On behalf of the members of the Irish Insurance Federation I welcome the opportunity to address the joint committee on the problem of flooding, with particular reference to household insurance availability in areas that have experienced extreme weather events. The IIF is a representative body for insurance companies in Ireland. Collectively, IIF members write the vast majority of all life and non-life business in the State. In 2012 domestic non-life gross written premiums amounted to €2.4 billion. This figure incorporates motor, property and liability insurance. As the voice of insurance companies in Ireland, the key functions of the IIF include representing members' interests to Government, State agencies, regulatory bodies, public representatives, other national interest groups, the media and the public; representing the position of members at a European level, especially via Insurance Europe, the European association for national insurance company representative bodies; keeping members abreast of relevant policy and regulatory developments and providing a forum for member debate on such issues; and providing information to the Government and the wider policy-making community and the public about insurance.
We have experienced eight major floods in Ireland since 2000. The claims costs of these events stretch from June 2012 to November 2000. In June 2012 the cost was €54 million; in October 2011 it was €127 million; in November 2009 there was a large cost of €244 million; in August 2008 the cost was €96 million; in October 2004 it was €38 million; in November 2002 it was €50 million; in February 2002 it was €37 million; and in November 2000 it was €51 million. The cumulative cost of these eight flood events was €697 million. At the time, the November 2009 floods represented the single largest insured loss ever, at €244 million. However, the new record did not last long because it was closely followed by the December 2009 and January 2010 freeze, which cost €297 million. A further freeze in December 2010 cost €224 million. This provides a further insight into the cost of severe weather events.
The most serious floods have been during the past four years and the claims costs of these events are as follows. In June 2012 there was a cost of €54 million in the Cork region; in October 2011 there was a total cost was €127 million in the Dublin region; in November 2009 there was a cost of €244 million in the Cork and Shannon regions; and in August 2008 there was a cost of €96 million nationwide. These figures can be broken down between household and commercial property. In June 2012 the breakdown of the cost of the flood in Cork was €15 million for household and €38 million for commercial property. In October 2011 the breakdown in flood costs for Dublin was €58 million and €59 million for household and commercial property, respectively. The cost of the November 2009 floods in Cork and the mid-west for household and commercial property was €76 million and €160 million respectively. The worst-hit areas for household claims in the November 2009 floods were as follows: Cork, €21 million; Galway, €16 million; Clare, €9 million; and Dublin, €5 million. The worst-hit areas for commercial property claims following the November 2009 floods were Cork, Roscommon, Galway and Clare with costs totalling €119 million, €8 million, €8 million and €7 million, respectively. The response of insurers after all of these flood events was to provide 24-hour helplines, alternative accommodation and emergency funds where necessary. It was necessary to dry, clean, repair and restore properties. This process can take some months, particularly due to the time it takes properties to dry out.
The IFF's role as a representative body in the area of flooding is to collect statistical information, provide advice and comment to the media, the Government, politicians and the public and liaise with the OPW. The problems we see in the area of flooding include those of climate change, a legacy of poor planning decisions, under-investment in flood defences, under-resourcing, a lengthy planning process even for small flood defence projects, and the fact that too many agencies are involved in flood risk management.
Whatever side one takes in the climate change debate, there is no disputing the fact that in the past decade insurers have seen more frequent and costly weather-related losses not only in Ireland but globally. The fact that we have had so many of the largest ever weather-related losses in such close succession has put significant pressure on the property insurance market. However, insurers have repeatedly displayed their resilience and have protected people against financial loss. Unfortunately, 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 Government capital budget for flood risk management averaged €37 million per annum between 2005 and 2011. Capital spend on flood risk management averaged €27 million per annum over the same period. To put this in context, the claims cost of the last four major floods totalled €520 million.
Flood insurance is widely available in Ireland and we estimate a high penetration rate of approximately 98%. It is a standard peril in household insurance policies. All policyholders pay a contribution and low-risk areas subsidise high-risk areas. The household insurance market is competitive, with 12 insurers operating from offices in Ireland and others without an Irish office also offering insurance under EU Single Market rules. When assessing risk, insurers analyse the claims history of a property and flood prevention measures implemented by the OPW or local authority. Some people pay a higher premium or have a higher flood excess because the flood risk is higher. Exclusion of cover is a last resort. Insurance offers protection against a risk but not against a certainty. 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.
Among the goals of the IIF are to preserve as far as possible the widespread availability and affordability of insurance and to act as a partner with the Government, and especially the OPW, to achieve this end. The elements necessary for the sustainable provision of insurance are availability of flood mapping and accurate data to facilitate risk assessment, high penetration levels to prevent adverse selection, continued availability of reinsurance, investment by the Government in structural and non-structural measures, and the addressing of deficiencies in planning guidelines. Insurers need maps in GIS format showing likely flooding extent and benefit area maps showing the likely extent of protection offered by remedial works. They also need to know the status of remedial works, such as those deemed to be priorities, in progress, etc. They need to know the design standards to which flood defences are constructed; the minimum standard is a return period of one per 100 years.
The Irish Insurance Federation and the Office of Public Works have a common interest in ensuring that information on the completed flood defences is provided to insurers. Following our previous discussion with the committee the IIF 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 of the working group is for the IIF and the OPW to work together on the provision of OPW information on completed flood defences in line with the IIF's requirements in order that household insurers can take this information into account when assessing risk in respect of private dwellings. The scope of the work of the group is to establish areas for which flood defence information will be provided, establish the format in which the information will be supplied, agree a delivery date for sets of completed flood defences and agree on how frequently the information will be updated. The Irish Insurance Federation believes that the 2009 planning guidelines are deficient and too complex. The future availability and affordability of flood insurance were not considered at the preparation stage. The guidelines are only advisory in nature and planning authorities are not obliged to follow them.
We believe there needs to be a focus on impact mitigation. A flood risk management plan is needed for all high-risk areas. All flood resources should be considered. Flood risk management plans need to be properly funded and resourced. We should also stop creating new flood risks. Insurers are major stakeholders. Insurers want to continue to offer affordable insurance to as many people as possible. Minimising the financial impact of the cost of floods is critical and we appreciate the engagement on the part of Minister of State at the Department of Finance, Deputy Brian Hayes, and the Office of Public Works in this regard. I would be glad to elaborate on any aspect of this presentation on which members have questions.