Oireachtas Report on Flooding and the Property Insurance Industry

7/25/2019 Oireachtas Report on Flooding and the Property Insurance Industry

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Report of the Committee on Flooding and Property Insurance in Ireland 2015

Joint Committee on Environment, Culture and the Gaeltacht

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CONTENTS

Contents .....................................................................................................................................................................2

Ramhra (Preface) ................................................................................................................................................6

1. Executive Summary ..................................................................................................................................... 10

2. BACKGROUND TO THE POLICY ISSUES .................... ...................... ...................... ...................... ........ 18

2.1 Weather-related insurance risks the global context .................... ...................... ...................... .... 19

2.2 Climate change in Ireland in the 21stcentury ..................................................................................... 22

2.3 The Irish insurance market ........................................................................................................................ 23

2.4 Irish insurance in the European context .............................................................................................. 24

2.5 Issues identified by the Joint Committee .................... ...................... ...................... ...................... ........ 29

2.5.1 Cost of flooding .......................................................................................................................................... 29

2.5.2 Households excluded from flood cover ..................... ...................... ..................... ...................... ..... 29

2.5.3 Problems with geocoding and zoning by insurance companies......................... ................... 30

2.5.4 The Insurance industry and remedial works undertaken by the State or policyholders ..................................................................................................................................................................................... 30

3.

POSITION OF THE IRISH INSURANCE INDUSTRY ...................... ...................... ..................... ......... 32

3.1 Cost of flooding................................................................................................................................................ 32

3.2 Households excluded from flood cover .................... ..................... ...................... ...................... ............ 35

3.3 Cost of insurance premiums ...................................................................................................................... 38

3.4 The insurance market .................................................................................................................................. 39

3.5 Profit margins of insurance companies ................................................................................................ 40

3.6 Insurance industrys view of flood risk management..................................................................... 41

3.6.1 Public agencies engaged in flood risk management ...................... ...................... ..................... .. 42

3.6.2 Criticisms of State flood defence programme by Insurance Ireland ............................... .... 43

3.6.3 State under-investment in flood defences .................... ..................... ...................... ..................... .. 44

3.6.4 Response by OPW on expenditure on Flood Relief works ..................... ..................... ............. 45

3.7 Length of design and planning process for projects .................... ...................... ...................... ........ 46

3.8 Planning Guidelines on flood risk management 2009 .................... ...................... ...................... .... 48

3.9 The Committees response to the insurance industrys position............................................... 50


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3.10 Lack of communication between public agencies and the insurance industry ................. 52

3.11 Insurance industry measures to improve cover ..................... ...................... ..................... ............. 52

3.12 Insurance industry requirements for sustainable provision of insurance ..................... ..... 53

3.13 Flood defences: call for the OPW and the property insurance industry to co-operate ondesign and standards ........................................................................................................................................... 54

3.14 Founding of Insurance Ireland - OPW Working Group ................... ...................... ...................... . 56

3.15 Progress of the Insurance Ireland OPW Working Group .................... ..................... ................ 58

3.16 Flood maps and CFRAMS (Catchment Flood Risk Assessment and Management) .......... 60

3.17 Flood warning systems ............................................................................................................................. 63

4. INSURANCE CLAIMANTS POSITION................................................................................................... 64

4.1 The situation of property-owners excluded from flooding insurance ...................... ............... 64

4.2 Issues arising from geo-coding ................................................................................................................. 67

4.3. Competition in the insurance market ................................................................................................... 70

4.4 Insurance claimants problems in claiming......................................................................................... 71

4.4.1 Retention of insurance payments ...................................................................................................... 71

4.4.2 Failure to advise claimants of right to their own representative ............................. ............ 73

4.4.3 Problems in comparing insurance quotes .................... ..................... ...................... ..................... .. 74

4.5. Central Bank findings on household property claims resulting from water damage ....... 76

4.5.1 Response of Insurance Ireland to Central Banks findings...................................................... 79

5. RURAL DWELLERS DIFFICULTIES WITH FLOODING AND INSURANCE............................ . 80

5.1 Farmers excluded from flood cover due to incidence of summer floods .................... ............ 80

5.2 Summer flooding in the Shannon catchment area ........................... ...................... ..................... ..... 81

5.2.1 Lake water levels ...................................................................................................................................... 81

5.2.2 Flood warnings .......................................................................................................................................... 85

5.2.3 Essential maintenance work on the Shannon .................... ...................... ...................... ............... 86

5.3 OPW response to evidence given to the Committee on the river Shannon............................ 88

5.4. Shannon maintenance: silt and trees .................................................................................................... 89

5.4.1 OPW response on Shannon silt and trees ..................... ..................... ...................... ..................... .. 90

5.5 River Shannon: Solution proposed ......................................................................................................... 92

5.6 Provisions for farmers affected by disruptive weather events: case of Argentina ............. 93


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6. STATE AUTHORITIES ROLE IN FLOOD REMEDIATION..................... ...................... ................... 94

6.1 Local authority Flood Remediation works .......................................................................................... 94

6.2 Length of time taken to implement Flood Remediation works: local authorities ............... 95

6.2.1 Habitats Directive constraints ............................................................................................................. 96

6.2.2 Local authorities and CFRAM............................................................................................................... 96

6.2.3. River management and water level updates ..................... ...................... ..................... ................ 97

6.2.4. Public Procurement Process ............................................................................................................... 98

6.3 Role of the OPW (Office of Public Works) in Flood Remediation ..................... ..................... ..... 99

6.3.1 Role and responsibilities of the OPW in relation to flood risk management ................. 100

6.3.2 OPW expenditure on Flood Relief works ...................... ..................... ..................... ...................... 102

6.4 Whether OPW should have the final say over other agencies? ..................... ..................... ....... 103

7. EU COUNTRIES PRACTICES ON FLOOD RISK INSURANCE ..................... ...................... ......... 104

7.1 EU: different systems of insuring against flood risk .................... ...................... ...................... ...... 104

7.2 UK: agreement between government and insurance industry ................................ ................. 105

7.3 Belgium: Caisse Nationale des Calamits / National Disaster Fund ..................... ................. 107

7.4 France: Caisse Centrale de Rassurance (CCR) / Central Reinsurance Fund .................. ... 108

7.5 Ireland, Belgium, France, and the UK situation pre-2013 .................... ...................... ................. 109

7.6 Countries in which government plays a role in disaster insurance ..................................... ... 114

8. SOLUTIONS PROPOSED BY WITNESSES AND COMMITTEE MEMBERS ............................ 118

8.1 Co-operation between Insurance Ireland and the OPW in designing flood defences ..... 118

8.2 Greater State investment in flood defences ......................... ...................... ..................... .................. 118

8.3 Prohibition of building on flood risk areas .................... ...................... ...................... ..................... ... 119

8.4 Better warning of imminent flooding ..................................... ...................... ...................... ................. 119

8.5 Legislated protocol obliging insurers to give cover ..................... ...................... ..................... ....... 120

8.6 Flood Disaster Fund / Levy ..................... ...................... ..................... ...................... ..................... ........... 121

8.6.1 Trust Fund / Levy for the benefit of uninsurable households (NTMA) ........................... 122

8.6.2 Solidarity Levy Scheme ........................................................................................................................ 125

8.6.3 Opposition to a levy ............................................................................................................................... 127

8.7 River Shannon: proposed Strategy to Reduce Summer Flooding .................... ..................... ... 128

8.8 Other measure proposed .......................................................................................................................... 128


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9. Postscript: Recent Developments ..................... ...................... ...................... ...................... ................ 130

9.1 Memorandum of Understanding between Insurance Ireland and the OPW ....................... 130

9.1.1 What information has the OPW provided to Insurance Ireland to date? ........................ 131

9.2 Joint Insurance Ireland / OPW Flood working group ..................... ...................... ..................... ... 133

9.3 Nationwide Flood Warning System ................... ...................... ...................... ...................... ................. 133

9.4 Flood Mapping / Risk Assessment ..................... ...................... ...................... ...................... ................. 134

9.5 UK Flood Reinsurance scheme ............................................................................................................... 135

10. Committees Recommendations ................................................................................................. 136

11. Appendix 1 - Glossary ..................................................................................................................... 142

12. Appendix 2 Official Report, Video Recordings, Witnesses .................... ..................... .. 146

13. Appendix 3 Orders of Reference of the Committee ................... ...................... ................ 148

14.

Appendix 3 Members of the Joint Committee ................... ...................... ...................... ..... 154


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RAMHRA (PREFACE)

T scrob agus doineann thar men ar fad

ag teacht ar irinn ar na blianta

deireanacha agus t codanna den tr go

hirithe bhfgil faoi uisce ars agus ars

eile d dheasca sin. Fadfaidh gur ag ir

orthu a bheidh na deacrachta sin sna

deicheanna de bhlianta at romhainnamach mar go bhfuiltear ag tuar go

madidh ar an mbisteach a thitfidh in

irinn, agus creidtear go mbfhidir gurb

an t-athr ar an aerid is cis 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 apossible result of climate change.

Cuireadh fianaise faoi bhrid an

Chomhchoiste um Chomhshaol, Cultr

agus Gaeltacht go bhfuil na mltegabhltas a fgadh faoi uisce roimhe seo

dolmhaithe anois chumhdach rachais.

ironn deacrachta airgid as an mid sin

mar go luonn s ar ghntha agus ar an

margadh tithochta. Ina cheann sin,

cuireadh in il don Choiste gur

dolmhaodh gabhltais nr bdh fin n

go bhfuil madaithe ar a bprimheanna.

The Joint Committee on Environment,

Culture and the Gaeltacht heard evidence

that thousands of previously floodedproperties 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.

T an Comhchoiste ag iarraidh go mbeadh

cumhdach rachais ar fil go forleathan fs

agus acmhainn ag inir maoine in irinn

air. Dist s le fianaise ionadaithe an

tionscail rachais, ilitheoir ar rachas

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,


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agus chomhlachta Stit a bhonn ag

gabhil doibreacha leaschin tuilte. Ina

theannta sin, dist s le roinnt de phobal

na tuaithe a luonn deacrachta 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 scr na bplit a rinne s ar an bhar, t

roinnt molta leagtha amach ag an gCoiste

a chabhridh, dar leo, leis na deacrachta

sin a riteach agus a chinnteoidh go

mbeadh teacht ag gntha agus inir

maoine ar chumhdach rachais 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 buochas a ghabhil le

gach duine agus gach eagraocht a

chabhraigh linn agus sinn ag breithni an

bhair seo. N fhadfaimis tuarascil

chomh cuimsitheach agus chomhhifeachtach canna a dhanamh murach

iad. Ba mhaith liom buochas a ghabhil

leis na pirtithe leasmhara go lir as pirt

a ghlacadh, as obair i gcomhar linn agus

as na molta a thug siad, a bhfuil cuid

mhaith acu irithe ag an gCoiste sa

tuarascil 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 andeffective 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 buochas a ghabhil le

comhalta an Choiste as an obair a rinne

siad chun an tuarascil a ullmh agus le

foireann Rnaocht na gCoist agus

Seirbhs Leabharlainne agus Taighde an

Oireachtais as an gcomhairle agus as an

gcnamh 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.


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dracht-tuarascil a chur le chile.

Mar fhocal scoir, iarraim ar an Aire

Comhshaoil, Pobail agus Rialtais itiil, an

tUas. Alain Ceallaigh T.D., ar an Aire

Airgeadais, an tUas. Michel Nuanin

T.D., ar an Aire Stit ar a bhfuil freagracht

speisialta maidir le hOifig na nOibreacha

Poibl, an tUas. Somn hEarcha T.D., ar

Bhanc Ceannais na hireann agus ar

phirtithe leasmhara eile staidar a

dhanamh ar an tuarascil seo agus go

hirithe ar na molta a rinne an Coiste. Tim

fin agus an Coiste ag sil le dul i mbun

plit le gach pirt ar an bhar seo sa

gharthodhcha.

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

14/12/2015


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1.EXECUTIVE SUMMARY

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. 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 widelyavailable 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 Ireland2witnesses

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.

1See, for example,Adaptation to Climate Change: Issues for Business(August 2010, p.7) published by Forfs, availableonline at:http://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdf2Since the Committee commenced it deliberations, the Irish Insurance Federation has been renamed InsuranceIreland. For the purposes of simplicity and clarity, the new title shall be used throughout the report.
http://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdfhttp://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdfhttp://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdfhttp://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdfhttp://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdf


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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)3should be addressed. In this regard, it called for a prohibition of building on floodplains. 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.

3Available online at:http://www.opw.ie/media/Planning%20System%20and%20Flood%20Risk%20Management%20Guidelines.pdf.
http://www.opw.ie/media/Planning%20System%20and%20Flood%20Risk%20Management%20Guidelines.pdfhttp://www.opw.ie/media/Planning%20System%20and%20Flood%20Risk%20Management%20Guidelines.pdf


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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 geo-

coded 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 Committees 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.


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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 theriver 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 Stateauthorities 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 industrys 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.


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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 Committees 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 beconsidered, including a partnership between the insurance industry and government. In

this regard, the Committee heard several proposals from witnesses and from the

Committees 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 nonprofit 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

4Natural Catastrophes: Risk relevance and Insurance Coverage in the EU, EuropeanCommission, Joint Research Centre Scientific Support to Financial Analysis Unit Institutefor the Protection and Security of the Citizens,September 2012.

Accessed at: http://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdf


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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 Calamits (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 Rassurance (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 exceptionalrisks 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.


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Other Measure proposed

The Joint Committee advocates that the Central Bank of Ireland conduct an inspectioninto 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.


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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 availablein 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.


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In this context, the OECD has noted that:5

Any gaps in coverage, sustained excessive pricing disconnected fromunderlying 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 wereinsured losses. This raises the question of whether the trend can be

reversed - and if not, who should foot the bill.

5OECD, Disaster Risk Management and Risk Financing, G20 / OECD Methodological Framework, 2012:http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf(page 78)6Extreme weather is just one factor insurers need to consider, Financial Times, 29 September 2013.
http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdfhttp://www.oecd.org/gov/risk/G20disasterriskmanagement.pdfhttp://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf


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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 severalscientists 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 mainlyincreases 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.


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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.

7The Geneva Association:The leading international think tank of the insurance industry.
https://www.genevaassociation.org/https://www.genevaassociation.org/https://www.genevaassociation.org/https://www.genevaassociation.org/


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2.2 CLIMATE CHANGE IN IRELAND IN THE 21 ST CENTURY

On 25 September 2013, Met ireann published a report on the future climate of Irelandentitled Irelands Climate: The Road Ahead.. 8 New global climate model simulations

carried out in Ireland provide an update on the expected changes in the earths climate

over the 21stcentury. 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. Themodels 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 ireann 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).

8Accessed at:http://www.met.ie/publications/IrelandsWeather-13092013.pdf
http://www.met.ie/publications/IrelandsWeather-13092013.pdfhttp://www.met.ie/publications/IrelandsWeather-13092013.pdfhttp://www.met.ie/publications/IrelandsWeather-13092013.pdfhttp://www.met.ie/publications/IrelandsWeather-13092013.pdf


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2.3 THE IRISH INSURANCE MARKET

Representatives of Insurance Ireland appeared before the Joint Committee on 25September 2012. 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 thisapproach, 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 reinsurance11cover 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.

9See Committee Debates,25 September 2012. Accessed at:http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300.10Ibid.11Reinsurance:Insurance protection bought by an insurer to limit its own exposure. The availability of reinsuranceprotection allows an insurer to expand its own capacity to take on risk. Without a reinsurance facility, each insurerwould be able to accept less business.
http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300


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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 ininsurance 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

12Natural 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 2012.

Accessed at:http://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdf
http://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htmhttp://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htmhttp://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htmhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htmhttp://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htm


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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.


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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 2012.

This report also compiled insurance losses from weather related events (see Table 1).
http://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdfhttp://ec.europa.eu/internal_market/insurance/docs/natural-catastrophes/jrc_report_on_nat_cat_en.pdf


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Table 1 Insurance losses from weather-related events in Ireland and the UK,

1990-2010

Source: Ibid (p.56).


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Source: Ibid (p.77)


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2.5 ISSUES IDENTIFIED BY THE JOINT COMMITTEE

The issues of concern to the Joint Committee were outlined thus by the Chairman.13

2.5.1 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 2000.

2.5.2 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.

13JCECG Debate,25 September 2012. Accessed at:http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300.
http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300


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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 geocoded14into 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 reliefworks carried out to prevent further problems. However, they are still zoned as being a

flood risk.

2.5.4 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

14Geocoding 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:http://www.gpsvisualizer.com/geocoding.html.15OECD, Disaster Risk Management and Risk Financing, G20 / OECD Methodological Framework, 2012. Accessed at:http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf(page 78)
http://www.gpsvisualizer.com/geocoding.htmlhttp://www.oecd.org/gov/risk/G20disasterriskmanagement.pdfhttp://www.oecd.org/gov/risk/G20disasterriskmanagement.pdfhttp://www.oecd.org/gov/risk/G20disasterriskmanagement.pdfhttp://www.gpsvisualizer.com/geocoding.html


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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 implicitcontingent 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.


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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.16

3.1 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 2009 - January 2010 freeze, which cost 297

million. A further freeze in December 2010 cost 224 million (see table 3).

16JCECG Debate, 25 September 2013. Accessed at:http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300.
http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300


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Table 2Cost of Flood Events 2000-2012

Year Event Cost

June 2012 Flood 54m

October 2011 Flood 127m

November 2009 Flood 244m

August 2008 Flood 96m



February 2002 Flood 37m


TOTAL Flood 697m

Source: Insurance Ireland

Table 3 Cost of Weather Events 2000-2012

Year Event Cost

June 2012 Flood 54m

October 2011 Flood 127mDecember 2010 Freeze 224m

January 2010 Freeze 297m


January 2009 Storm 16m

January 2009 Freeze 40m

August 2008 Flood 96m


November 2002 Flood 50mFebruary 2002 Flood 37m

December 2001 Freeze 30m


TOTAL Weather 1304m

Source: Insurance Ireland


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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 2012 - there was a cost of 54 million in the Cork region;

October 2011 - there was a total cost of 127 million in the Dublin region;

November 2009 - there was a cost of 244 million in the Cork and Shannon

regions; and

August 2008 - 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

companys total annual payout).


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3.2 HOUSEHOLDS EXCLUDED FROM FLOOD COVER

Insurance Ireland informed the Committee on 25 September 2012 that the insurancemarket 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 2012. Itseemed 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


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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 thatInsurance 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 2009. 17 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.

17The Planning System and Flood Risk Management: guidelines for planning authorities, November 2009.Department of theEnvironment, Heritage and Local Government / OPW. Accessed athttp://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21708,en.pdf
http://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21708,en.pdfhttp://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21708,en.pdfhttp://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21708,en.pdf


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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 (


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3.3 COST OF INSURANCE PREMIUMS

With regard to insurance premiums, Mr. Thompson told the Committee that InsuranceIrelands 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,18underwrite 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 aperson 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.

18For an explanation of the procedure involved see the Central Bank of Ireland guidance available at:http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspx.19Joint Committee hearing of 19 March 2013.
http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspxhttp://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspxhttp://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspxhttp://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspx


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3.4 THE INSURANCE MARKET

Insurance Ireland stated that high penetration levels of flood cover are necessary if thecurrent 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

201020where 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.

20See 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 2010 . Accessed at:http://www.oireachtas.ie/documents/committees30thdail/j-envherlocgov/reports_2008/20100720.pdf.
http://www.oireachtas.ie/documents/committees30thdail/j-envherlocgov/reports_2008/20100720.pdfhttp://www.oireachtas.ie/documents/committees30thdail/j-envherlocgov/reports_2008/20100720.pdfhttp://www.oireachtas.ie/documents/committees30thdail/j-envherlocgov/reports_2008/20100720.pdf


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3.5 PROFIT MARGINS OF INSURANCE COMPANIES

Deputy Humphreys referred to the figure given by Insurance Ireland witnesses in respectof 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, isthe 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.


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3.6 INSURANCE INDUSTRYS VIEW OF FLOOD RISK MANAGEMENT

On 25 September 2012, Insurance Ireland representatives, Mr. Michael Kemp, ChiefExecutive, 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. 21They cited the

Review Groups 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 floodrisk 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

3.6.4 below).

21For further information, see the Report (final) of the Flood Policy Review Group, 2004. Accessed at:http://www.opw.ie/media/Report%20of%20the%20Flood%20Policy%20Review%20Group.pdf.
http://www.opw.ie/media/Report%20of%20the%20Flood%20Policy%20Review%20Group.pdfhttp://www.opw.ie/media/Report%20of%20the%20Flood%20Policy%20Review%20Group.pdfhttp://www.opw.ie/media/Report%20of%20the%20Flood%20Policy%20Review%20Group.pdf


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3.6.1 PUBLIC AGENCIES ENGAGED IN FLOOD RISK MANAGEMENT

In Insurance Irelands 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 OPWs 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 Irelands 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.

Documents

Oireachtas Report on Flooding and the Property Insurance Industry