship. In Ireland, insurance cover for flooding is included as a standard part of buildings and contents policies, which helps people to manage the potential financial consequences of their home being flooded. Mortgage lenders in Ireland generally require mortgage holders to purchase buildings insurance. Flood insurance has been universally available in Ireland up to recently as it has been a standard element of household insurance. However, policy-holders in certain areas of high flood risk have in recent years found themselves excluded from obtaining flood insurance cover or have had to pay substantially higher premiums. The Joint Committee expressed concerned during its hearings into these matters that property insurance should continue to be widely available and affordable in areas of flood risk in Ireland. The question of who will bear the costs of future flood-related damage, i.e. insurers, governments or individual policyholders, has come into focus in several countries in recent years. The insurance market is changing in a number of ways including as a result of more sophisticated flood risk models becoming available. Households in flood risk areas are more likely than in the past to be charged a premium that reflects their risk of making a claim. In the short term, many households in flood risk areas may, in future, struggle to pay increased insurance premia. Householders could face further worry if they are unable to meet the conditions of their mortgage or find it difficult to sell their home because of insurance problems. This could potentially contribute to existing problems in the housing market in some areas. If flooding were to take place, such households could be left in financial hardship, placing additional pressure on community support services and the State. 18 P a g e

20 In this context, the OECD has noted that: 5 Any gaps in coverage, sustained excessive pricing disconnected from underlying risks or loss experience or other similar problems in a country where insurance markets and related data infrastructures are already well developed may be indicative of a market failure that may be examined. For instance, it is important to identify uninsured populations and sectors of the economy that are financially vulnerable and assess the reasons why they lack insurance. Measures may be taken to overcome these hurdles and make risk transfer mechanisms available and affordable. 2.1 WEATHER-RELATED INSURANCE RISKS THE GLOBAL CONTEXT It has been reported that weather-related catastrophes - which include flood, storm, earthquake and drought - have been increasing across the globe. Climate change may be just one of the factors in the associated insurance risks, according to a report in the Financial Times: 6 Certainly the number of global weather-related catastrophes varies significantly from year to year. Even so, the latest disasters contribute to a trend the insurance industry has observed for decades: the frequency of events that require them to make pay outs is on the rise. Data from reinsurance group Munich Re that compensate for year-to-year fluctuations show a near nine-fold rise since 1980 in losses to the insurance industry arising from weather-related catastrophes, after adjusting for inflation. Global economic losses from weather-related events came to about $150bn in 2012, according to Munich Re, of which $55bn were insured losses. This raises the question of whether the trend can be reversed - and if not, who should foot the bill. 5 OECD, Disaster Risk Management and Risk Financing, G20 / OECD Methodological Framework, 2012: (page 78) 6 Extreme weather is just one factor insurers need to consider, Financial Times, 29 September P a g e

21 Some leading insurance executives have warned that the rising costs threaten the continued provision of important types of coverage at affordable levels, particularly for flood-related damage in vulnerable regions. In a report this year, the Geneva Association, trade body for the global insurance industry, warned that a shift was taking place towards a new normal for a number of insurance-relevant hazards. However, the role of climate change in contributing to the rise in insurance losses remains contentious. Economic growth has played a much more important role, say several scientists and insurance executives. Rising insurance losses driven by development are not necessarily problematic as they should be accompanied by a corresponding increase in premium income. The main drivers of the [rising] losses are mainly increases in population and in wealth says Ernst Rauch, head of the corporate climate centre at the reinsurer Munich Re... The impact climate change might be having on insurance policy terms or premium levels is even more debatable. The insurance industry is awash with capital - not least as pension funds increasingly invest in the sector through securities such as catastrophe bonds. These competitive forces are keeping a lid on the premiums that large sections of the industry can charge This is not least because the terms of annual policies are renewed each year, minimising the extent to which insurers need to incorporate any projected impact of long-term climate change risks into annual policies. Even so, insurers are concerned about a phenomenon that has accompanied economic growth: increased building in risky locations, as commercial and industrial developments take place on low-cost greenfield sites. 20 P a g e

22 John Fitzpatrick, head of the Geneva Association 7, has called on governments to tighten building restrictions, as well as to invest more in flood defences, to mitigate the fallout from extreme weather hazards Yet Mr Muir-Wood, a leading author on reports by the Intergovernmental Panel on Climate Change, says for now climate change is not driving industry concerns about the provision of flood insurance. Instead, he says, developments in catastrophe modelling technology are giving insurers more detail about the risks presented by each household - prompting them to want to price risks accordingly. People have been used to the idea that insurance is a flat-rated commodity like mortgage rates, or the price of petrol he adds But once you start getting in to the reality of risk, you see extremely strong localised variations. That is a basic reality of flood risk that society has to confront. Once you start modelling it at very high resolution, you see how variable it is. 7 The Geneva Association: The leading international think tank of the insurance industry. 21 P a g e

23 2.2 CLIMATE CHANGE IN IRELAND IN THE 21 ST CENTURY On 25 September 2013, Met Éireann published a report on the future climate of Ireland entitled Ireland s Climate: The Road Ahead.. 8 New global climate model simulations carried out in Ireland provide an update on the expected changes in the earth s climate over the 21 st century. Among its key results for the Irish climate were that winters are expected to become wetter, with increases of up to 14% in precipitation under the high emission scenarios by mid-century, and that summers will become drier (up to 20% reduction in precipitation under the high emission scenarios). The frequency of heavy precipitation events during winter shows notable increases of up to 20%. Changes in precipitation are likely to have significant impacts on river catchment hydrology. The models predict an overall increase (0 to 8%) in the energy content of the wind for the future winter months and a decrease (4 to 14%) during the summer months. A small decrease in mean wave heights is expected around Ireland by the end of the century, while in winter and spring, storm wave heights are likely to increase. These Met Éireann models indicate that the degree of flooding experienced in Ireland may, in future, worsen and that a greater level of investment in long-term flood management may therefore be necessary. Without adequate mitigation, those heightened risks may lead not only to more homes and businesses suffering flooding but to insurance premiums increasing to the point of becoming unaffordable for many citizens and small and medium enterprises (SMEs). 8 Accessed at: 22 P a g e

24 2.3 THE IRISH INSURANCE MARKET Representatives of Insurance Ireland appeared before the Joint Committee on 25 September They were Mr. Michael Kemp, chief executive, and Mr. Michael Horan, non-life insurance manager. 9 Mr.Kemp and Mr.Horan informed the Committee at the hearing that there are 12 insurers with offices in Ireland offering household insurance, and others without an Irish office offering insurance under EU Single Market rules. They stated that there is no shortage of suppliers, described the market as very competitive and claimed that policyholders in low-risk areas already subsidise high-risk areas. In the absence of this approach, they stated that flood insurance would become unaffordable in some parts of the country where flood insurance is still available but where flood risk is judged by the industry to be above average: 10 Insurance companies operate in a global market and spread their risks around the world using numerous specialist reinsurance companies. It is vital that the insurance industry acts with prudence on flooding risks to ensure that affordable reinsurance 11 cover is maintained. As previously noted, flood cover is a standard part of household insurance. However, according to evidence given to the Committee by Insurance Ireland, the penetration rate in respect of flood cover is 98%. This implies that 2% are excluded from flood cover. 9 See Committee Debates,25 September Accessed at: ?opendocument#F Ibid. 11 Reinsurance: Insurance protection bought by an insurer to limit its own exposure. The availability of reinsurance protection allows an insurer to expand its own capacity to take on risk. Without a reinsurance facility, each insurer would be able to accept less business. 23 P a g e

25 2.4 IRISH INSURANCE IN THE EUROPEAN CONTEXT The Committee Chairman, in his opening remarks at the first Committee hearing, referred to a European report, Natural Catastrophes: Risk relevance and Insurance Coverage in the EU, which in its examination of flood risks commented favourably on the model used by the Irish insurance industry. This model is based on the concept of bundling insurance for a broad range of risks together in one comprehensive risks policy. The European Commission report Natural Catastrophes: Risk relevance and Insurance Coverage in the EU 12 examined how flood risk among other weather events is handled in insurance systems in the EU. According to this report, the insurance situation in regard to flood damage varies widely among Member States of the EU. The report states that in Ireland, the United Kingdom, Belgium and France the Natural Catastrophe (NatCat) insurance market seems to have developed efficiently, while other countries could face potential problems. Penetration rates are not very high in most Member States for which information is available. The only Member States where the rate of penetration is high are those where flood insurance is bundled as part of a more comprehensive policy, as is the case in Ireland. The way NatCat coverage is priced among EU Member States also varies widely. Some Member States adopt a risk-based pricing mechanism, while others adopt flat-pricing. The European Commission report comments that adoption of risk-based premiums does not affect the financial efficiency of the insurer (which is regulated by solvency requirements), but that it may reduce the moral hazard and that it might lead to a better understanding of the development of risk. Ireland is one of six Member States which have risk-based premiums for flood. This report placed Ireland in Cluster 1 consisting of Belgium, Ireland, France, Sweden, and the United Kingdom. In these countries the insurance market is reported as having 12 Natural Catastrophes: Risk relevance and Insurance Coverage in the EU. European Commission, Joint Research Centre Scientific Support to Financial Analysis Unit Institute for the Protection and Security of the Citizens, September Accessed at: 24 P a g e

26 developed efficiently, as total losses (both historical and simulated) are not very high, while penetration rates are high. This could be mainly due to the fact in these countries NatCat insurance is bundled as part of a more comprehensive policy (usually fire, household and accidental damages insurance). As a comparison, because the UK is in Cluster 1 with a similar insurance model to Ireland, the corresponding table for the UK is presented. It will be seen that the UK insurance industry has experienced more losses from flooding than Ireland. In the UK the government and the insurance industry have recently reached agreement to introduce a new scheme for households who are having difficulty gaining insurance cover. 25 P a g e

27 Figure 1 Map of EU Insurance Clusters Note: Ireland is in Cluster 1 (green), described as having the most appropriate solution Source: Natural Catastrophes: Risk relevance and Insurance Coverage in the EU. European Commission, Joint Research Centre Scientific Support to Financial Analysis Unit Institute for the Protection and Security of the Citizens, September This report also compiled insurance losses from weather related events (see Table 1). 26 P a g e

28 Table 1 Insurance losses from weather-related events in Ireland and the UK, Source: Ibid (p.56). 27 P a g e

29 Source: Ibid (p.77) 28 P a g e

30 2.5 ISSUES IDENTIFIED BY THE JOINT COMMITTEE The issues of concern to the Joint Committee were outlined thus by the Chairman COST OF FLOODING The Chairman observed that flooding is now a regular feature of weather conditions and that it is costly to repair the resultant damage. Sizeable costs were incurred during the several major floods experienced since HOUSEHOLDS EXCLUDED FROM FLOOD COVER The Committee Chairman noted that certain localities have suffered extensively from flooding and many thousands of people now cannot insure their homes. The Chairman expressed concern that the criteria now being used by insurance companies to assess the risk of flooding may be contributing to the problem. The Committee were anxious to ensure that if an area has flooded once that this would not result in it becoming one that would be refused insurance by the industry on an ongoing basis. Of concern also were properties in the neighbourhood which had never been flooded and yet were refused cover or had their premiums increased. The Chairman said that a situation cannot be allowed to develop in which large numbers of households nationwide are deemed to be outside the protection of the normal insurance schemes. 13 JCECG Debate,25 September Accessed at: ?opendocument#F P a g e

31 2.5.3 PROBLEMS WITH GEOCODING AND ZONING BY INSURANCE COMPANIES This issue seemed to some insurance claimant stakeholders and to the Committee to arise from the practice of regions being geocoded 14 into zones by the insurance industry in order to identify those at particular risk of flooding or other events. These zones could include properties which had never been flooded and yet were subjected to increased premiums. The Committee were concerned that even where remediation works are carried out to reduce the relevant risks. it seems difficult to have this zoning removed. The Chairman said that parts of the country deemed flood risks 15 years ago have had major relief works carried out to prevent further problems. However, they are still zoned as being a flood risk THE INSURANCE INDUSTRY AND REMEDIAL WORKS UNDERTAKEN BY THE STATE OR POLICYHOLDERS The Committee was concerned that the insurance industry should take account of the specific location of houses in the context of remedial flood defence works successfully completed. The Committee hoped that it was not a matter of administrative convenience for the industry to label an entire area as being prone to flooding, that is, without taking cognisance of what remedial works had been completed. The Committee queried whether insurance companies were assessing quotes individually, based on merit, or otherwise. In examining these issues, the Committee was aware of the issues arising from exclusion from flooding insurance as raised by the OECD in a study of disaster risk management: 15 Government thus need to identify those populations (e.g., poor households) or sectors that are financially vulnerable and lack access to financial tools and consider ways, through programs or arrangements to 14 Geocoding is the process of converting street addresses or other locations (postal codes, city & state, airport codes, etc.) to latitude and longitude, which can be entered into a GPS device or geographical software. Source: 15 OECD, Disaster Risk Management and Risk Financing, G20 / OECD Methodological Framework, Accessed at: (page 78) 30 P a g e

32 ensure that basic compensation or post-disaster risk financing are made available to reduce economic and social hardship, for instance through the development of innovative financial tools or through the establishment of government compensation programs or arrangements. In the absence of such arrangements, the government may be called upon to provide post-disaster financial assistance in an ad hoc manner, which could potentially increase outlays. If there are significant populations or sectors that are financially vulnerable and, for whatever reason, uninsured, governments need to factor implicit contingent liabilities into financial planning given expected post-disaster funding pressures. A similar consideration applies to any explicit contingent liabilities created by governmental involvement in an institutional scheme for risk financing or risk transfer. Governments also need to consider that they may be expected to handle any peak risks that lie beyond the financial capacity of others, including the insurance sector, to absorb. 31 P a g e

33 3. POSITION OF THE IRISH INSURANCE INDUSTRY Mr. Michael Kemp, Chief Executive, and Mr. Michael Horan, non-life insurance manager of Insurance Ireland appeared before the Committee on 25 September 2012 and gave evidence on these matters COST OF FLOODING Insurance Ireland witnesses informed the Committee that the floods in June 2012 led to 1,260 claims costing 54 million. Of these, a total of 627 were household claims costing 15 million, 487 were commercial property claims costing 38 million and 146 were motor claims costing 1 million. They stated that there have been seven other significant flood events in Ireland since 2000; the cumulative cost of these eight flood events was 697 million (see table 2). However, the November 2009 floods represented the single largest insured loss ever (at that time) in terms of overall cost, at 244 million. The new record did not last long as it was closely followed by the December January 2010 freeze, which cost 297 million. A further freeze in December 2010 cost 224 million (see table 3). 16 JCECG Debate, 25 September Accessed at: ?opendocument#F P a g e

34 Table 2 Cost of Flood Events Year Event Cost June 2012 Flood 54m October 2011 Flood 127m November 2009 Flood 244m August 2008 Flood 96m October 2004 Flood 38m November 2002 Flood 50m February 2002 Flood 37m November 2000 Flood 51m TOTAL Flood 697m Source: Insurance Ireland Table 3 Cost of Weather Events Year Event Cost June 2012 Flood 54m October 2011 Flood 127m December 2010 Freeze 224m January 2010 Freeze 297m November 2009 Flood 244m January 2009 Storm 16m January 2009 Freeze 40m August 2008 Flood 96m October 2004 Flood 38m November 2002 Flood 50m February 2002 Flood 37m December 2001 Freeze 30m November 2000 Flood 51m TOTAL Weather 1304m Source: Insurance Ireland 33 P a g e

35 Mr. Horan told the Committee that in the past decade insurers have seen more frequent and more costly weather-related losses, not just in Ireland but globally. He indicated that suffering the largest weather-related losses in such close succession has put significant pressure on the property insurance market. However, he maintained that insurers have displayed resilience and injected over 1.3 billion back into the economy following these weather events, i.e. in pay outs following claims. On 19 March 2013, Insurance Ireland witnesses again appeared before the Joint Committee and gave a further breakdown of the costs above. They were Mr. Kevin Thompson, chief executive officer, and Mr. Michael Horan, non-life insurance manager. Mr. Thompson explained that the most serious floods have been during the previous four years and that the resulting claims costs are as follows: June there was a cost of 54 million in the Cork region; October there was a total cost of 127 million in the Dublin region; November there was a cost of 244 million in the Cork and Shannon regions; and August there was a cost of 96 million nationwide. Insurance Ireland witnesses made known that the response of insurers after all these flood events was to provide 24-hour helplines, alternative accommodation and emergency funds where required. It was necessary to dry, clean, repair and restore properties, a process which can take some months due to the time it takes properties to dry out. However, at a later hearing Mr. Brendan Dempsey of Cork Society of St. Vincent de Paul (SVP) claimed that flooding did not seem to him to be costing insurance companies that much (for example, constituting less than 1% of one insurance company s total annual payout). 34 P a g e

36 3.2 HOUSEHOLDS EXCLUDED FROM FLOOD COVER Insurance Ireland informed the Committee on 25 September 2012 that the insurance market offers flood cover as a standard feature of household policies. Insurance Ireland estimates that no more than 2% of policies have flood cover excluded, amounting to about 10,000 policies. They explained that when assessing risks, insurance companies analyse the history of the property and any flood prevention measures by the Office of Public Works (OPW) or local authority. Some policyholders will pay a higher premium because the flood risk is higher, while others have a higher flood excess on the policy. According to Insurance Ireland, exclusion of cover is generally a last resort and usually arises where a property has suffered previous flood damage and it is overwhelmingly likely that future flood loss will occur. Insurance Ireland witnesses explained that insurance offers protection against a risk but not against a certainty. Insurance cannot cover policyholders against an inevitable event on the basis that the cost of premia would greatly increase for all their policy holders. Insurance Ireland submitted that it is not tenable to ask policyholders in general to absorb the cost of inevitable losses. Deputy Kevin Humphreys informed the Committee that over the summer of 2012 he had surveyed 1,000 households in the Ringsend, Irishtown and Sandymount districts of Dublin 4 which were affected by the flood event there. He discovered that a significant number cannot obtain any insurance cover and that the cost for the majority has doubled. Deputy Catherine Murphy observed that those living within 500 metres of a watercourse seem to be routinely refused. She had not come across this until the year It seemed to the Deputy that that investment by the OPW in remediation works did not seem to have any relevance with regard to whether this question was posed to policy holders and wished to clarify why the insurance companies are asking this question. Mr. Michael Horan replied that a question on proximity to the source of a possible flood, a river course or watercourse has been a standard feature of household proposal forms for a number of years. It is a relevant question for an insurance underwriting 35 P a g e

37 assessment. The next question that an insurance company would ask is whether the watercourse has any flood defences. He explained that this is where Insurance Ireland engagement with the OPW arises. The OPW is the lead State body for the coordination and implementation of Government policy on the management of flood risk in Ireland. The OPW is also the national authority for the implementation of the EU Directive on the Assessment and Management of Flood Risks [2007/60/EC]. Insurance Ireland tries to understand at an overall level what areas are protected by flood defences established by the OPW. Insurance Ireland believes that while over the years the OPW has installed good flood defences there has been an information deficit in communicating the information to insurance companies. The witnesses declared that Insurance Ireland and the OPW have a shared interest to ensure that the information is received by insurance companies so that the benefit gained from the flood defences is maximised by those living in the protected areas. What Insurance Ireland had communicated to the OPW is that Insurance Ireland needs to confirm the design standards to which the flood defences are constructed. Their acceptable minimum standard is a return period of one in 100 years. The standard of protection to which Insurance Ireland witnesses referred to is the flood event against which the flood defences are designed to protect an area. It is usually expressed as the annual probability of exceeding a particular flood level, such as the 1% (or 1 in 100) flood (defined below). The flood zones are defined thus in the Planning and Flood Risk Management Guidelines They are defined on the basis of the probability of flooding from rivers and the sea. Because of the generally more dynamic nature of coastal flooding compared to river flooding, a lower probability of coastal flooding is used to define the highest-risk zone. 17 The Planning System and Flood Risk Management: guidelines for planning authorities, November Department of the Environment, Heritage and Local Government / OPW. Accessed at 36 P a g e

38 Zone A is at highest risk and has: o a 1 in 100 (or 1%) chance of flooding in any one year from rivers and o a 1 in 200 (or 0.5%) chance of flooding from the sea. Zone B is at moderate risk of flooding from rivers and the sea and its outer limit is defined by a 1 in 1,000 (or 0.1%) chance of flooding in any one year. Zone C is the low risk area, with a less than 1 in 1000 (<0.1%) chance of flooding from rivers, estuaries or the sea in any one year. The definition of these zones does not, however, take account of the potential for flooding from other sources, such as ground water or artificial drainage systems. Flooding from these sources could occur in any of the zones and as such should always be considered, regardless of zone. In response to a question from Deputy Murphy about whether Insurance Ireland compiles a blacklist, both Insurance Ireland representatives replied that this does not occur. They assured her that underwriting decisions and pricing are matters for individual insurance companies where they compete with each other and do not share information. They explained that insurance companies examine issues such as the claims history of individual properties and relevant flood models and then make individual decisions in competing with each other for business. It is because insurance companies operate in a very competitive market, they said, that there is such a variety of quotes for household insurance. 37 P a g e

39 3.3 COST OF INSURANCE PREMIUMS With regard to insurance premiums, Mr. Thompson told the Committee that Insurance Ireland s view is that the marketplace is quite competitive in terms of the 12 general providers in the market, not including foreign insurers which, under EU Freedom of Services, 18 underwrite business. In fact, he said that premiums had decreased for those not at risk of flooding while they have increased for those at risk: 19 Premiums have decreased in the past 12 months by 4%. There has been a 4% reduction in insurance premiums - that is an average across the marketplace confined to household insurance. The insurance costs of a person who is not in a flood plain or subsidence area and has never made a claim have decreased by 4%. That is what has happened on average across the marketplace, according to the latest statistics. Certain policy holders have experienced premium increases because of the risks that have presented. However, Mr. Brendan Dempsey of the Cork Society of St. Vincent de Paul, at a previous hearing on 12 March 2013, had offered the comment that in localities where the insurance industry had not opted out of providing cover, it has managed to treble the price of policies while removing all of its risks. 18 For an explanation of the procedure involved see the Central Bank of Ireland guidance available at: 19 Joint Committee hearing of 19 March P a g e

40 3.4 THE INSURANCE MARKET Insurance Ireland stated that high penetration levels of flood cover are necessary if the current model is to survive, with low-risk areas subsidising higher-risk areas. The continued availability of Flood Reinsurance is vital as it allows insurers to provide cover for catastrophic risks by spreading costs over time. They explained how the system works which is that the government through the lead agency, the OPW, manages flood risk, constructs structural defences where necessary and, through local authorities, carries out non-structural measures such as clearing watercourses and drains. That enables the insurance industry to provide cover against the risk of flooding. In respect of local authority maintenance of flood defences and clearing of drains, Insurance Ireland referred to a report by the previous Oireachtas Joint Committee in July where such recommendations were made. Insurance Ireland urged that follow-up action be taken on those recommendations of the previous Committee, in particular the recommendation relating to keeping drains clear and following up with local authorities in respect of their responsibilities. 20 See Joint Committee on the Environment, Heritage and Local Government, Fourth Report of the Joint Committee: The Management of Severe Weather Events in Ireland & Related Matters, July Accessed at: 39 P a g e

41 3.5 PROFIT MARGINS OF INSURANCE COMPANIES Deputy Humphreys referred to the figure given by Insurance Ireland witnesses in respect of flood payouts over 12 years of approximately 697 million (see table 2). He requested from Insurance Ireland information as to the profit margins of Insurance Ireland's members over the past 20 years. In response, Mr. Kevin Thompson re-iterated the information regarding losses, stating that the only figures he had to hand at the meeting related to 2008, 2009 and 2010, and that the figures for 2011 were then being finalised. Deputy Kevin Humphreys response was that: Mr. Thompson is giving us a figure as to what the industry paid out on flood defence over the past 12 years but he is not able to give us the figure of the profit margins. We also have to put in the third figure, which is the income of the insurance companies over that period. There are the costs of flood defence by the insurers and the costs paid by the OPW over the 12 years but, in the other margin, is the insurers' income. To look at 697 million in isolation is probably the wrong manner for this committee to do it. It would be good if Insurance Ireland could provide the profit margins of its members over those 12 years. 40 P a g e

42 3.6 INSURANCE INDUSTRY S VIEW OF FLOOD RISK MANAGEMENT On 25 September 2012, Insurance Ireland representatives, Mr. Michael Kemp, Chief Executive, and Mr. Michael Horan, non-life insurance manager, appeared before the Committee. The witnesses outlined the Government's policy on flood risk management, which dates from 2002 with the establishment of the Flood Policy Review Group. 21 They cited the Review Group s identification of a work programme involving approximately 24 projects with an estimated cost of 444 million for capital works, to be delivered over 10 to 15 years. In 2004, the OPW was given the responsibility of being the lead agency for flood risk management. In the seven years after the OPW was given responsibility for flood risk management - that is, between 2004 and 2011 the witnesses stated that the organisation was allocated a capital budget of 257 million but has spent only 188 million. Insurance Ireland submitted that more government investment in structural defences is needed to preserve flood insurance in high-risk areas and that current levels of implementation of flood defences need to improve. According to Insurance Ireland, Government action is also needed in respect of non-structural measures such as deficiencies in the current Planning Guidelines. The OPW response was provided to the Committee at a subsequent hearing (see section below). 21 For further information, see the Report (final) of the Flood Policy Review Group, Accessed at: 41 P a g e

43 3.6.1 PUBLIC AGENCIES ENGAGED IN FLOOD RISK MANAGEMENT In Insurance Ireland s view, recent floods highlighted the fact that too many agencies and bodies are involved in flood risk management. These comprise the OPW, 34 local authorities supervising watercourses and drains, Waterways Ireland, the ESB - which owns 13 of 15 large dams - various Departments, amenity groups, recreational clubs and environmental and wildlife interests. Insurance Ireland submitted that the number of agencies involved can lead to confusion and inaction in managing flood risk. The OPW aims to improve the management of flood risk in Ireland, with particular reference to the construction of flood defences. Even within the OPW s constraints, Insurance Ireland believes that there is much that can be achieved. To them it is important that the OPW communicates reliable information on flood defences to insurers in an accessible format so that underwriters can satisfy themselves that flood defences comply with acceptable, measurable standards when assessing risks. In this regard, they said that insurers need to have confidence in the OPW's review of standards and commitment to the maintenance of completed flood defences, as well as these measures: More investment in structural and non-structural measures; Establishment by the OPW of a National Flood Liaison and Advice group comprising all stakeholders, including the insurance industry, to advise on planning and flood risk management; A clear, publicly available Flood Relief capital works programme specifying priorities, budgets, targets and timelines; Swifter completion of structural defences. The OPW had begun to develop some sample data, which it had forwarded to Insurance Ireland, who were considering it with their members. Deputy Humphreys proposed that the Committee write to the OPW in response to Insurance Ireland s statement about the importance of the OPW communicating reliable information on flood defences to insurers in an easily accessible format. The Committee agreed to undertake this course of action. 42 P a g e

44 3.6.2 CRITICISMS OF STATE FLOOD DEFENCE PROGRAMME BY INSURANCE IRELAND In advocating better communication of the details of flood defences that are being implemented, Insurance Ireland pointed to a Value for Money and Policy review in 2008, commissioned by the OPW and carried out by Goodbody Economic Consultants. 22 They quoted this review as stating that the OPW s implementation programme had not met its targets for a number of reasons, including: Staffing deficiencies; Diversion of OPW resources to deliver unforeseen projects; and Lengthy design and planning process for projects. Given the state of the public finances and the general embargo on public sector recruitment at the time, Insurance Ireland witnesses were concerned that these shortcomings may not be addressed and may be exacerbated. Insurance Ireland witnesses returned to give further evidence at another Committee hearing on 19 March The problems identified by Insurance Ireland in the area of flooding include: Climate change; Legacy of poor planning decisions; Under-investment in flood defences; Under-resourcing; Lengthy planning process even for small flood defence projects; and Too many agencies involved in flood risk management. 22 Accessed at: 43 P a g e

45 3.6.3 STATE UNDER-INVESTMENT IN FLOOD DEFENCES Insurance Ireland advocated an improvement in current levels of investment and implementation of flood defences. The witnesses argued that the Government capital budget for flood risk management averaged 37 million per annum between 2005 and 2011, i.e. 222 million for six years. Capital spend on flood risk management averaged 27 million per annum over the same period, that is 162 million over six years. They placed this in the context of the claims of the cost to insurance companies of the last four major floods (during ) of 520 million. 44 P a g e

46 3.6.4 RESPONSE BY OPW ON EXPENDITURE ON FLOOD RELIEF WORKS On 23 April 2013, Mr. Tony Smyth of the OPW gave an outline of how the OPW is addressing flood risk in critical areas through its capital investment programme for both major and minor alleviation works. He referred to comments by witnesses at the Committee's previous meetings who suggested that the OPW is not spending enough on Flood Relief works. He said that the figures showed this is not the case: Under the Government's infrastructure and capital investment medium term Exchequer framework , a total of 225 million has been allocated for capital Flood Relief measures over the five-year period of the framework. This allocation, when combined with the amount spent by the OPW on Flood Relief measures since the introduction of the Arterial Drainage (Amendment) Act 1995 of 320 million, will result in total expenditure of almost 500 million on Flood Relief up to This is a substantial investment by any standard, especially in the current difficult economic environment, and expenditure to date on Flood Relief works has brought significant benefits. The OPW estimates that over 5,000 properties have benefited from this investment, with the estimated benefit in terms of damage and loss avoided amounting to almost 900 million. The insurance industry has also benefited from this investment as its large claims payment costs for flooding, which amounted to almost 700 million since 2000, would have been much higher but for the remedial and defence works undertaken by the OPW. Total funding of 21.6 million has been provided since 2009 in respect of 400 projects in the minor and coastal protection scheme. While it is difficult to know exactly how many properties were protected, the OPW reckons more than 2,400 properties in addition to the ones mentioned earlier have varying levels of protection from this expenditure. 45 P a g e

47 3.7 LENGTH OF DESIGN AND PLANNING PROCESS FOR PROJECTS Insurance Ireland witnesses pointed out that the OPW's project implementation process has six stages. They contended that it takes a considerable length of time to get through the stages; in many cases it takes between six and ten years to get from design stage to execution. Insurance Ireland would like to see that accelerated. They suggested that one way of achieving this is to bring together all interests in a body subject to a certain degree of control in respect of the time it takes to discuss the issues and reach a conclusion. In response to the Committee s questions, Insurance Ireland listed OPW projects that took ten years or longer. For example, they claimed that the St. John's river project in Waterford was at stage 4 in December 2003 and stage 5 in late Similarly, that the Templemore project was at stage 2 in December 2003 and stage 4 in 2009, the Fermoy project was at stage 1 in December 2003 and stage 5 in In some cases, it took a project five or six years to move from one intermediate stage to another. On 23 April 2013, Mr. Tony Smyth responded to this contention about the length of time taken on Flood Remediation works: The OPW appreciates that, especially in the wake of a severe flood event, there can be an expectation that flood mitigation measures can be implemented quickly. It is important to point out, however, that major Flood Relief schemes involve complex engineering and construction operations that can impact on people's living, built and natural environment and therefore require lengthy planning and decision lead-in times. The process, defined by legislation, requires that OPW follow a number of stages from feasibility through procurement and public consultation to construction. It is important that the work is done correctly and achieves its objectives. Detailed technical analysis is required to establish the most appropriate solution, technically and environmentally, from a range of possible mitigation options. Extensive public consultation is required at various 46 P a g e

48 stages to ensure that those affected by a scheme have the opportunity to input into its design and implementation. Ecological and archaeological issues often require in-depth analysis to inform the technical solution and to enable the necessary statutory consents to be obtained. Finally, the process and time scales for procuring consultants and contractors, which is governed by EU law, is onerous and has a prescribed methodology. The OPW at all times strives to expedite and progress capital Flood Relief works with the minimum delay within the resources available to it. 47 P a g e

49 3.8 PLANNING GUIDELINES ON FLOOD RISK MANAGEMENT 2009 Insurance Ireland raised the issue of houses built in flood-prone areas. They cited the preparation in 2008, by the then Department of the Environment, Heritage and Local Government, of draft Planning System and Flood Risk Management Guidelines and its call for submissions. Insurance Ireland had made a submission to the Department in November 2008 conveying their position that the draft Guidelines were largely a copy of the UK Guidelines, which had failed to discourage development in flood-prone areas. Insurance Ireland suggested that the Scottish Guidelines offered a more sustainable model and called for the establishment of a Flood Liaison and Advice Group with representation from all interested stakeholders, including insurers. The Scottish Guidelines discourage new development from taking place on functional flood plains: 23 New development should not take place if it would be at significant risk of flooding from any source or would materially increase the probability of flooding elsewhere. The storage capacity of functional floodplains should be safeguarded, and works to elevate the level of a site by landraising should not lead to a loss of flood water storage capacity. Built development should not therefore take place on functional flood plains. Nevertheless, the Irish Planning and Flood Risk Management Guidelines 24 published in 2009 allow development in flood risk areas in certain circumstances, using a sequential approach. Insurance Ireland witnesses returned to give evidence at another Committee hearing on 19 March 2013, where they elaborated on these points. Insurance Ireland believes that the 2009 Planning Guidelines (on Flood Risk Management) are deficient and overly complex. They stated that future availability and affordability of flood insurance were not considered at the preparation stage. Also, the Guidelines are only advisory in nature and planning authorities are not obliged to follow them. It believes that there needs to be a 23 See Scottish Planning Policy: SPP 7 : Planning and Flooding. Accessed at: 24 The Planning System and Flood Risk Management: guidelines for planning authorities, November Department of Environment, Heritage and Local Government / OPW. Accessed at: 48 P a g e

50 focus on impact mitigation, and a flood risk management plan for all high-risk areas. They advocated that all Flood Resources should be considered, flood risk management plans should be properly funded and resourced and new flood risks should not be created: One legacy of the building boom was that many houses were built on flood plains due to bad planning decisions. This reinforces the importance of taking flood risk into account when zoning and planning. The Committee noted that since the 2009 Guidelines were published, the most severe floods have occurred almost on an annual basis. This indicates the need for a review of these Guidelines. 49 P a g e

51 3.9 THE COMMITTEE S RESPONSE TO THE INSURANCE INDUSTRY S POSITION The Chairman of the Committee referred to paragraph 13 of Insurance Ireland's submission, which lists recommendations for State intervention, including swifter completion of structure defences and a more co-ordinated action plan from the OPW. The Chairman asked, in the case that all these recommendations were implemented, what could be expected in return from Insurance Ireland? He queried whether Insurance Ireland would review the practice of zoning based on geocoding. 25 The Chairman cited the need, for example, for business owners who are informed they could not get flood insurance into the future to be informed of what type of remedial action, if taken, would facilitate the re-institution of their flood insurance protection. The Chairman referred to the economic implications by expressing concern that nonprovision of insurance cover could result in the closure of businesses in which profit margins are so tight that businesses cannot survive the destruction of, for example, 20,000 worth of stock, or the cost of refurbishing their premises. He invited recommendations from Insurance Ireland in this regard. The Chairman listed seven points that Insurance Ireland should take into account: 1. Geocoding: need for a Code of Practice regarding problems outlined above; 2. Certification process to allow businesses and households to challenge difficulties arising from geocoding or from remedial works; 3. Re-examination of the eligibility criteria for household insurance. One concern is bankruptcy precluding people from getting household insurance, in light of insolvency legislation; 4. In cases where a business or household can no longer get cover, the insurance company has a responsibility to explain why; 5. Households or businesses must be given explanations of the remedies necessary for them to get insurance cover in future; 6. As an interim measure, where a business or household may be unable to get flood insurance while it is carrying out remedial measures, the introduction of 25 See glossary at Appendix 1 for definition of geocoding. 50 P a g e

52 excess payments may be a solution. The parties may agree that the first 10,000 of damage is not covered and; 7. The insurance industry must meet the challenge of climate change and adverse weather conditions. The Chairman mentioned European reports that the Irish household insurance industry is in one of the lowest risk regions in western Europe and the insurance industry is in a fortunate position. He concurred with Deputy Corcoran Kennedy in suggesting that Insurance Ireland needs to show leadership and apply innovative measures and approaches. 51 P a g e

53 3.10 LACK OF COMMUNICATION BETWEEN PUBLIC AGENCIES AND THE INSURANCE INDUSTRY A key difficulty revealed by Insurance Ireland witnesses is that Insurance Ireland operated somewhat in isolation from the OPW and local authorities. Sometimes there was a failure to consult in advance or to ensure that the measures were adequate regarding risk assessment, which is the role of underwriters. A development in recent years disclosed by Insurance Ireland is that there has been more engagement on a bilateral basis between Insurance Ireland and the OPW. The flow of information is much improved and Insurance Ireland are much more involved INSURANCE INDUSTRY MEASURES TO IMPROVE COVER Insurance Ireland stated that they would like to get to a stage at which there is a standing liaison group, with others, not only Insurance Ireland, involved. In such a liaison group, insurance industry expertise could be utilised in planning and executing flood defence works and in identifying problem areas. Over the past several years Insurance Ireland has supplied information to the OPW to ascertain whether the OPW can match its priority areas with locations where insurers have made significant pay outs on claims. The idea is that if effective measures are taken, which will include insurance industry participation in design and an agreed standard of the built defences, there will be greater availability of cover in areas that were previously a problem. The claims cost associated with flooding, subject to frequency and climate change issues, will go down, all other things being equal, and therefore the insurance cost will go down. 52 P a g e

54 3.12 INSURANCE INDUSTRY REQUIREMENTS FOR SUSTAINABLE PROVISION OF INSURANCE The themes presented by Insurance Ireland witnesses in September 2012 were further developed at a Committee hearing on 19 March 2013 by Insurance Ireland representatives, Mr. Kevin Thompson, Chief Executive Officer, and Mr. Michael Horan, non-life insurance manager. Insurance Ireland witnesses stated that it is not tenable to ask policyholders in general to absorb the cost of losses, nor is it sustainable from an insurance business model perspective. Insurers spread risk throughout the world through the mechanism of reinsurance. Therefore, it is vital that insurers act prudently with regard to flooding risks to ensure that affordable reinsurance cover is maintained for all policyholders. The elements identified by Insurance Ireland as necessary for the sustainable provision of insurance are: Availability of flood mapping and accurate data to facilitate risk assessment; High insurance penetration levels to prevent adverse selection; 26 Continued availability of re-insurance; Investment by the Government in structural and non-structural measures; and Deficiencies in Planning Guidelines on Floods to be rectified. Insurance Ireland stated that what insurers need from the OPW were: Maps in GIS (Geographic Information System) format showing likely flooding extent; Area maps showing the likely extent of protection offered by remedial works; Status of remedial works, such as those deemed to be priorities, in progress, etc.; and That flood defences be constructed to minimum accepted standards. They said that Insurance Ireland and the OPW have a common interest in ensuring that information on completed flood defences is provided to insurers. 26 See Glossary at Appendix 1 for definition of adverse selection. 53 P a g e

55 3.13 FLOOD DEFENCES: CALL FOR THE OPW AND THE PROPERTY INSURANCE INDUSTRY TO CO-OPERATE ON DESIGN AND STANDARDS Several Committee members complained to Insurance Ireland witnesses about cases of insurance companies ignoring local authority engineers letters certifying flood defences and declining policyholders requests for a renewal of flood cover regardless. Committee members called for a certification process which would be accepted by insurers. Mr. Kemp replied that what Insurance Ireland needed was not just provision of information after the event, but involvement in the design process and agreeing standards before the event. Underwriters decisions depended on agreement on what the standards are in advance, both for design and construction of the flood defences. What Insurance Ireland was suggesting is that there should be wider consultation at an earlier stage in the design so it is agreed that what is proposed will meet an acceptable standard. Mr. Kemp said that there will be occasions when insurers will stand over their belief that there is a logic to underwriting decisions. But there are cases where mistakes are made and Insurance Ireland persuades underwriters to change their opinion and to reinstate cover or to change the terms clashing with the cover in those cases. In addition, in areas where works have been carried out, there have been changes in the attitudes of underwriters to insuring risks in those areas. Mr. Thompson elaborated that Insurance Ireland are looking to the OPW to verify the flooding defence work carried out. It is not a question of receiving a letter from an engineer; they want to work through and fully understand the technicalities and make sure the defences are built to the required standard. If they are, Insurance Ireland will look to their members to incorporate this as part of their underwriting criteria. But he admitted that it matters at an early stage and as the process evolves, they may have to involve other agencies in the dialogue to ensure that a holistic approach is adopted. He pointed out that insurance is only one element of the picture and reminded the Committee of a previous Oireachtas Joint Committee s report published in July 2010 in which numerous recommendations were made, including keeping drains clear, which is 54 P a g e

56 the local councils responsibility. 27 He urged that this issue be addressed as much as the work that Insurance Ireland is doing with the OPW. 27 See Joint Committee on the Environment, Heritage and Local Government, Fourth Report of the Joint Committee on The Management of Severe Weather Events in Ireland & Related Matters, July Accessed at EnvHerLocGov/Reports_2008/ pdf 55 P a g e

57 3.14 FOUNDING OF INSURANCE IRELAND - OPW WORKING GROUP Following their dialogue with the Committee in September 2012, Insurance Ireland informed the Committee that they had invited the OPW to join a Working Group to accelerate the provision of flood defence information to insurers. The Working Group commenced its work in January 2013 and meets monthly. The objective is for Insurance Ireland and the OPW to work together towards the provision of OPW information on completed flood defences in line with Insurance Ireland's requirements in order that insurers can take this information into account when assessing risk in respect of private dwellings. The scope of the Working Group s work is to establish: Areas for which flood defence information will be provided; Format in which the information will be supplied; Agreement on a delivery date for sets of completed flood defences; and Agreement on frequency of updating the information. Insurance Ireland witnesses told the Committee in March 2013 that the Working Group had started its work at its first meeting in January. They need to fully understand the technical data as presented by the OPW and put this data into a format that both parties can understand. Once they fully understand this, they will try to incorporate it into their industry members' underwriting criteria. When we attended a meeting of this committee in September last year, we were asked how a person in one of these [geo-coded] areas can get out of it. We are working with the OPW through our flood working group. We are getting information from the OPW on digital files that show the areas which are protected by flood defences. Historically, insurance companies have not had that information when they examine at-risk areas. The new data coming from the OPW will enable them to amend their lists of at-risk areas to take account of flood defences that have been built. Mr. Paul Kavanagh, a claims specialist, commented on 16 April 2013 that Insurance Ireland reported that it had been in consultation with the OPW and that this has been the 56 P a g e

58 case only since January In his view, there needs to be constant and meaningful dialogue, and that it should be published. Deputy Kevin Humphreys referred to Mr. Kavanagh s observation that engagement between the OPW and Insurance Ireland began to take place in January 2013 and stated that this is a direct result of the work this Committee has done in highlighting the OPW's work and the lack of communication. The parties are still trying to talk the same language. The OPW operates to an international standard applying the figures of 100, 150 and 200. Insurance Ireland is dragging its heels regarding the acceptance of the international standards. The talks should now be concluded. We know the international standards and the bill design. In fairness to the OPW, it is very professional. Where I have seen its work done, it has been to a very high standard. 57 P a g e

59 3.15 PROGRESS OF THE INSURANCE IRELAND OPW WORKING GROUP On 23 April 2013 Mr. Tony Smyth, Director of Engineering Services at the OPW, gave evidence to the Committee on the progress of the joint Insurance Ireland - OPW working group, which includes also representatives of the main insurance companies operating in the Irish market. He said that the comprehensive Catchment Flood Risk Assessment and Management, (CFRAM) programme to identify and assess flood risk nationally will, in time, enable the insurance industry to take decisions on the provision of cover based on the fullest assessment of that risk. Mr. Smyth s account was updated in October 2013 when, subsequent to the Committee hearings, Deputy Humphreys raised the issue of Flood Risk Insurance Cover in the Dáil as a topical issue. The Minister of State at the Department of Jobs, Enterprise and Innovation, Deputy John Perry, on behalf of the Minister of State at the Department of Finance, Deputy Brian Hayes, briefed him on the progress of the new Insurance Ireland- OPW Working Group: 28 The discussions between the OPW, Insurance Ireland and the insurance companies are concerned solely with agreeing a basis on which information can be provided to the insurance industry on Flood Relief schemes completed by the OPW and the standard of protection offered by those schemes. The discussions have been complex and quite technical in nature and it is important that all matters are addressed in a comprehensive way that will ensure that the system of data exchange is robust, reliable and sustainable. I am happy to report that the working group has made very good progress and agreement has been reached on a data-sharing platform which will facilitate the transfer of detailed information on completed OPW Flood Relief schemes. This will allow the insurance industry to properly take into account the levels of capital investment in flood protection measures over several decades by the 28 See Dáil debate. Flood Risk Insurance Cover. Accessed at: ndocument. 58 P a g e

60 OPW when assessing flood risk in localities where such flood measures have been completed. The information being provided is in a readily accessible format which will show in digital map files the areas benefiting from completed flood defence works. The initial focus of the group's work is the provision of information on schemes which provide protection for the one in 100 year flood. The OPW has provided an initial batch of information to the insurance companies and the latter are currently working on integrating this information into their own individual operating systems. It is expected that this work will be completed shortly. It is intended that the OPW and Insurance Ireland will agree a memorandum of understanding to guide present and future interaction between the insurance industry and the OPW in regard to communications around completed flood defence works. The OPW is satisfied that the insurance industry is engaging constructively and positively in this process and that there is a strong willingness to co-operate on implementing a sustainable system of information exchange. Ultimately, it is a matter for the insurance companies themselves to decide how they will use the information provided on completed flood defence works. As part of the process they are committing to take the information into account in their assessment of risk and it is to be hoped that this will facilitate the provision of flood cover in all areas that are protected by completed schemes. 59 P a g e

61 3.16 FLOOD MAPS AND CFRAMS (CATCHMENT FLOOD RISK ASSESSMENT AND MANAGEMENT) Another requirement identified to the Committee by Insurance Ireland witnesses was more accurate flood maps to establish not just the area relative to a watercourse (or a similar hydrological feature) but where the risk is, taking into account the local topography. In their submission to the Committee, Kildare County Council described the partnership between the OPW and local authorities in carrying out the Catchment Food Risk Assessment and Management (CFRAM) studies. The CFRAM Programme delivers on core components of the National Flood Policy 29, adopted in 2004, and on the requirements of the EU Floods Directive. The Irish CFRAM programme is being carried out in parallel with similar programmes across the European Union. The OPW is the lead agency for flood risk management in Ireland and is the national competent authority for the EU Floods Directive. OPW works in close partnership with all Local Authorities in delivering the objectives of the CFRAM Programme. Kildare County Council is working in partnership with OPW on both the Eastern CFRAM Study and the South Eastern CFRAM Study which deal with the River Liffey and River Barrow respectively. At a Committee meeting on 23 April 2013, Mr. Smyth of the OPW described to the Committee the expected outcomes of CFRAM, OPW s major flood mapping project. The OPW is overseeing the most comprehensive national initiative to systematically identify, assess, document and report on the most significant flood risks throughout the country. The CFRAM programme will generate detailed flood maps showing flood extents and other flood parameters such as depth and velocity. They will recommend an integrated management plan and prioritised measures to address flood problems in areas of significant risk in each major catchment in the country. 29 Report of the Flood Policy Review Group, September 2004, Office of Public Works 60 P a g e

62 The CFRAM programme will inform the long-term planning of flood risk management measures throughout the country, including structural and constructed flood defences and non-structural measures. Both the flood maps and the identification and outline design of flood risk management measures under CFRAM will consider a range of potential future scenarios, including the potential impacts of climate change, to ensure capacity for adaptation is built into the flood risk management strategy and measures. The output from the CFRAM programme in a recent pilot project included the production of 1,100 maps showing flood extents, depths and velocities. Approximately 250 km of channels were surveyed and more than 275 sq. km of detailed flood plain modelling was carried out. This project required the development of nine hydraulic models of the river and its tributaries and the production of various reports, including an inception report, a strategic environmental assessment at scoping level and final report stage, a hydrology report and hydraulic reports. Ultimately a catchment flood risk management plan was drawn up. Deputy Catherine Murphy expressed a concern about the CFRAM study, which is mapping the flood areas. She accepted that when a risk is captured in the study, remedial works can take place. However, the Deputy was concerned that there is a risk is that insurance companies will be given a new set of locations from the Study that they may wish to exclude from providing cover for. This fear may not be unfounded if the Irish experience follows the UK experience. It was reported in a United Kingdom newspaper (the Times) that thousands of homes could lose value and become more expensive to insure after the publication (in December 2013) of the first official maps showing areas at risk of surface-water flooding. From December 3, the Environment Agency will make the maps available on its website. Where there is a risk, it will be shown as high, medium or low, equating to chances of flooding of one in 30, one in 100, and one in 1, Flood maps may hit house prices, Irish Times, 15 November It was reported in the BBC on 15 January 2014 that new maps were being made available online to the public showing areas at risk of flooding in Scotland. See: 61 P a g e

63 Anyone will be able to check the surface-water flood risk for an area by typing in its postcode. At present, it is possible to search only for flood risk posed by rivers and the sea. About 3.8 million homes in England and Wales are at risk of surface-water flooding, usually caused by rainwater pooling after intense downpours because drains are blocked or cannot cope with the volume. Many people do not realise their homes are at risk of surface-water flooding because the threat is much less obvious than for those affected by river or coastal flooding. Of the 55,000 properties flooded in summer 2007 the most recent severe and widespread floods 35,000 were affected by surface water. Craig Woolhouse, the Environment Agency's head of flood incident management, said many people might have bought a property without realising the risk. If you look at the evidence from river and coastal flood maps, then clearly some people are having difficulty securing insurance at affordable rates. That may be an issue for some properties identified on a surfacewater map. Mary Dhonau, chairwoman of the Flood Protection Association, which represents flood-protection businesses, said that some properties would be unfairly blighted by the maps, which were not detailed enough to give a precise assessment of the risk for each house. They are not property specific and it could be that the flood risk shown affects properties down the road rather than your one Ibid. 62 P a g e

64 3.17 FLOOD WARNING SYSTEMS Insurance Ireland witnesses also remarked that a feature of recent floods was that businesses and residents were given little or no warning. That is a serious shortcoming in flood-prone areas, which they said needs to be addressed urgently through the development of better early warning systems when there is an imminent risk of flood. A similar complaint about inadequacy of flood warnings was made by the Irish Farmers Association (IFA). While some local authorities have co-operated with the OPW to provide a local Flood Early Warning System (for example, Cork County Council) there is as yet no national service similar to the Floodline 33 operated by the UK Environment Agency. This Floodline gives Flood warning information and advice at local and national level, via a website and a phone line See UK Environment Agency https://www.gov.uk/government/organisations/environment-agency 34 See https://fwd.environment-agency.gov.uk/app/olr/home. 63 P a g e

65 4. INSURANCE CLAIMANTS POSITION 4.1 THE SITUATION OF PROPERTY-OWNERS EXCLUDED FROM FLOODING INSURANCE Mr. Enda O'Donovan introduced the Irish National Flood Forum as a voluntary organisation whose members have suffered from flooding and are at risk. He told the Committee that these people cannot get insurance, mortgages cannot be obtained on their homes by potential buyers and the value of their homes has plummeted. In the previous year, Mr. O Donovan said that he had been contacted by people from Dublin, who had experienced the results of catastrophic rainfall in a very short period in October He stated that the probability of that type of rainfall returning is 1 in 350 or 1 in 400 years, but he had been told that the insurance industry has withdrawn cover in that locality. That means that a person cannot sell such a house if those who want to buy it cannot get a mortgage. Mr. O Donovan said that the Society of Chartered Surveyors may say that the house is saleable, but it has hugely diminished in value because the only person who can buy it is someone who does not need a mortgage. He mentioned that the Revenue Commissioners acknowledge that those who do not have flood insurance cover should mark that on their property tax self-assessments. He referred to the evidence given by the Ms. Josephine Feehily, Chairman of the Revenue Commissioners, to a hearing of the Committee of Public Accounts on 21 February 2013, that flooding will impact on property tax valuations. 35 Mr. O Donovan hoped that the Revenue Commissioners understanding of this issue will enable the OPW to get further funding to speed up the Flood Relief programmes across Ireland. He cited figures released by the Irish Brokers Association, who, after collating and analysing data from insurers, Insurance Ireland and the Irish Brokers Association's own data from its members, have estimated that up to 50,000 households have no flood risk insurance or are at risk of losing flood risk cover across the Republic. 35 Dáil Éireann Committee of Public Accounts Debate. Accessed at: ?opendocument 64 P a g e

66 Mr. O Donovan asserted that 50,000 people will note this point on their Local Property Tax self-assessment forms. He remarked that while the insurance industry will state that only 2% are not covered by insurance, that equates to 50,000 units. Mr Horan, in a subsequent intervention, queried this figure: I am not sure how the figure of 50,000 was arrived at but at our end we think the 98% penetration rate is accurate, and is far higher than what exists in other European countries. Mr. O Donovan defended the figure of 50,000: Insurance Ireland, Insurance Ireland, says that 2% is not covered. If one looks at other information it has, that equates to 38,000. I do not know where it got the 10,000 figure. The Irish Insurance Brokers Association maintains that 50,000 are uninsured. Being uninsured has nothing to do with flooding, and the figures for flooding could be as low as less than 20,000. Mr. Brendan Dempsey of the Cork Society of Saint Vincent de Paul told the Joint Committee in March 2013 that approximately one fifth of property in Cork city cannot at present be sold due to the inability of people to obtain a mortgage because they cannot obtain insurance. Mr. Paul Kavanagh (of the Irish Brokers Association) on 16 April 2013 introduced himself to the Committee as a broker with over 32 years of experience on the flood plains of Cork county and city, with a strong database on the flooding issue. He himself was flooded in Fermoy over 20 years ago. He cited a survey by the Irish Brokers Association of all its members in the 26 counties which combined the information with available insurance company statistics and found that there are between 40,000 and 50,000 properties, at least, without flood cover. He said that they are trying to put a figure on it. The estimates of uninsured households given to the Committee therefore range from 10,000 to 50, P a g e

67 Deputy Kevin Humphreys observed that judging by the calls TDs get, the figure of 98% policyholders having flood cover does not seem realistic to him. He believed that the figure from the Irish Brokers Association is probably more realistic. He queried from what period the figure of 98% was taken. Mr. Michael Horan of Insurance Ireland replied that it was taken some 12 months previously (i.e. in spring 2012) from their insurance company members and from their understanding of the level of existing flood risk cover. 66 P a g e

68 4.2 ISSUES ARISING FROM GEO-CODING In regard to the insurers use of geo-coding, 36 the Irish National Flood Forum (INFF) quoted an Irish Insurers Brokers Association (IBA) contention that geo-coding, although useful for insurance companies, is not accurate and can leave swathes of properties uninsurable, despite no history of flooding in the area. They claimed that geo-coding can also ignore remedial works put in place by the OPW and local authorities which render areas less prone to flooding. Furthermore, they maintain that those who have a claim or lose or do not renew their cover will never get cover again. The terms imposed by previous insurers must be declared to all future insurers. The IBA also asked why the insurance providers in Ireland whose head offices are in Europe and America treat the flooded public in Ireland differently from the public in their home countries. The Committee Chairman also identified the insurance companies practice of geocoding as central to the problem of uninsurable households: The EU report indicated that Ireland is one of the safest countries for the insurance business and that we present a far lower risk than any other country in Europe. Therefore, the insurance industry here should be performing at a high level. However, if the model it pursues is to continue, it will not be 98% [with flood cover] in the future, and at the centre of this is geocoding. If I live in an area that has been geo-coded, why is there no mechanism for me to get my property out of that geocoding? The insurance industry is not taking a specific examination of the property but is applying a general rule. The Chairman raised with Insurance Ireland the risks of this issue, alluding to economic consequences such as businesses closing down and houses remaining unsold because of geocoding. He queried whether the insurance industry is contributing to the mortgage crisis because people cannot sell their homes and escape from mortgage debt as houses 36 see Glossary at Appendix 1 for definition of geo-coding. 67 P a g e

69 cannot be bought because of geocoding. He urged that solutions be provided by Insurance Ireland. However, the Insurance Ireland rebutted these assertions, stating that it does not set guidelines for individual insurers or get involved in individual underwriting matters: The Chairman is making the assumption that the industry as a whole is taking a decision on a particular matter. Individual insurance companies compete with each other. It is not uncommon for one insurance company to examine its individual claims costs and decide to offer cover while another insurance company decides not to, because their risk portfolios are different as are their claims costs Various underwriting decisions are taken on the same risk by various companies. We are not dealing with a monolithic industry attitude. Insurance companies make their individual underwriting decisions on the basis of the information available, and geographical location is an important rating factor. Insurance companies use their claims experience, secondary data and flood models, etc. In fact, Mr. Horan in September 2012 asserted that, far from applying a general rule, geocoding pinpoints a property: The geo directory 37 gives exact geocodes for each building and pinpoints the property. Without geocoding, risks would be assessed on a blanket basis. It would be assumed that all properties within a geographical area are at equal risk of a flood. He said that geocoding enables insurers to see that, for example, one side of a street is within a flood hazard area and the other side is not. Rather than excluding all areas in a blanket manner, he noted that geocoding depicts graphically what buildings are within a flood hazard area and what buildings are not. 37 Geo directory: a directory that identifies every property in the country, developed by GeoData Surveying Limited. 68 P a g e

70 If this is the case, the Joint Committee is at a loss to understand how so much evidence was presented of properties that had not been flooded and the property owners were still refused cover or had their premia increased. The Joint Committee is of the view that this issue requires a systematic investigation and calls on the Central Bank of Ireland to conduct an inspection into this issue, using a significant sample of insurance claims, and advise accordingly. 69 P a g e

71 4.3. COMPETITION IN THE INSURANCE MARKET Mr. O'Donovan of the Irish National Flood Forum suggested that no insurance provider will even quote for home insurance if a person has made a claim in the previous five years. He contended that there is no competition in the provision of insurance in Ireland and posed the question as to whether insurance providers in Ireland are acting as a cartel to increase their profits from the Irish market. 38 This suggestion was rebutted by Mr. Kevin Thompson, who declared that: Within Insurance Ireland, we have EU & Irish Competition Law Guidelines, so when our members meet in a forum this is the guideline they must follow. 39 Mr. Horan also refuted the allegation: In regard to talk of cartels, etc., we would refute that allegation in the strongest possible terms because the Irish household insurance market is very competitive. There are at least 12 insurance companies offering household insurance cover, with many others writing into Ireland under EU Single Market rules. The market is very competitive and there is a huge range in quotation prices for a person looking for same. People bandy allegations about cartels but nothing could be further from the truth. 38 A cartel is an explicit agreement among competing firms to fix prices or production. Cartels usually occur in an industry where there is a small number of sellers. The aim of such collusion is to increase individual members' profits by reducing competition. 39 In correspondence with the Committee Secretariat 70 P a g e

72 4.4 INSURANCE CLAIMANTS PROBLEMS IN CLAIMING Mr. Enda O'Donovan referred to surveys which the Irish National Flood Forum had conducted in various locations. He noted a finding of the Irish Brokers' Association that the majority of claimants who actually received a payment are unhappy with the level of support given by their insurance company. He quoted another finding that even though respondents have spent on average between 3,895 and 6,969 of their own money on flood mitigation measures, not one insurance provider asked about, or took account of, these measures when refusing flood cover RETENTION OF INSURANCE PAYMENTS Mr. O Donovan stated that individual claimants are being forced to employ loss assessors or claims professionals in order to achieve realistic settlements, and then find that 30% to 35% of the agreed sums are being retained by the insurance company. Retention is the term for the insurers practice of providing advance payments relating to the costs of repair / reinstatement (which allows repairs to be undertaken)and paying the balance on receiving a final invoice from the claimant. Mr. Brendan Dempsey (SVP) explained that the Society of St. Vincent de Paul has been having considerable trouble with the insurance industry. A considerable portion of these problems pertain to the retention of claims, that is, where the insurance companies can hold back up to 30% of money. Where insurance companies retain monies until a job has been completed and receipts produced, the owner of the house must find the money to have the job done. Many of the clients SVP deals with are not in a position to do so because they may have to come up with 20,000 or 30,000. In the view of SVP, some claimants are put under huge pressure to accept offers made by the insurance company. Since 2009, Mr. Dempsey told the Committee, the Society of St. Vincent de Paul has spent more than 1.8 million nationwide in dealing with direct building and repair of houses, approximately 408,000 of which was spent in Cork. He explained that most SVP clients submit claims for precisely what it costs to carry out the necessary work but that the insurance assessors contest these claims. As a consequence, he said that the claimants end up with a shortfall of many thousands of euro. He gave the example of one neighbourhood of 42 houses after the 2012 Cork 71 P a g e

73 flooding, where the shortfall between what insurance paid out and what the builder required ranged from 1,000 to 17,000. Mr. Dempsey told the Committee that the Society of St. Vincent de Paul cannot afford another flood as they have a severe call on their funds. On 16 April 2013, Mr. Éamonn Downey, acting president of the Irish Claims Consultants Association, agreed that the practice of retentions was giving rise to problems. Based on their experience in the Cork floods in particular, he alleged that insurance companies retain part of agreed claims settlements incorrectly and contrary to their practices outside of Ireland. Many of the companies are headquartered outside Ireland and Mr. Downey stated that they behave differently abroad. One unintended effect of the retentions practice, according to Mr. Downey, is that it appears to foster an atmosphere in which householders engage VAT-unregistered contractors to carry out repairs, thus saving them money. According to Mr. Downey, insurance companies used their builders' price as a measure of indemnity or how much should be paid. They have the fall-back position that their builders are available to carry out repairs for this price. However, the agreed rates are not representative of the construction market and give rise to an issue that Mr. Downey said should concern the Committee, namely, builders operating in the black market. They attempt to use builders from panels they have set up, thereby removing the right of choice and attempting to use a scope of works that does not represent the damage caused. Variants of this scheme include insurers insisting on using unrealistic prices to which they refer as agreed rates for repair work. As a former loss adjuster, Mr. Downey spoke of his sadness at seeing them force these practices on loss adjusters, the majority of whom are professionals. For this reason he welcomed the forthcoming whistleblower legislation (Protected Disclosures Bill 2013) 40 and hoped for the emergence of individuals who will reveal the inside stories of insurance companies practices. It seemed to Mr. Downey that in order to achieve more profit, companies have changed their attitude and culture. According to him, the retention practice is not evident in Belfast or Bristol. If loss adjusters from Belfast are sent to a major flood in Galway, the 40 Subsequently enacted on 8 July 2014 as the Protected Disclosures Act P a g e

74 circumstances described do not arise. Retention has been introduced in this State and Mr. Downey said that the companies are getting away with it. In response to questions from Committee members on the issue of insurance companies practice of retentions seeming to lead to a tendency of policyholders to use unregistered contractors, Mr. John O'Donoghue, managing director of a claims specialist firm, clarified this issue: Our feeling, which is based on anecdotal evidence, is that policy holders will use competent and registered contractors when they know they will be compensated properly by their insurers. If they receive less than a full indemnity at the outset, that encourages them to use unregistered contractors. That is what Mr. Downey meant when he said it is fostered by insurance companies. At this point, they must have a decent idea that this is what is happening. Fewer and fewer people are coming back to claim the retained portion of the agreed settlement. They are not coming back because they cannot provide the documentary evidence required FAILURE TO ADVISE CLAIMANTS OF RIGHT TO THEIR OWN REPRESENTATIVE Mr. Downey also alleged that insurers have ignored the Consumer Protection Code by not giving a true commitment to advise homeowners who notify a claim of their right to retain their own representative. In his opinion, companies encourage an adversarial and combative approach in their investigation and handling of claims. He suggested that this is particularly common where a householder employs his or her own assessor. As a result of these practices, he believed that the amount of claims and the amounts of settlement are usually a distance apart. 73 P a g e

75 4.4.3 PROBLEMS IN COMPARING INSURANCE QUOTES According to Mr. Dempsey (SVP), another problem was discovered by the SVP in the case of policyholders shopping around four or five different insurance companies. One of the companies might say No, we are not interested. If the policyholder then decides to stay with the existing company, what they may not realise is that the insurance company that refused to provide a quote is refusing cover. They enter one s name and address into a central statistical log for all insurance companies. If, any time after that, one makes a claim, the first thing one s insurance company will do is to see whether one has been refused insurance and there it is in front of them. Accordingly, one is construed to have made a false declaration and one is not insured. Mr. Dempsey stated that people are not able to deal with such technology. Both Mr. Horan and Mr. Thompson replied that Insurance Ireland has an information service line that deals with complaints and queries from members of the public, such as the availability of cover or questions regarding claims. The line deals with motor and household insurance and other business. On average, Insurance Ireland receives approximately 2,000 calls with a rate of successful mediation of approximately 60% to date, they said. They were unable to provide a breakdown of successes in motor or house insurance. They divulged that complaints on availability of flood insurance cover would be in the low single figures each month, and that it is not possible to generalise from one or two examples. Deputy Humphreys later questioned Mr. Dempsey (SVP) about the proposal form asking that a person who has been refused insurance by another insurance company to make that disclosure. If that is not disclosed to the original insurance provider, does that make the insurance policy with that provider null and void? Mr. Brendan Dempsey answered in the negative as, he said the householder took on the original contract on the grounds and questions asked on day one and, provided he 74 P a g e

76 answered all the questions honestly and disclosed all the relevant information as asked for at that time, he is covered In correspondence with the Committee Secretariat, the Central Bank stated while they have not conducted a themed inspection or review into the specific issue as described, the bank is aware that some firms have included a condition in an assumptions section, or in the terms and conditions, and often the consumer must click to confirm they understand: "You are only eligible for a quote and cover if you and anyone living in the home have never been refused insurances, had a policy cancelled by an Insurer or had any special terms, restrictions or conditions imposed by any Insurer. The Central Bank added that their Consumer Protection Code requires that all such terms and conditions are made clear to the consumer. Combined with the doctrine of uberrima fides, it would appear that if such a condition was included in an insurance contract, failure to disclose a refusal to provide insurance could invalidate an insurance contract, including a renewal of a contract. 75 P a g e

77 4.5. CENTRAL BANK FINDINGS ON HOUSEHOLD PROPERTY CLAIMS RESULTING FROM WATER DAMAGE Subsequent to the Committee s hearings, the Central Bank on 24 October 2013 published its findings of a Household Property Claims Themed Inspection into household property claims resulting from water damage. 42 The Central Bank considered these types of claims given the increased frequency of floods in recent years. The inspection examined compliance with the Consumer Protection Code between 1 July and 31 December 2012 in 10 of Ireland s largest non-life insurers (approximately 90% of the Irish property insurance market). Desk-based research was undertaken in 10 firms, and on-site inspections were undertaken in 7 of these firms between April and June A total of 188 claim files were reviewed. The main issues identified during the inspection include: weak oversight and controls over outsourced claims handling (Loss Adjusters); isolated incidences of potentially unfair settlements; and a lack of transparency around the practice of insurers retaining a portion of the agreed settlement (typically 30%) until reinstatement has been completed and final invoices have been submitted (known as retention) and the extent to which consumers are not claiming the portion retained. The Central Bank issued an industry letter drawing the attention of insurers to the inspection s findings and emphasising the requirement to be in full compliance with the Code when handling claims, either directly or through a third party. The Central Bank is following up directly with the insurers inspected, and is also considering whether enforcement action is appropriate in some cases. On the issue of retentions, the Central Bank stated that: 42 Accessed at: 76 P a g e

78 All of the insurers have a practice whereby a retention amount may be applied to a claim settlement offer and typically the retention withheld would be between 20% and 30% of the settlement amount. In order for a retention amount to be paid, consumers are required to provide either receipts, invoices or other proof that the repairs have been fully completed. The Central Bank noted that 23% of the monetary amount of all household property (water damage) claim retentions applied by the 7 inspected insurers during 2012 were never claimed by the consumer; and A review of insurers policy booklets revealed that only one of the insurers clearly describes the practice of retentions in its policy booklet. Insurers have been requested to make clearer their policy on retentions at the time of the product being purchased and again when a claim is instigated. On the issue of Loss Adjusters, the Central Bank stated: All of the insurers engaged at least one Loss Adjuster firm to settle claims on their behalf. The review identified that Loss Adjuster firms had issued introductory letters to consumers which did not clearly state they were acting in the interest of the insurer who had engaged them, or explained that the consumer could appoint, at their own expense, a Public Loss Assessor to act on their behalf; and Given the number of suspected breaches of the Code, the majority of which had a minor impact on consumers, it was evident that monitoring of Loss Adjuster firms by some of the insurers was ineffective. Examples of suspected breaches originating from the activities of the Loss Adjusters include the failure to inform claimants that they act in the interest of the insurer and failure to advise claimants that they have the right to appoint a Public Loss Assessor at their own expense. On the issue of Suspected Unfair Settlements: The Central Bank suspects that unfair settlement offers had been made in a small number of claims which is a breach of Provision 7.15 of the Consumer Protection 77 P a g e

79 Code. 43 In a small number of cases, insurers or their representatives were found to have made decisions to decline claims without fully validating the claim or made offers which were significantly lower than the value of their best estimate when all of the facts relevant to the claim were taken into consideration. The Central Bank is carrying out further investigations to determine whether these are isolated incidences and where consumer detriment is identified, insurers will be required to take appropriate action. 43 Accessed at: 78 P a g e

80 4.5.1 RESPONSE OF INSURANCE IRELAND TO CENTRAL BANK S FINDINGS In response, Insurance Ireland said that the findings outlined in the Central Bank s Household Property Claims Themed Inspection are not an accurate reflection of the market. 44 The sector handled over 70,000 household claims in 2012 but the Central Bank s report is based on just 188 claims. Insurance Ireland said that Insurers have been very successful in their objective of achieving fair and just settlements with their customers within the terms of their policies. On the issue of retentions, Insurance Ireland says that insurers generally provide advance payments relating to the costs of repair / reinstatement in advance of receiving final invoices from the claimant. This is done for the benefit of the customer and allows repairs to be progressed quickly with the balance paid promptly on receipt of a final invoice. There was no suggestion in the Central Bank s statement that the balance was not paid when the invoices were submitted. Insurance Ireland believes it is entirely reasonable to ask a customer to provide a final invoice before a final payment is made. On Loss Adjusters, Insurance Ireland declared its confidence that Loss Adjusters are a highly professional group, operating to high standards. If there have been instances where written communications between loss adjustors and customers were not clear then that will be addressed. However, Insurance Ireland also notes that while the Central Bank have analysed the practice of Insurers and Loss Adjusters, they have not analysed the practice of Public Loss Assessors. This, they feel, is an omission and suggests a lack of balance. On the issue of unfair settlements, Insurance Ireland noted the small size of the sample, and the acknowledgement in the accompanying notes that issues such as the reference to potentially unfair settlements only related to a very small number of the already small sample size. 44 Insurance Ireland. Accessed at: 79 P a g e

81 5. RURAL DWELLERS DIFFICULTIES WITH FLOODING AND INSURANCE On 12 February 2013, the Committee heard evidence from the Irish Farmers Association. Mr. Michael Silke, chairman of the IFA floods project team; Mr. Joe Parlon, IFA Offaly county chairman; Mr. Andrew McHugh, IFA Longford County Chairman; and Mr. Gerry Gunning, IFA rural development executive. 5.1 FARMERS EXCLUDED FROM FLOOD COVER DUE TO INCIDENCE OF SUMMER FLOODS Representatives of farming organisations gave evidence to the Committee on 12 February 2013 of their particular problems with insurance or lack of it due to the incidence of summer flooding of the Shannon catchment area. 45 Mr. Michael Silke of the Irish Farmers Association (IFA) briefed the Committee that their big issue with insurance is that farmers have never seen it as feasible to insure their land against flooding. They do not think it is even possible. If farmers are insured and get the insurance the first time round, most are unable to afford the insurance the second time even if they can get it. He requested that the authorities should not dwell on the insurance issue but on the feasibility of implementing measures that would reduce the possibility of floods in the future. 45http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ ?opendocument#D P a g e

82 5.2 SUMMER FLOODING IN THE SHANNON CATCHMENT AREA Mr. Silke outlined to the Committee that in early June 2012, the most serious summer flooding ever witnessed in the Shannon catchment area had a devastating effect on farming. Thousands of hectares of grasslands and meadow for grazing stock and harvesting for winter fodder was destroyed. Farmers who lose land lose the ability to feed cattle for that year; they were forced to house their stock in early summer at huge financial cost and faced financial ruin. This followed a big flood in 2009, when farmers had lost a great deal. They again had lost their ability to feed cattle (in 2012) and used bought feed. Farmers were said to be very dissatisfied with the lack of response from official Ireland. According to Mr. Silke, politicians are putting their faith in Shannon CFRAMS, the Catchment Flood Risk Management and Assessment Study, which will not be finalised until Even at that stage there will still be only a proposal, a study, a survey. In the interim, farmers have a major problem. While all the agencies have a role, including the OPW, the ESB, Waterways Ireland, the National Parks and Wildlife Service (NPWS), Inland Fisheries Ireland and Bord na Móna to some extent as well as local authorities, in the view of the IFA the OPW should oversee other agencies. Mr. Silke called for the lead agency (the OPW) to dictate what works would be put in place to alleviate flooding LAKE WATER LEVELS A grievance submitted to the Committee by Mr. Silke is that Waterways Ireland, whose remit is for navigation and recreational purposes, allegedly allowed artificially high levels to be maintained in the lakes. Waterways Ireland has made known to farmers that it is working with the Electricity Supply Board (ESB) to maintain the river and the lakes at a certain level and the farmers find this totally unacceptable. He suggested that this was a massive contribution to serious summer flooding in recent years. The farmers view is that the aim should be to reduce the water levels to the lowest level compatible with navigation purposes so that the river is able to take additional water at critical times such as when there is excessively heavy rainfall. 81 P a g e

83 In the case of the ESB, it is apparent to farmers that the holding back of water at critical times has contributed to serious summer flooding. They believe that water levels in Lough Ree, Lough Allen and Lough Derg are maintained at an artificially high level. Farmers want to know why the water levels in Lough Ree were tampered with in the 1970s and have risen by 0.6 m, which is exactly two feet. These levels were given statutory effect in the ESB regulations for the Shannon in Mr. Silke called on Members of the Committee to address this issue. He advocated that the agencies make greater allowance for rain and bring the levels back to what they used to be. If there are problems in Lough Ree with the jetties that were built in the intervening years, farmers suggested a deal be done between the National Parks and Wildlife Service to make provision for proper access to those jetties. Mr. Silke submitted that the National Parks and Wildlife Service should not destroy farmers livelihoods because it wants to get boats into a particular spot along Lough Ree. Deputies Stanley and Coffey, in particular, echoed the concerns that the OPW does not have the final say over what happens in many water courses because other bodies, such as the National Parks and Wildlife Service, are responsible for them. To them it seems problematic that the NPWS can exercise a veto on whether, for example, a sluice gate should remain open. Mr. Silke claimed that there was an opportunity during the dry period to allow water down through the system, but no capacity now, and that this was the reason for summer flooding. Two feet of capacity could have been gained. The year 2012 was said to be a prime example when there was a dry period in March and April. If water had been released at that time, it would have created a huge capacity for when the rain came. A small amount of rain in the summer will flood the system. The IFA had consulted Jacobs, the consultants involved in CFRAM, and were disappointed with their presentation as it did not address the issue of the levels in Lough Ree. Neither had they dealt with the feasibility of using cutaway bogs north of Lough Ree. An ESB witness who had given evidence to the previous Committee (on 23 February 2010), (Mr. Tom Browne, engineering and technical risk manager, ESB) had proffered an answer to the question about changes in the 1970s in a press report: 82 P a g e

84 A tide of anger still flows over Shannon floods, Farming Independent, 3 September There is a local view that the ESB stores water in Lough Allen and Lough Ree as a generation reserve, and that this means that flash flooding is forced across the flood plain. Not so, says Tom Browne of the ESB. Tom describes this assertion as "misinformation", which he says is tied into the history of the problem. Ardnacrusha was built in the 1920s and was then the largest generating station. Until the advent of larger stations and the construction of Turlough Hill pumped storage station in the 1970s, there would have sometimes been excessive draw-off of water to maintain generation, particularly in the war years when Ardnacrusha was often the only station operating. The focus changed in the early 1970s to one of managing the river to meet the needs of all stakeholders. Tom Browne points out that ESB has no interest in Lough Allen and Lough Ree for generation, but the company has an obligation to manage levels in the lakes to ensure dam safety, to provide adequate water supply for fisheries and public bodies, and to minimise flooding. Athlone weir is 123 feet above the ordnance datum at Poolbeg. The 1934 Electricity Supply Act allowed ESB to draw water down to 121 feet to facilitate continuity of electricity supply in drier months. In the early 1970s, levels were gradually restored to the 123 foot level to facilitate boat traffic, and in 1979 the company agreed formally with the OPW to maintain 123 feet as a summer minimum. This restoration of the level to what it was in the years before Ardnacrusha was built is often quoted as the reason for summer flooding, although there is no suggestion that summer flooding was an issue when the Shannon was a commercial waterway with related higher levels in Lough Ree. ESB nowadays allows the flooding level at Athlone to drop by 300mm in mid- August and by a further 300mm in mid- October as part of its flood management role, and also collects and maintains records of rainfall, water levels and flow data on the river. The 83 P a g e

85 company has no responsibility to supply flood warnings, but does issue twice-weekly lake-level forecasts to all relevant stakeholders. Most observers agree that the problem centres on the river channel between Athlone and Lough Derg. The river here lacks gradient and flood waters simply spread across the flood plain when the levels rise. However, there is also widespread belief that not enough is being done to maintain this channel, and that authorities are slow to respond when flooding is imminent. At a subsequent meeting of the Committee on 23 April 2013, Mr. Tony Smyth, director of engineering services in the OPW, responded to the point raised above by Mr. Silke: We also have frequent meetings with Waterways Ireland and the ESB. The Board has agreed to aim to reduce the starting water levels in Lough Ree by 100 mm at the start of the summer and to have that as its target but that will be dependent on hydraulic conditions, rainfall, what happens on the river and so on. We are not always in control of that because there is a limited level of control. There are only a number of gates in Athlone that can be opened and, therefore, at a certain point the inputs into Lough Ree overwhelm the output and one is not in control of the level but we understand the difficulties and our response in a sense is through the CFRAM for that, as it is for other rivers around the country to develop proper warning Regarding Lough Ree... the ESB does not have complete control of water levels. It can open a number of gates to reduce water levels somewhat, but more enters the lake at certain times than can be released through the gates or over the weir, leading to a rise in water levels that overwhelms the ESB's efforts. 84 P a g e

86 5.2.2 FLOOD WARNINGS According to Mr. Silke, the ESB had a short time previously contacted the stakeholders to say there was a chance of flooding in the next 24 hours, but he said that that was too late. In June 2012, they were given seven days warning of a huge rainfall but Mr. Silke maintained that nothing was done in that seven days. On 26 February 2013, Mr. James Doyle of the Irish Rural Dwellers Association also commented on flood warnings. He told the Committee that by the nature of the events, and the extreme weather conditions, there is often very little warning. He said that, in fairness to the local authorities and the other agencies, drains were blocked and that events had happened very quickly. He stated that the response is reasonably good but that any process can be improved. 85 P a g e

87 5.2.3 ESSENTIAL MAINTENANCE WORK ON THE SHANNON Mr. Silke asserted that essential maintenance work has not taken place despite the fact that various reports over decades indicated that remedial works in key areas along the River Shannon would have a massive beneficial effect for farmers, the community and the protection of threatened wildlife. In this connection, he claimed that the EU Habitats Directive (Council Directive 92/43/EEC on the Conservation of natural habitats and of wild fauna and flora) is a rough tool. He described tiny islands which have accumulated on the River Shannon and are on no map. In the IFA s view, it is critical for the OPW, which has its own environmental scientists, to address this issue with the NPWS and to tell them that the public good is at risk and that people's livelihoods and human health are at stake. According to Mr. Silke, the core issue is not insurance, but the failure of the State to put in place a proper maintenance programme, to remove the impediments in the Shannon and to return to the pre-1970s water levels. The levels should not have been tampered with. As they were, there should have been an alternative strategy to take away the water that is coming north of Athlone into bogland over a critical period and release it at a more appropriate time. Mr. Silke pointed out that: after the flooding of 1954, the 1956 Rydell report 46 proposed a summer relief scheme; in 1961, the ESB and OPW issued a report 47 which proposed much the same; the Delap and Waller report in ; the report of an Oireachtas committee in ; 46 River Shannon Flood Problem, Final Report, L E Rydell, Corps of Engineers, U.S. Army, August Accessed at: 47 River Shannon Flood Problem. Report on First Stage of Investigations, prepared jointly by Office of Public Works and Electricity Supply Board. (1961) 48 Report on the Technical Aspects of the River Shannon Flooding Problem for Irish Farmers Association, Delap and Waller, May P a g e

88 and last year's report 50 ; all proposed something in the line of a summer relief scheme to deal with summer flooding. Mr. Browne was echoing one of the key findings of the Rydell Report: The problem of Shannon River Flooding has been the subject of much study over the past 150 years. Because of the flat terrain through which the river flows, the almost imperceptible gradient of the stream within its series of lakes and connecting channels and because of the large volume of long duration of flooding, no simple or obvious solution has therefore been found nor has the writer now found one. 49 Interim Report on Flooding on the River Shannon, House of the Oireachtas, Joint Committee on Public Enterprise and Transport Sub-Committee on the River Shannon Catchment, November Accessed at: P a g e

89 5.3 OPW RESPONSE TO EVIDENCE GIVEN TO THE COMMITTEE ON THE RIVER SHANNON Mr. Tony Smyth, at a subsequent meeting on 23 April 2013, responded to the above points: A range of policy issues affect management powers on the Shannon. Many agencies and local authorities have a remit over planning, tourism, boating and so forth. When the OPW identifies a scheme of works, they generally put the plans on public exhibition, giving others an opportunity to comment. The OPW has powers to implement a scheme. Once it is shown to be technically sound, passes its cost benefit analysis and meets environmental criteria, they recommend it for construction In some cases, a scheme will be led by the OPW and in others it will be led by a local authority. That is the process from plan to outline design stage. Mr. Smyth referred to OPW s response to the Committee's 2012 report on the River Shannon. He referred to the protocol in place between the ESB and Waterways Ireland for the operation. The protocol is based on water levels rather than on forecasts of rainfall, and they respond in a particular way to that. However, that is within the remit of the ESB and Waterways Ireland, and until the OPW has other evidence to say that it should be done differently, they are not in a position to make other suggestions. Mr. Smyth said that his understanding from stakeholders such as the IFA and others was that this is not acceptable to them. But, pending the outputs from CFRAM when the OPW will have a proper model of the river and a proper understanding of the water levels and how the water levels in the lake and the callows are interconnected, the OPW will not be in a position to make any recommendations for changes on those levels. 88 P a g e

90 5.4. SHANNON MAINTENANCE: SILT AND TREES Mr. Silke alleged that as a result of Bord na Móna s operations along the Shannon, thousands if not millions of tons of peat in critical areas of the river washed down the river and was caught at corners and various places. The IFA have identified to the OPW the critical places in which silt has accumulated and bushes and trees are growing. They want these bushes and trees taken from the river. Deputy Coffey, at the hearing of 26 February 2013, said that the Committee should ascertain if exemptions can be sought for emergency works for reinforcement of river banks or removal of silt in rivers where there is extreme pressure. He had seen farmlands flooded where the water got out on to regional roads and caused a serious traffic hazard. In the locality of which he spoke, flood defence and mitigation measures have been put in place. A huge investment has been made by the Government in Clonmel, Carrick-on-Suir and Waterford city to defend against flooding. He declared that there is a need for serious engagement with the OPW and the National Parks and Wildlife Service on silt removal and reinforcement of river banks to make it easier for landowners and farmers to do the work in an emergency fashion. 89 P a g e

91 5.4.1 OPW RESPONSE ON SHANNON SILT AND TREES At a subsequent meeting of the Committee on 23 April 2013, Mr. Tony Smyth, director of engineering services in the OPW, responded to the points on the removal of silt and trees. He pointed out that the NPWS (National Parks and Wildlife Service) enforces the EU Habitats Directive and the resultant legislation, which regulates issues concerning the environmental impact of removing the silt, such as the disturbance of various plants, flora and fauna. An element of the OPW major Flood Relief programmes is a full environmental impact assessment. Environmental consultants are engaged at the same time as the engineering consultants in order to examine the possible environmental constraints on the various flood mitigation options and as far as possible build those into the design. Mr. Smyth said he is not aware of any significant delays on major works. He said that he was aware that on minor works, certainly in the Shannon area, it has caused delays because there was no economic way to do what local stakeholders had requested, which was to move silt and distribute it on the land. There were concerns about damage to the environment and Mr. Smyth said they were unable to proceed with some of those minor works. That tends to be more of a problem with minor works rather than with the major ones where the OPW has the resources to do all the various environmental studies and influence the design of schemes in that way. Mr. Smyth acknowledged that silt remains an issue. Without a scheme that is cost beneficial and can resolve all the elements, he stated that it is difficult to invoke powers to undertake these tasks. He said that the OPW has not engaged with Bord na Móna in regard to transporting the silt on the network. He emphasised that at present the OPW has powers for maintenance on completed schemes under the Arterial Drainage Acts. To invoke these powers they need to carry out a scheme under the Act, which involves putting it on public exhibition after proper engineering, design, cost benefit and environmental assessments, having it confirmed by the Minister and then constructed. After this, the OPW maintains the scheme. He pointed out that the OPW does not have the legislative power to do the kind of work in question, namely, take silt or branches out of the river. Questioned by Deputy Corcoran Kennedy as to whether the OPW would be happy to have such powers, Mr. Smyth replied that this would be difficult, as there is other 90 P a g e

92 constricting legislation. One cannot just remove silt. The OPW must comply with the body of environmental legislation put in place by the Oireachtas and the EU. Being given powers over one aspect means that the OPW must comply with other legislation. A process would then need to be put in place to comply with the various constraints, for example, public expenditure, environmental law and procurement law. The Vice Chairman questioned Mr. Smyth on the maximum spend for small local authority schemes. Mr. Smyth responded that the limit was set by the OPW at 500,000 because they believe engineering works costing more than that would certainly have environmental impact and should have proper environmental and cost-benefit studies carried out. The benefit of the minor works is that the OPW has developed simplified criteria for the cost-benefit analysis to ensure they are getting benefit for the cost but without having to go to the rigours and expense of a full cost-benefit analysis as they do for the major schemes. Completing a full cost-benefit analysis might run to anything between 10,000 and 30,000. In cases where the works will cost 50,000, it does not make sense to spend that kind of money on studies. 91 P a g e

93 5.5 RIVER SHANNON: SOLUTION PROPOSED Mr. Silke (IFA) urged that the Minister of State with responsibility for OPW must implement a strategy, to include: An early warning system for extreme weather patterns; A policy of allowing water to move on when heavy rainfall is forecast and occurs; Essential maintenance work to be carried out. He urged that all of these measures be given legislative effect. Deputy Stanley noted that the Committee had passed a motion that its 2012 report on this matter 51 be referred to the Dáil where it would be discussed with the Minister of State, Deputy Brian Hayes, present. The report includes eight recommendations and he believed the witnesses would agree with most of them. 51 Joint Committee on Environment, Culture and Gaeltacht. Eight proposals urgently required to tackle flooding on the River Shannon, its tributaries and the waters feeding into it (July 2012). Accessed at: 92 P a g e

94 5.6 PROVISIONS FOR FARMERS AFFECTED BY DISRUPTIVE WEATHER EVENTS: CASE OF ARGENTINA As the OPW witness indicated that EU and Irish legislation constrains some of the solutions proposed by farmers, it may be instructive to look at other models of compensating farmers for weather- related losses. Argentina is one country in which different solutions have been implemented for the agriculture sector. Text Box 2: The importance of understanding disaster risk exposures and riskbearing capacities within the economy the case of Argentina and the agriculture sector Argentina is a country where the agricultural sector plays an important role in the economy. This economic dependence on farming makes the country vulnerable to weather-related hazards and climate change impacts on weather patterns. Of particular concern to Argentina are the potential economic impacts of adverse weather events on small and medium producers, who may not have the financial capacity to manage agricultural risks linked to weather patterns, particularly climate change. Argentina has, at various levels of government, developed a range of financial instruments intended to offset the costs of disruptive weather events, such as grant subsidies for insurance as an instrument of social policy in rural areas (e.g., avoiding rural-urban migration, reducing producer vulnerabilities through financial protection of assets), tax exemptions for agricultural insurance, and reinsurance, although there are currently no national subsidy programs. A National Committee on Farming Emergencies and Disasters has been created whose main purpose is to manage the compensation of farmers affected by climate, weather, seismic, volcanic or biological events. Source: Improving the Assessment of Disaster Risks to Strengthen Financial Resilience, Special Joint G20 Publication by the Government of Mexico and the World Bank (2012), quoted in OECD report, op.cit. 93 P a g e

95 6. STATE AUTHORITIES ROLE IN FLOOD REMEDIATION 6.1 LOCAL AUTHORITY FLOOD REMEDIATION WORKS Representatives from Kildare County Council outlined to the Committee on 26 March 2013 the local authority system of flood risk management. They were Mr. Michael Malone, County Manager, Mr. Alan Dunney, senior executive engineer, and Mr. Joe Boland, director of services for water services and the environment. Mr. Dunney declared that there have been six fairly major flood events in County Kildare since These floods took place in June 1993, November 2000, 9 August 2008, 16 August 2008, 27 November a very big one - and 1 January After the flood events of 1993 and 2000, Kildare County Council commissioned a number of reports for areas that have been at risk of flooding. Work was done on this before 2008, particularly along the Morrell River, as well as in Leixlip. In August 2008, the county council set up a dedicated flood alleviation section, headed by Mr. Dunney. As part of their work with the OPW, they undertake two types of scheme, the capital programme and the minor works programme. The capital programme is for works in excess of 500,000 and, to date, they have undertaken two fairly big schemes. Regarding insurance, the County Council have found in recent years that once an area has flooded, residents find it difficult to get property insurance. Despite the Council having delivered a scheme, they would receive a call from the public to say that insurance is still not available in that area. In response, they drafted a standard letter for these land owners describing the work done, detailing design standards and outlining how the risk of future flooding has been reduced. The letter template states that they can confirm that flood alleviation works have been completed, and states the design standard for the work is the 1% annual exceedance probability with a further allowance of 20% for climate change. It confirms that the Council considers the successful completion of the flood alleviation works should reduce the risk of flooding in a particular estate. The letter states that Kildare County Council does not accept any liability in respect of the letter. 94 P a g e

96 6.2 LENGTH OF TIME TAKEN TO IMPLEMENT FLOOD REMEDIATION WORKS: LOCAL AUTHORITIES Deputy Murphy alluded to the criticisms (above) heard by the Committee that it takes a long time to have Flood Remediation remedies put in place. She queried whether there are logjams in the process, especially in the interaction between local authorities and the Office of Public Works? Could the Joint Committee make recommendations in this regard? Mr. Dunney in reply gave the example of the Office of Public Works direct labour crews building the works in Johnstown and Leixlip which probably took four years to complete works, from the time representations were made to completion. They carried out a preliminary design and cost-benefit analysis for a scheme, obtained approval from the Office of Public Works to proceed with planning and detailed design and then secured landowner agreements. It probably took two years to move on to the site and a further 18 to 24 months to carry out the construction programme. Construction is substantially complete, with the exception of reinstatement which can be done when the weather improves. In response to a question on whether any Kildare County Council schemes have been delayed, he answered that they had by and large obtained funding for all schemes that they had proved to be cost-beneficial. The main issue is to show a scheme is cost beneficial. Under the minor works programme, the cost to benefit ratio is 1:1.5, which means that if the benefit of a scheme is estimated to be 15,000, it must cost less than 10,000 to fix the problem. Under the capital works programme, the cost-benefit analysis is more complicated and involves discounting the scheme over its lifetime, which is defined as 50 years. Once this is shown to be positive, the scheme will generally be considered but will fall into an overall national programme. It joins the queue, as it were. 95 P a g e

97 6.2.1 HABITATS DIRECTIVE CONSTRAINTS Three rivers run through Kildare - the [Enfield] Blackwater / Boyne, the Barrow, and the Liffey - and the local authority is constrained by legislation in the management of these rivers. As required under the EU Habitats Directive 52, every three years the Barrow Drainage Board engages an environmental consultant to prepare a Natura 53 impact statement. That identifies areas along the river where certain species live and the mitigation works the local authority must carry out to clean the river where the species are located. There are windows within the calendar during which they can work. For example, if they cut trees along the Barrow, they must finish by the end of February. If they want to put a bucket into the river, they can only do so between May and September, and with the agreement of Inland Fisheries Ireland. Some rivers are much more sensitive than others LOCAL AUTHORITIES AND CFRAM In response to questions from Members who raised the issue of the impact of future planning, Mr. Dunney answered that the County Council must await the completion of the two CFRAM (Catchment Flood Risk Assessment and Management), studies under way in Kildare because they will be the recognised model and standard for the issue of flooding and the identification of potentially risky locations. The OPW had published a set of maps under the CFRAM programme, perhaps 12 months before (in March 2012), which offered an overview of where flooding might happen. As part of the CFRAM programme there was public consultation, and results were sent out under the preliminary flood risk assessment. Since then, surveyors and modellers have been engaged to develop site-specific flood mapping for different areas. For example, in the Liffey catchment of the eastern CFRAM scheme a number of areas were set aside for further assessment. Each of those would have detailed surveying and modelling done. 52 EU Habitats Directive 53 Natura 2000 network 96 P a g e

98 The CFRAM programme, in the County Council view, is a very positive development, as it will give a standard overview of the various catchments. Mr. Dunney stated that in two or three years there will be a national menu of works that will be recommended through the CFRAM programme. If funding can be set aside for each individual scheme as they go down the list, it could be like the next roads programme. The OPW is the lead agency in the CFRAM programme; each local authority in an area would be represented on the steering group for that particular CFRAM study. Kildare County Council sits on the steering group for south east and east, covering the Barrow and the Liffey and all their tributaries RIVER MANAGEMENT AND WATER LEVEL UPDATES There is a drainage board for the Barrow, established under statute by the Barrow Drainage Acts 1927 and The Blackwater is part of the Boyne drainage district maintained by the OPW. The Liffey is not part of any drainage district. The river is managed by the ESB, in terms of the dams. The River Liffey has a specific legislative code, the Liffey Reservoir Act 1936, by virtue of the involvement of the ESB and the extraction of water for the generation of electricity, Kildare County Council receives weekly updates from ESB on the volumes of water it is releasing through the dams and information on whether the levels of water in the reservoirs are rising or dropping rapidly or slowly. If there is inclement weather the Council might get daily or even more frequent updates. 97 P a g e

99 PUBLIC PROCUREMENT PROCESS Mr. Malone referred to the tendering process as a factor in the length of time taken to carry out flood risk management works. He said that the procurement process for drainage is the same as for any other works. The limits are set down and local authorities have to work within them, with no way around those limits. He acknowledged that etendering and procurement can take a long time. However, as a general rule, the size of the contract dictates whether local authorities have to go through an etendering 54 process and he does not think there is any way around that. There would not be a tender involved if the OPW was doing the work directly, if the OPW had the capacity to do the work. If a work programme was very large, the OPW would have to get outside assistance. Mr. Dunney told the Committee that depending on the value of the contract, the OPW could get three prices, go through the etendering process or even have to go through the [Supplement to the] Official Journal of the European Union 55. Mr. Malone said that it is down to value and capacity within the OPW. The OPW has to judge whether it can do the work itself and, if it can, that speeds progress. Many decisions on schemes revolve around issues of scale, complexity and cost. Some schemes can be very complex or costly and the more costly they are, the more difficult it is to secure funding for them. Kildare County Council has undertaken a range of schemes themselves, some minor and some major. When they set up the dedicated team within Kildare County Council they were in a position to draw up schemes and ensure that any cost-benefit analysis would support them. That went a long way towards enabling them to make their case to the OPW. When plans are being prepared, all the boxes must be ticked in order to secure funding. 54 etenders Office of Government Procurement 55 Supplement to the Official Journal of the European Union 98 P a g e

100 6.3 ROLE OF THE OPW (OFFICE OF PUBLIC WORKS) IN FLOOD REMEDIATION Mr. Tony Smyth, director of engineering services, and Mr. Liam Basquille, principal officer in engineering services in the OPW, gave evidence to the Committee on 23 April The Vice Chairman asked the OPW witnesses to address the issues that have been raised by previous witnesses and, primarily, by Insurance Ireland, whose submission stated: It is important that the OPW communicates reliable information on flood defences to insurers Insurers need to have confidence in OPW s review of standards and commitment to maintenance of flood defences once completed as well as access to comprehensive information on all areas vulnerable to flooding showing the status of remedial works... details of the design standards to which flood defences have been constructed, expressed as the return period of an event which the defence is designed to withstand. The minimum standard required is a return period of 1 in 100 years maps in GIS [Geographic Information System] format for all vulnerable areas showing likely flood extent maps showing the protections offered by any remedial works; and regular updates of all information. Mr. Smyth referred to the OPW s specific role in the transfer of information to the insurance industry on flood risk and flood defences and emphasised that the OPW has no responsibility for oversight or regulation of the insurance industry or insurance matters generally. He updated the Committee on the newly-inaugurated co-operation between the OPW and Insurance Ireland (see Section 3.16 of this paper). 99 P a g e

101 6.3.1 ROLE AND RESPONSIBILITIES OF THE OPW IN RELATION TO FLOOD RISK MANAGEMENT Mr. Smyth noted that following a Strategic Review of Flood Risk policy in , the Office of Public Works was assigned the lead co-ordinating role for flood risk management in Ireland. They deliver services in the following key areas: Strategic planning to manage flood risk under the Catchment Flood Risk Assessment and Management, CFRAM, programme in compliance with the EU Floods Directive; Under the coastal protection strategic studies, capital investment to address existing flood risks to properties and infrastructure through major and minor Flood Relief projects, in partnership with local authorities; and Maintenance of those arterial drainage and urban Flood Relief schemes completed under the Arterial Drainage Acts. They engage in important information gathering, including in particular collection of hydrometric data to improve the estimation of water level flow and to enhance the quality and reliability of Flood Relief design and mitigation measures. They also developed awareness programmes among the public and businesses of the risks of flooding and provided information on how to plan, prepare and protect against flood risk. They commission research into areas related to flood risk management activities. The core of OPW's work is the objective of reducing the flood risk to the greatest extent possible. While the OPW and the local authorities work in partnership, Mr. Smyth explained that the local authorities are responsible for distinct work areas in relation to flood risk, such as leading the emergency response to flooding, the urban drainage infrastructure and the maintenance of certain watercourses and channels. The OPW continues to fulfil its statutory responsibility to maintain in proper repair and effective condition arterial drainage schemes and flood defence schemes which it has carried out under the Arterial Drainage Acts This maintenance work is 56 Report of the Flood Policy Review Group, OPW, September 2004, accessed at: 100 P a g e

102 carried out to ensure that the State s investment in these schemes continues to provide the intended benefits. Drainage districts are areas where drainage schemes to improve land for agricultural purposes were constructed prior to the 1945 Act. The duty of maintenance for these lies with the local authorities concerned. For other watercourses falling outside of the OPW and local authority areas of responsibility, private landowners generally have responsibility for maintenance Letter from the OPW to the Clerk of the Committee, 25 September P a g e

103 6.3.2 OPW EXPENDITURE ON FLOOD RELIEF WORKS OPW EXPENDITURE ON FLOOD RELIEF WORKS IN 2011 Deputy Stanley drew the attention of the Committee to a parliamentary question he had asked in December because of the possibility that there may be unspent money for Flood Relief works. At that stage, 7.7 million or 7.9 million for Flood Relief works was unspent by the OPW. OPW MAJOR CAPITAL WORKS IN 2013 Mr. Smyth noted that under its major capital works programme, the OPW currently has nine major Flood Relief schemes at construction stage. It was expected that a further five schemes would commence construction before the end of 2013, subject to completion of procurement and other preparatory formalities and the availability of funding. These five schemes are Bandon, Ennis, Claregalway, a further phase at the Dodder and, possibly, Templemore. In response to Committee members concerns about major delays in the Templemore scheme he outlined the unanticipated complex elements of the detailed design, including issues with land ownership, purchase of land and site and moving of petrol tanks. The OPW are considering a slightly different route, which has other ramifications, including issues of cost. Mr. Smyth could give a date to resolve the issues, as some of these, such as purchase of site, are not within the control of the OPW. With hindsight, he said that the OPW was premature in going to exhibition. A further 26 schemes are at various stages of design and planning. Approximately 30 million was expected by Mr. Smyth to be expended on all these schemes during Available at: ndocument&highlight=stanley%20and%20flood%20relief#wrb02150writtenanswers. 102 P a g e

104 OPW MINOR CAPITAL WORKS AND COASTAL PROTECTION IN 2013 Under the minor works and coastal protection scheme, OPW provides funding to local authorities for smaller scale, more localised mitigation measures they wish to undertake in their areas. It is open to any local authority to submit an application to OPW for funding under this scheme. Under the arterial drainage maintenance programme, the OPW continued in 2013 to undertake maintenance of completed arterial drainage and Flood Relief measures. Mr. Smyth informed the Committee that the previous [2012] year s outturn was 7.5 million more than the allocation. The allocation was 45 million and the OPW had spent 52 million. The OPW found savings in other categories. 6.4 WHETHER OPW SHOULD HAVE THE FINAL SAY OVER OTHER AGENCIES? Deputy Stanley questioned Mr. Smyth as to whether the OPW would be happy to have the final say, that is, to give direction to other agencies involved in the management of flood risk. Mr. Smyth said that the Deputy was getting into a range of policy and legal issues about which Mr. Smyth would not be comfortable in speaking. He stressed that he does not believe anybody can overrule the OPW and he does not know that it is appropriate to have a flood-risk management agency having a greater say in some of those other issues. There is environmental legislation with which the OPW has to comply. The ESB has a legal remit regarding the water levels on the Shannon at present. The OPW does not have any evidence and have not completed proper models of the river - and will not have until the CFRAM is completed - to make other arguments. Until that point is reached Mr. Smyth contended they are weak on grounds of any logic, evidence or argument they might make. 103 P a g e

105 7. EU COUNTRIES PRACTICES ON FLOOD RISK INSURANCE It was stated during hearings that Committee members need a range of measures that they can bring to the Minister for the Environment, Community and Local Government or the Minister of State at the Department of Finance, with responsibility for the OPW. Deputy Murphy remarked that it would be useful to hear specific ideas on the kinds of protocols that might work or on systems in other countries that might work here. She said that they would do some research themselves but specific examples of what the witnesses would like the Committee to do would be very helpful. 7.1 EU: DIFFERENT SYSTEMS OF INSURING AGAINST FLOOD RISK Insurance Ireland witnesses, Mr. Kemp and Mr. Horan, stated 59 that they do not have detailed information on how the relationship is managed in other countries but that systems work very differently in countries on the Continent, where there is limited penetration of private insurance and collective or State-backed funds are used to insure against flood risk. As Ireland has been placed by the EU in Cluster 1 (see Figure 1, p.18) with Belgium, France, Sweden and the UK, whose model of insurance provision is similar, these countries practices regarding flood insurance will be compared with the practice in Ireland ?opendocument#F P a g e

106 7.2 UK: AGREEMENT BETWEEN GOVERNMENT AND INSURANCE INDUSTRY In response to flooding developments, a Statement of Principles agreement was initiated between the UK government and the ABI (Association of British Insurers) in This agreement aimed to keep insurance costs down for those households in flood risk areas. The ABI agreed to offer such households affordable home insurance in return for the government to develop new and reinforce existing flood defences. The agreement was due to end in June This was extended to July 2013 on the introduction of a new scheme, Flood Re, to cover losses of householders who can no longer afford insurance cover. Under the new arrangements, a new non profit making insurance fund, known as Flood Re, will be established to provide insurance cover to 500,000 households in the worst affected parts of the UK. Under Flood Re, every household in the country will pay a small levy on their insurance premium to fund a pooled subsidy for those most at risk of flooding, to ensure they can still obtain affordable home insurance. Flood Re will be funded by a levy of on annual household premiums across the country, resulting in an estimated income of 180 million a year, which would then be used to pay for repairs. The government and the insurance industry have said this cost will simply "formalise the existing cross subsidy" between low risk and high risk households "and can be introduced without impacting bills in general". FLOOD RE In June 2013 the ABI and the UK Government agreed a Memorandum of Understanding on how to develop a not-for-profit scheme - Flood Re - that would ensure flood insurance remains widely affordable and available. The framework is an agreement in principle but not binding. Its unique elements are: Flood Re will be run and financed by insurers as a not-for-profit fund which will cover the cost of flood claims from high risk homes; Insurers will pass the flood risk premium element from those households deemed to be at high risk of flooding to the fund. Premiums for the flood risk will be 105 P a g e

107 calculated based on council tax banding (value of the property) up to a maximum limit depending on the band; Flood Re would charge member firms an annual charge of 180 million. This will be funded by a levy of on annual household premiums and equates to the estimated level of cross-subsidy that already exists between lower and higher flood risk premiums; Flood Re will be designed to fully deal with at least 99.5% of years. Even in the worst half a per cent of years, Flood Re will cover losses up to those expected in a 1 in 200 year a year six times worse than 2007 in the UK with Government taking responsibility to work with the industry and Flood Re to distribute any available resources to Flood Re policyholders should claims exceed that level. According to the UK s Guardian newspaper: all UK household insurers will have to pay each into a fund that can be used to pay claims for people in high-risk homes. But the insurance industry said this already happened informally now, so general premiums should not rise. The scheme will operate for years, after which home owners will be expected to protect themselves. 60 As Belgium and France are in the Cluster 1 insurance model (see Figure 1, p.18) along with Ireland, it may be of interest to compare these undertakings. 60 Flood insurance deal sees fears recede over future cover. The Guardian, 27 June Accessed at: 106 P a g e

108 7.3 BELGIUM: CAISSE NATIONALE DES CALAMITÉS / NATIONAL DISASTER FUND 61 In Belgium, claimants can get repairs for disasters from the Caisse Nationale des Calamités. Disasters that occur most often are natural disasters (floods, earthquakes, discharge or overflow of public sewers, landslides and subsidence of soil). Given the nature of the damage, compensation is rarely granted. The National Disaster Fund makes payments on the instructions of the Federal Public Services, FPS Economy, SMEs, Self-employed and Energy - Directorate General Economic Potential (for agricultural disasters) and the FPS Interior Service Branch Calamities (in case of public calamity). FPS Economy, SMEs, Middle Classes and Energy, commonly known as the FPS Economy, is a Federal Public Service of Belgium, as is FPS Interior. Insurance companies compensate most common victims, and the National Disaster Fund intervenes in very limited circumstances. This is particularly the case if goods are not insured because of claimant s financial situation (being entitled to a living wage or equivalent financial assistance); if some of claimant s assets are not covered by insurance (crops that have not been harvested, livestock living outside the building, land, crops, plantations); if goods do not constitute a single risk (among other property exceeding a specified sum insured); in case of damage to public property The Disaster Fund has no jurisdiction over the cases of damage. It only makes payments on the order of SPF Interior (Federal Public Service) Service Branch calamities. Prior recognition of the disaster as a public calamity is required. To compensate the victims of a natural disaster, it is necessary that it be recognized as a 'public calamity' by the Council of Ministers. The introduction of a claim can only start after the publication in the Belgian Official Journal of the order of recognition. Only after that can claimants apply for compensation from the Governor of their province. 61 Belgian Federal Government. Assessed at: 107 P a g e

109 7.4 FRANCE: CAISSE CENTRALE DE RÉASSURANCE (CCR) / CENTRAL REINSURANCE FUND This is a reinsurance company 100% owned by the French state. It is responsible for designing, implementing and managing effective instruments to meet the coverage needs of exceptional risks in the service of its customers and the public interest. 62 It is a limited company with capital of 60 million, which employs 273 people. Founded in 1946, it ranks among the top 25 global reinsurers. Reinsurance activities with the guarantee of the state are: reinsurance of risks of natural disasters; reinsurance RC ship operators and nuclear facilities; reinsurance of outstanding risks associated with transportation; reinsurance risk of attacks and acts of terrorism. 62 CCR. Accessed at: 108 P a g e

110 7.5 IRELAND, BELGIUM, FRANCE, AND THE UK SITUATION PRE-2013 This section compares Ireland, Belgium, France, and also the situation pertaining in the UK pre The source of the information is the documents cited at the bottom of each table, and information from insurance stakeholders. 63 Table 8 Ireland, Belgium, France and the UK situation pre Comité Européen des Assurances (CEA), now renamed Insurance Europe is the European insurance and reinsurance federation. Website: 109 P a g e

111 IRELAND 110 P a g e

112 Belgium 111 P a g e

113 FRANCE 112 P a g e

114 UK pre-2013 Source: European Commission Natural Catastrophes: Risk relevance and Insurance Coverage in the EU (op.cit). 113 P a g e

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