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

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

Joint Committee on Environment, Culture and the Gaeltacht

Report of the Committee on Flooding

and

Property Insurance in Ireland, 2015

December 2015

1ECG019

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


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CONTENTS

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

Réamhra (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 21st century ..................................................................................... 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 industry’s 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 Committee’s response to the insurance industry’s 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 on design 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 Bank’s 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 Calamités / National Disaster Fund ...................................... 107

7.4 France: Caisse Centrale de Réassurance (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. Committee’s 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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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,



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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.



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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

14/12/2015



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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 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 Ireland2 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: http://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.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.

http://skillsstrategy.ie/media/Adaptation%20to%20Climate%20Change%20Summary%20Report%20ONLINE%20FINAL.pdf

http://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)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: 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.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 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.



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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 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.



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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 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 2012.

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



15 | P a g e

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.



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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.



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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 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.



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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: http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf (page 78) 6 ‘Extreme weather is just one factor insurers need to consider’, Financial Times, 29 September 2013.

javascript:void(0);

http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf



20 | P a g e

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.’



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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.’”

7 The Geneva Association: “The leading international think tank of the insurance industry.”

https://www.genevaassociation.org/



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2.2 CLIMATE CHANGE IN IRELAND IN THE 21ST 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 21st 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: http://www.met.ie/publications/IrelandsWeather-13092013.pdf

http://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 25

September 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 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 reinsurance11 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 2012. Accessed at: http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300. 10 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.

http://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 EU12 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 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.htm

http://ec.europa.eu/finance/insurance/consumer/natural-catastrophes/index_en.htm

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




25 | P a g e

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.



26 | P a g e

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).




27 | P a g e

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

1990-2010

Source: Ibid (p.56).



28 | P a g e

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.

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





30 | P a g e

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 geocoded14 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.

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

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: http://www.gpsvisualizer.com/geocoding.html. 15 OECD, 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.html

http://www.oecd.org/gov/risk/G20disasterriskmanagement.pdf



31 | P a g e

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.”



32 | P a g e

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).

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





33 | P a g e

Table 2 Cost 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


December 2010 Freeze €224m

January 2010 Freeze €297m


January 2009 Storm €16m

January 2009 Freeze €40m

August 2008 Flood €96m



February 2002 Flood €37m

December 2001 Freeze €30m


TOTAL Weather €1304m

Source: Insurance Ireland



34 | P a g e

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

company’s total annual payout).



35 | P a g e

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 2012. 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



36 | P a g e

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 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.

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

http://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21708,en.pdf



37 | P a g e

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.



38 | P a g e

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: http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspx. 19 Joint Committee hearing of 19 March 2013.

http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspx

http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/passporting.aspx



39 | P a g e

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

201020 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 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.pdf



40 | P a g e

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.”



41 | P a g e

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

3.6.4 below).

21 For 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.pdf



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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.



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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 2013. 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: http://www.opw.ie/media/VFM%20Report.pdf.

http://www.opw.ie/media/VFM%20Report.pdf



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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 2008-2012) of €520 million.



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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 2012-16, 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 2016.

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.”



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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 2009. 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 2009. 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



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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.”



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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 Guidelines24 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: http://www.scotland.gov.uk/Publications/2004/02/18880/32953 24 The Planning System and Flood Risk Management: guidelines for planning authorities, November 2009. Department of Environment, Heritage and Local Government / OPW. Accessed at: http://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21709,en.pdf

http://www.scotland.gov.uk/Publications/2004/02/18880/32953

http://www.environ.ie/en/Publications/DevelopmentandHousing/Planning/FileDownLoad,21709,en.pdf



49 | P a g e

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.



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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 non-

provision 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.



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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.



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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.

3.11 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.



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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.



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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



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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 2010. Accessed at http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/J-EnvHerLocGov/Reports_2008/20100720.pdf

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/J-EnvHerLocGov/Reports_2008/20100720.pdf

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/J-EnvHerLocGov/Reports_2008/20100720.pdf



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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



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case only since January 2013. 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.”



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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: http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2013102300031?opendocument.

http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2013102300031?opendocument

http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2013102300031?opendocument



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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.”



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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 http://www.cfram.ie/pdfs-downloads/Flood_Policy_Review_Group.pdf

http://www.cfram.ie/wordpress/national-flood-policy/

http://www.cfram.ie/home/eu-directive/

http://www.opw.ie/

http://www.cfram.ie/pdfs-downloads/Flood_Policy_Review_Group.pdf




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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.30 31

“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

1,000.

30 ‘Flood maps may hit house prices’, Irish Times, 15 November 2013. 31 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: http://www.bbc.co.uk/news/uk-scotland-25743338.

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http://www.bbc.co.uk/news/uk-scotland-25743338



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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 surface-

water 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.’.”32

32 Ibid.

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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 Floodline33 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.34

33 See UK Environment Agency https://www.gov.uk/government/organisations/environment-agency

34 See http://www.environment-agency.gov.uk/homeandleisure/floods/31618.aspx https://fwd.environment-agency.gov.uk/app/olr/home.

https://www.gov.uk/government/organisations/environment-agency

http://www.environment-agency.gov.uk/homeandleisure/floods/31618.aspx

https://fwd.environment-agency.gov.uk/app/olr/home



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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 2011. 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: http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ACC2013022100012?opendocument

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ACC2013022100012?opendocument

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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 50,000.



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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.



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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.



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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 directory37 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.



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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.



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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



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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.

4.4.1 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



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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 2014.

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/bills28/bills/2013/7613/document1.htm

http://www.irishstatutebook.ie/2014/en/act/pub/0014/index.html



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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.”

4.4.2 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.



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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



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answered all the questions honestly and disclosed all the relevant information as asked

for at that time, he is covered. 41

41 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.



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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 2013. 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: http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankpublishesfindingsfromtheHouseholdPropertyClaimsthemedinspection.aspx.

http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankpublishesfindingsfromtheHouseholdPropertyClaimsthemedinspection.aspx

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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



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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: http://www.centralbank.ie/regulation/processes/consumer-protection-code/documents/consumer%20protection%20code%202012.pdf

http://www.centralbank.ie/regulation/processes/consumer-protection-code/documents/consumer%20protection%20code%202012.pdf

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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: http://www.insuranceireland.eu/news-publications-and-events/news-press-release/insurance-ireland-advises-that-central-bank-report-relating-to-household-property-claims-does-not-accurately-reflect-the-market

http://www.insuranceireland.eu/news-publications-and-events/news-press-release/insurance-ireland-advises-that-central-bank-report-relating-to-household-property-claims-does-not-accurately-reflect-the-market





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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/ENJ2013021200003?opendocument#D01400

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2013021200003?opendocument#D01400

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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 2015. 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.

5.2.1 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.



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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 1979. 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:



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‘A tide of anger still flows over Shannon floods’, Farming Independent, 3

September 2013.

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



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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.”



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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.



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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 report46 proposed a summer relief

scheme;

in 1961, the ESB and OPW issued a report47 which proposed much the same;

the Delap and Waller report in 198848;

the report of an Oireachtas committee in 200049;

46 River Shannon Flood Problem, Final Report, L E Rydell, Corps of Engineers, U.S. Army, August 1956. Accessed at: http://opac.oireachtas.ie/AWData/Library3/Library2/DL010459.pdf 47 River Shannon Flood Problem. Report on First Stage of Investigations, prepared jointly by Office of Public Works and Electricity Supply Board. (1961) http://opac.oireachtas.ie/AWData/Library3/Library2/DL011778.pdf

48 Report on the Technical Aspects of the River Shannon Flooding Problem for Irish Farmers Association, Delap and Waller, May 1988.

http://opac.oireachtas.ie/AWData/Library3/Library2/DL010459.pdf

http://opac.oireachtas.ie/AWData/Library3/Library2/DL011778.pdf



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and last year's report50;

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 2000. Accessed at:

http://opac.oireachtas.ie/Data/Library3/Library2/DL026170.pdf 50 http://www.oireachtas.ie/parliament/media/Report.pdf

http://opac.oireachtas.ie/Data/Library3/Library2/DL026170.pdf

http://www.oireachtas.ie/parliament/media/Report.pdf



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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.



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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.



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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

http://www.npws.ie/

http://www.irishstatutebook.ie/1945/en/act/pub/0003/index.html



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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.



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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 matter51 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: http://www.oireachtas.ie/parliament/media/Report.pdf




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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 risk-

bearing 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.



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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 1993. These floods took place in June 1993, November 2000, 9 August 2008, 16

August 2008, 27 November 2009 - a very big one - and 1 January 2010. 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.



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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.



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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 Directive52, every three years the Barrow Drainage

Board engages an environmental consultant to prepare a Natura53 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.

6.2.2 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

http://ec.europa.eu/environment/nature/legislation/habitatsdirective/index_en.htm

http://ec.europa.eu/environment/nature/natura2000/index_en.htm



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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.

6.2.3. RIVER MANAGEMENT AND WATER LEVEL UPDATES

There is a drainage board for the Barrow, established under statute by the Barrow

Drainage Acts 1927 and 1933. 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.



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6.2.4. 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 eTendering54

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 Union55.

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 http://etenders.gov.ie/ – Office of Government Procurement

55 Supplement to the Official Journal of the European Union

http://etenders.gov.ie/

http://ted.europa.eu/TED/misc/chooseLanguage.do



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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

2013.

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).



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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 200456, 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 1945-1995. This maintenance work is

56 Report of the Flood Policy Review Group, OPW, September 2004, accessed at: http://www.cfram.ie/pdfs-downloads/Flood_Policy_Review_Group.pdf

http://www.irishstatutebook.ie/eli/ResultsTitleAct.html?q=Arterial+Drainage&Simple_Search=Acts




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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.57

57 Letter from the OPW to the Clerk of the Committee, 25 September 2015.



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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 201258 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 2013.

58 Available at: http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2012120500066?opendocument&highlight=Stanley%20and%20flood%20relief#WRB02150WrittenAnswers.

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2012120500066?opendocument&highlight=Stanley%20and%20flood%20relief#WRB02150WrittenAnswers

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2012120500066?opendocument&highlight=Stanley%20and%20flood%20relief#WRB02150WrittenAnswers



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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.



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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, stated59 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.

59 http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2012092500003?opendocument#F00300.





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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 2008. 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 2013. 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 £10.50 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



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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 £10.50 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 £10.50 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 20-25 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 2013. Accessed at: http://www.theguardian.com/money/2013/jun/27/flood-insurance-deal-industry-government

http://www.theguardian.com/money/2013/jun/27/flood-insurance-deal-industry-government



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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: http://caissecalamites.be/fr/Claims.htm.

http://caissecalamites.be/fr/Claims.htm



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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: http://www.ccr.fr/index.do.

http://www.ccr.fr/index.do



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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- 2013. 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-2013

63 Comité Européen des Assurances (CEA), now renamed Insurance Europe is the European insurance and reinsurance federation. Website: http://www.insuranceeurope.eu/

http://www.insuranceeurope.eu/



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IRELAND



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Belgium



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FRANCE



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UK pre-2013

Source: European Commission Natural Catastrophes: Risk relevance and Insurance

Coverage in the EU (op.cit).



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7.6 COUNTRIES IN WHICH GOVERNMENT PLAYS A ROLE IN DISASTER

INSURANCE

The OECD has examined the countries where the government has decided to supplement

the capacity of the insurance industry to cover disaster risks.64 These include Belgium,

which has its Caisse Nationale des Calamités / National Disaster Fund, and France, which

has its Caisse Centrale de Réassurance (CCR) / Central Reinsurance Fund.

The OECD report65 outlined the various types of roles assumed by governments who are

involved in existing institutional arrangements for disaster insurance:

Backstop liquidity provider: The government provides liquidity, through a pre-

arranged loan facility, to insurers to relieve funding pressures and enable them to make

payments on a potentially large number of claims linked to a catastrophic event. This

arrangement can take the form of liquidity facilities provided to an entity established to

reinsure disaster-related liabilities. Under this approach, insurance companies retain the

ultimate risk, but the government provides risk financing to address immediate short-

term liquidity needs or help to smooth catastrophe losses over time.

Reinsurer: The government or a special entity established by the government assumes

some or all of the liabilities assumed by insurers in connection with disaster risks, and

then possibly cedes some or all these risks to global reinsurance markets. This

arrangement is aimed at removing industry exposure to peak risks. It may be justified if

insurers can retain a portion of the risk, but there is not enough reinsurance capacity on

the private market to provide the required risk transfer arrangements. It may also be

part of a broader institutional arrangement in which there is mandatory offer, purchase,

or extension of disaster risk coverage, and thus may be aimed at protecting insurer

sector solvency.

Direct insurer: Alternatively, the government or a special entity established by the

government in some countries directly provides disaster insurance. Some or all of these

risks may be ceded to global reinsurance markets. This approach may be a response to a

situation where the private insurance sector is unwilling or unable to provide any

64 OECD, Op.cit. 65 Op.cit.



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coverage of disaster risks. While there is no risk sharing with the insurance industry,

private-sector operational capacity is often used to perform such functions as marketing,

premium collection and claims handling on behalf of the government.

Guarantor: Where institutional arrangements exist, governments often explicitly

guarantee some or all of the liabilities assumed in connection with disaster risks. Such a

guarantee might arise in connection with a special purpose entity, pool or fund created

to cover catastrophic risks to ensure that it will meet all its obligations. Thus, the role of

guarantor can be combined with other risk financing or risk transfer functions provided

by the government. The guarantee may be capped, with a threshold after which losses

may be recouped against, for instance, policyholders (e.g., special premium surcharge,

reduction in claims).

Examples of each type of role are listed in Table 9, below.



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TABLE 9 Roles of Government in Disaster Insurance Schemes

Backstop

Liquidity

Provider

United Kingdom (Pool Re)

Reinsurer

Australia (Australian Reinsurance Pool Corporation or ARPC);

Belgium (Caisse nationale des calamites + participation in

Terrorism Reinsurance and Insurance Pool);

Denmark (participation in Terrorism Insurance Pool for Non-

Life Insurance);

France (Caisse Centrale de Réassurance or CCR);

Japan (Japan Earthquake Reinsurance Co., Ltd. or JER);

Germany (participation in Extremus AG);

Netherlands (participation in Nederlandse

Herverzekeringsmaatschappij voor Terrorismeschaden or NHT).

Direct

Insurer

Iceland (Iceland Catastrophe Insurance or ICI);

South Africa (SASRIA Limited);

Spain (Consorcio de compensacion de seguros);

Turkey (Turkish Catastrophe Insurance Pool);

United States (California Earthquake Authority, National Flood

Insurance Program or NFIP).

Guarantor

Australia (Australian Reinsurance Pool Corporation or ARPC);

Denmark (storm surge - Danish Storm Council);

France (Caisse Centrale de Réassurance or CCR);

New Zealand (Earthquake Commission or EQC);

Spain (Consorcio de compensacion de seguros);

United States (National Flood Insurance Program or NFIP).



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8. SOLUTIONS PROPOSED BY WITNESSES AND COMMITTEE

MEMBERS

Having heard from witnesses who described the main categories of uninsured

populations (including those located in frequently flooded districts and farmers in the

Shannon river catchment), the Committee also considered possible solutions proposed

by them.

8.1 CO-OPERATION BETWEEN INSURANCE IRELAND AND THE OPW IN

DESIGNING FLOOD DEFENCES

As a result of the Committee hearings, Insurance Ireland and the OPW agreed to share

information about the technical design and mapping of the flood defences. The aim

avowed by Insurance Ireland is that once Insurance Ireland fully understand this, they

will try to incorporate it into their members' underwriting criteria. The new data

communicated by the OPW will enable them to amend their lists of at-risk areas to take

account of flood defences that have been built.

The hope is that buildings will then be removed from at-risk areas and policyholders’

insurance cover will be restored or their premiums be reduced to affordable levels. If this

outcome does not materialise, however (as occurred in the UK scenario outlined above)

the Government may have to consider other measures.

8.2 GREATER STATE INVESTMENT IN FLOOD DEFENCES

The Insurance Federation of Ireland (now re-named Insurance Ireland) advocated an

improvement in current levels of state investment and implementation of flood defences

(see section 3.6.3 above).



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8.3 PROHIBITION OF BUILDING ON FLOOD RISK AREAS

Insurance Ireland emphasised the importance of taking flood risk into account when

zoning and planning. Their witnesses proposed that the Planning Guidelines on Flood

Risk Management 2009 be amended to prohibit building on flood plains, in a similar way

to the Scottish Planning Guidelines.

8.4 BETTER WARNING OF IMMINENT FLOODING

Both Insurance Ireland and the IFA advocated better flood warnings, although neither

suggested how this could be accomplished. In the UK, a Floodline is in operation with a

website and phone number which gives local and national flood warnings. This is

managed by their Environment Agency and available on their website. The Floodline

phone number is publicised on weather forecasts. Could a similar system be operated by

the Irish lead agency, the OPW?



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8.5 LEGISLATED PROTOCOL OBLIGING INSURERS TO GIVE COVER

Mr. O’Donovan of the Irish National Flood Forum asked members of the Committee to

legislate for the insurance industry to abide by certain protocols, or by a certification

process, to enable households to avail of private home insurance which includes flood

cover. He suggested a basic protocol which he said would be transparent and helpful to

the insurance industry, the OPW and the public.

Mr. O’Donovan stated that their requirement is 100% flood cover for a low-risk area,

which he defined as one which has a chance of flooding recurring once in every 150

years or more. If there is a moderate risk, say a chance of flooding recurring once in

every 75 to 150 years, then cover is decided on an individual basis. If there is a

significant risk of flooding, which he defined as a chance of flooding recurring more than

once in every 75 years, the Irish National Flood Forum can understand the insurance

industry's problems.

It should be noted that these risk areas do not correspond to the Zones of risk in the

Planning Guidelines on Flood Risk Management 2009, outlined above. Mr. O’Donovan

thus acknowledged that certain properties may be still excluded from flood cover. Mr.

Dempsey told the Committee that the SVP believes this issue can only be addressed

through legislation and called on the Government to introduce it.



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8.6 FLOOD DISASTER FUND / LEVY

Insurance Ireland remarked that non-life policyholders are already paying levies of 5%

on their policies (Insurance Ireland, 19 December 2013).

Mr. O’Donovan raised the question of how the current 5% Government levy on all non-

life insurance policies is spent. A new 2% levy on non-life insurance premiums was

introduced in 2012. The new levy was in addition to the existing 3% Government Levy

and Stamp duty. The new levy was enacted under the Insurance (Amendment) Act

2011 with the intention that funds raised will be paid into the Insurance Compensation

Fund, which can be used to pay policyholders where an Irish-authorised or EU-

authorised non-life insurer goes into liquidation.

It was reported66 that €65m. a year is generated by the 2% levy imposed on all non-life

insurance policies in the State in an emergency move intended to cope with the collapse

of the Quinn organisation. Mr. O’Donovan stated that the Irish National Flood Forum is

asking for a proportion of this 5% Government levy be set aside for a Flood Disaster

Fund - similar to the proposal of Mr. Brendan Dempsey of the Society of Saint Vincent de

Paul - for flood victims who want to purchase flood insurance cover but are excluded

from doing so.

66 2% insurance levy to remain until 2037.. Irish Examiner, 12 August 2013.



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8.6.1 TRUST FUND / LEVY FOR THE BENEFIT OF UNINSURABLE HOUSEHOLDS (NTMA)

The Committee was provided with an outline of a pilot scheme which the INFF (Irish

National Flood Forum) hoped the Committee would support. The INFF witnesses said

that the INFF proposed the establishment of a Trust Fund for a flood event to help those

who do not have flood insurance cover, funded by a levy on the insurance industry of €2

on each insured home. Based on a figure of 1.8 million homes, this would generate a

sum of €3.6 million per annum. The Fund would provide a limited payment per home, to

a maximum of €5,000 per home. This would cover the cost of replacing a refrigerator,

washing machine, cooker, beds and clothes.

Mr. O’Donovan referred to a sum of €10 million announced in 2009 for a catastrophe

fund for Flood Relief. As far as the INFF could ascertain, only €1.8 million of this funding

had been spent. He and Ms. Powell are seeking to have the remaining €8 million paid to

an agency such as the National Treasury Management Agency (NTMA) and ring-fenced

for this purpose. Mr. O’Donovan was here referring to the Humanitarian Assistance

Scheme set up in 2009 by the Department of Social Protection.67

In response to flooding in 2009 the Government established a Humanitarian Assistance

Scheme. The scheme, which is means tested, is intended to provide emergency financial

assistance to households who are not in a position to meet costs for essential needs in

the period immediately following flooding. The aim of the scheme is to provide financial

support to people who have suffered damages to their home and provide hardship

alleviation rather than full compensation. The Scheme covers emergency income support

payments to those in need and damage to a person’s home and its basic essential

contents, such as:

Carpets;

Flooring;

Furniture; and

Household appliances and bedding.

67 ‘Government announces €10million fund to assist flooding victims’: http://www.welfare.ie/en/pressoffice/Pages/Government-announces-fund-to-assist-flooding-victims.aspx

http://www.welfare.ie/en/pressoffice/Pages/Government-announces-fund-to-assist-flooding-victims.aspx



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Structural damage may also be considered. Not covered under this Scheme are:

Commercial and business losses;

Losses covered by an insurance policy; and

Loss or damage to private rented accommodation or local authority

accommodation.

INCOME TEST

The basic principle of the income test is to determine the household’s capacity to meet

the costs of restoring their home to a habitable condition. All household income will be

considered when determining entitlement to a payment.

The Irish Mail on Sunday reported on 31 March 2013 that approximately €2 million has

been paid out from this €10m Government Flood Relief fund.68

“The Department of Social Protection, which administers the fund, has

granted 3,243 claims in all, at a total cost of €2,077,900. However, a

spokeswoman said the number of rejected applications could not be made

available…….

In 2010, €1m was given to cover 2,100 claims (an average of €476 per

claimant), mainly in Galway and Roscommon following devastating floods the

year before.

Asked about the heavy flooding last June in Cork city and suburbs, the

spokeswoman said:

'Over 119 payments have being made to affected householders in the Cork

area to the value of €128,900, an average of €1,083.'

However, locals say most people affected by the high waters have not seen

even that small amount because the criteria are too restrictive for the average

homeowner.”69

68 Flood funds unused: Only one fifth of €10m fund paid out in two years, leaving families high and dry - Irish Mail on Sunday, 31 March 2013.



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The INFF suggested that sponsorship provided by non-governmental organisations could

increase the Fund. Members of the public would pay to join. The INFF propose a

membership fee of €10 per month in addition to what people pay for home insurance

policies that do not provide flood cover. They suggested that experts associated with the

insurance industry would help manage the fund. With an estimated 10,000 households

subscribing to the fund, the INFF envisages that they could pay out on events every year

without exhausting the fund. Based on a figure of 1.8 million homes, this would generate

a sum of €3.6 million per annum. This proposal has similar characteristics to the Flood

Re scheme agreed between the UK government and the Association of British insurers

(above).

69 Ibid.



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8.6.2 SOLIDARITY LEVY SCHEME

Although not a member of the Committee, Deputy Jim Daly attended a hearing due to

his concern about Clonakilty’s four flood events in the previous 12 months and the

reasonable certainty that some areas will flood in any given year. He accepted that the

industry has no obligation where a liability is guaranteed to arise. He informed the

Committee that he had put a proposal to the then Minister of State, Deputy Brian Hayes,

whom he had met along with officials from the OPW three weeks before. He had

requested an update on the Minister of State’s negotiations with Insurance Ireland. He

had learned that they are not going in the direction that he would prefer, i.e. where flood

defence schemes have been completed by the OPW, insurance companies would re-

instate insurance.

Deputy Daly had recently put a proposal before the Dáil that a solidarity levy should be

applied to all household insurance policy holders.70 This would differ somewhat to the

NTMA scheme outlined above (8.6.1), as he believed his was stronger. He opined that

the NTMA scheme has a number of flaws, is complicated and difficult, short-term and

unsustainable in the long term. The €8 million of unspent money referred to by its

proposers is now probably reduced to a lower sum.

Deputy Daly advocated a scheme to provide insurance to people who cannot obtain it.

He had outlined a proposal to the Minister, who agreed to examine it and suggested that

the Deputy bring it to the Committee meeting and put it on the record. He proposed a

solidarity levy that would be paid by every household that has property insurance in

order to provide cover for those who have none. According to the IFF, 98% of

households have insurance; 2% do not. If a levy of €20 per annum per household was

applied, that would generate in the region of €32 million per year.

As to what could be achieved by an annual fund of €32 million the Deputy placed it in

the context of the flooding events in 2012, in which 627 affected households claimed

€15 million. This was less than 50% of the amount he proposed be made available via a

70 Insurance coverage, 22 January 2013. Accessed at: http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2013012200035?opendocument&highlight=solidarity%20levy.

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2013012200035?opendocument&highlight=solidarity%20levy

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/takes/dail2013012200035?opendocument&highlight=solidarity%20levy



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€20 levy. Would people pay that levy on their household insurance? He was using this

opportunity to determine what support this proposal might have. He proposed that the

scheme be modelled on the Motor Bureau of Ireland's insurance scheme which covers

uninsured drivers. Victims of an accident that involve an uninsured driver can claim from

the Motor Bureau scheme. This scheme is funded by a levy paid by everyone who has

motor insurance. During the past ten years, approximately €700 million was claimed, or

€70 million per annum.

What Deputy Daly proposed would bring in almost half that amount, €32 million. A

considerable part of the €70 million per annum was for commercial claims which the

Deputy believes should be dealt with separately. As an example, in the 2012 flood event,

the entire payout was €54 million, of which €38 million went to the commercial claims of

487 businesses, while €15 million went to 627 households. Deputy Daly’s proposals also

bear similarities to the Flood Re agreement (above) between the UK government and the

Association of British Insurers. Ms Gillian Powell, of Bandon Flood Group nevertheless

made a case for including businesses and commercial policyholders, as they are the

people who pay wages.

Senator Labhrás Ó Murchú noted that he does not see how there can be a solution

unless there is a partnership between the State and the insurance industry. He gave the

example of the private health insurance sector, into which he said that the Government

had an input. For example, if he had paid private health insurance for ten or 12 years

and then got a bad run of health it is not possible for the insurance company to say it

will not continue to cover him. In the Senator’s view, there is no difference between that

and the situation in regard to property insurance.



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8.6.3 OPPOSITION TO A LEVY

Insurance Ireland 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. As

Insurers spread risk throughout the world through the mechanism of reinsurance, it is

vital that insurers act prudently with regard to flooding risks to ensure that affordable

reinsurance cover is maintained for all policyholders. It was the position of Insurance

Ireland that policyholders should not be expected to subsidise the losses of those for

whom future flooding was highly likely.

Mr. Doyle of the Irish Rural Dwellers Association expressed the view that there should be

no need for a levy on the person whose property is not subject to flooding. He accepted

that if a person's property is subject to flooding no insurance company will take on that

risk. However, he thought that does not mean that person as a citizen who pays his

taxes should not have the same protection as a person in an urban area whose problem

may be solved by taxpayers' money by way of defences. The risk must be equalised.

How that is to be financed Mr. Doyle could not say.



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8.7 RIVER SHANNON: PROPOSED STRATEGY TO REDUCE SUMMER FLOODING

Mr. Silke (IFA) advocated that the Minister of State with responsibility for the OPW must

implement a strategy to reduce summer flooding of the River Shannon, to include:

An early warning system for extreme weather patterns;

Introduction of a system of allowing river water to move on when heavy

rainfall is forecast and occurs; and

Essential maintenance work to be carried out on the River Shannon (see

detailed recommendations on the maintenance of the River Shannon from the

Committee’s previous report).71

He urged that all of these measures be given legislative effect.

However, the OPW witness had identified EU and Irish legislative barriers to the

approach desired by the IFA. In the interim until the CFRAM study is complete and

implemented, it may be necessary to look at alternative approaches, as in the example

of Belgium’s National Disaster Fund or measures implemented in Argentina.

8.8 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 the property

owners 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.

71 Accessed at: http://www.oireachtas.ie/parliament/media/Report.pdf.




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9. POSTSCRIPT: RECENT DEVELOPMENTS

9.1 MEMORANDUM OF UNDERSTANDING BETWEEN INSURANCE IRELAND

AND THE OPW

A Memorandum of Understanding (MoU)72 between Insurance Ireland and the OPW on

the sharing of information regarding completed flood defence works was signed on 24th

March 2014. The MoU outlines the principles of agreement, between the parties, on the

provision of information to insurers to facilitate the availability to the public of insurance

against the risk of flooding.73 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.74

The MoU came into effect on 1st June 2014 and commits insurers to take full account of

information provided by the OPW on completed flood defence schemes when assessing

exposure to flood risk.75 It also commits the OPW to providing Insurance Ireland with

data on all completed OPW flood defence schemes76 showing the design, extent and

nature of the protections offered by these works. These works are completed on a

prioritised basis and, once completed, it is expected that the availability of flood

insurance in affected areas would increase.77

72 For Memorandum of Understanding between Insurance Ireland and the OPW, March 2014, see http://www.opw.ie/en/media/MoU%20Insurance Ireland-OPW%2020140324%20V1-2.pdf. 73 See PQ 18120/15, dated 12th May 2015. 74 See PQ 17983/15, dated 7th May 2015. 75 Ibid. 76 For information on completed OPW flood defence schemes see http://www.opw.ie/en/completed/. 77 See PQ 17983/15, dated 7th May 2015.

http://www.opw.ie/en/media/MoU%20IIF-OPW%2020140324%20V1-2.pdf

http://www.opw.ie/en/completed/



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9.1.1 WHAT INFORMATION HAS THE OPW PROVIDED TO INSURANCE IRELAND TO

DATE?78

As of 12th May 2015, the OPW has provided the insurance sector with details of 16

completed Flood Relief schemes. Under the Catchment Flood Risk Assessment and

Management (CFRAM) Programme, detailed flood hazard maps for 300 at-risk

communities throughout the country are being produced which, following public

consultation, will be made available publicly, leading to the finalisation of the maps and

the development of draft Catchment Flood Risk Management Plans.

These Plans will include an examination of all possible options to address the flood risk in

the identified locations and will recommend a set of measures to deal with and manage

the risk. Information on the structural measures arising from the CFRAM programme will

be provided to the Insurance industry in accordance with the MoU.

On 28th April 2015, when asked when the CFRAM programme would be completed, the

Minister of State at the Departments of Finance, Public Expenditure and Reform and the

Department of the Taoiseach with Special Responsibility for the OPW, Mr. Simon Harris,

T.D., stated:79

“…the Catchment Flood Risk Assessment and Management (CFRAM)

Programme has three principal milestones:

Preliminary Flood Risk Assessment (completed);

Predictive Flood Mapping (for finalisation 2015);

Flood Risk Management Plans (for finalisation 2016)”.

The MoU requires the provision of data by Insurance Ireland to the OPW about areas

impacted by flood loss. The MoU will not guarantee the availability of flood risk cover in

the locations concerned.80 In January 2015, Insurance Ireland provided some general

78 See PQ 18120/15, dated 12th May 2015. 79 See PQ 16354/15. 80 See oral presentation by Mr. Tony Smyth, Director of Engineering Services, to the Joint Committee on Finance, Public Expenditure and Reform, 15th April 2015, at http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/committeetakes/FIJ2015041500002?opendocument#C00100

http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/committeetakes/FIJ2015041500002?opendocument%23C00100




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and provisional data to the OPW about current levels of flood cover for households and

businesses affected by the completed flood defence schemes (twelve were completed at

that time).81 While the results are tentative, the data provided to the OPW indicated

that flood risk insurance is available in areas where Flood Relief schemes have been

completed by the OPW. 82 Speaking to the Dáil on 19th May 2015, 83 Minister for

Finance, Mr. Michael Noonan T.D. said:

“While this report showed some improvements, it is expected that a fuller and more

detailed report on progress under the MoU will be made available to OPW after June

2015.84 I will assess the progress reported to OPW in June and will consider whether

the current approach is delivering the expected results and whether other approaches

need to be considered.”

To date, the OPW has provided data in agreed formation to Insurance Ireland on 16

completed schemes, and Insurance Ireland members are committed to take this

information into account when assessing exposure to flood risk within these areas.

According to the OPW, early indications from the insurance sector are that flood risk

insurance is widely available in areas where flood relief schemes have been completed

by the OPW. It expects to receive in the near future results of a more recent survey by

Insurance Ireland on this subject.85

81 Ibid. 82 Ibid. 83 See PQ dated 19th May 2015, 19474/15. 84 When the first full renewal cycle following the MoU has been completed. 85 Letter from OPW to the Committee Clerk, 25 September 2015.



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9.2 JOINT INSURANCE IRELAND / OPW FLOOD WORKING GROUP

Following the receipt of provisional data by the OPW from Insurance Ireland, the

Insurance Ireland - OPW flood working group met, along with the Department of

Finance.86 A subsequent meeting took place on 3rd March 2015, with a further meeting

scheduled for late April 2015.87 In general, the working group meets monthly on an

ongoing basis. There is no report and/or recommendations from its work to date.

9.3 NATIONWIDE FLOOD WARNING SYSTEM

The OPW engaged a firm of engineering consultants to carry out a Strategic Review of

Options for Flood Forecasting and Flood Warning in Ireland. Following consideration of

the consultant’s report and consultation with relevant departments and agencies, the

OPW in conjunction with Met Éireann proposed the introduction of a new interim National

Flood Forecasting Service as the first stage of the implementation of a full national flood

forecasting and warning service. The proposed service would be introduced as an

extension to the existing Met Éireann weather and related forecasting services. This

proposal is being considered by the Department of Public Expenditure and Reform in the

context of the Budget estimates process. 88 The OPW has been liaising with the

Department of Public Expenditure and Reform and understands that this Department is

considering the proposal in the context of the provisions of the Budget and the work of

the Interdepartmental Committee that is due to report to the Government next Spring

on the Whole of Government policy measures to support the OPW's Flood Risk

Management Plans arising from the CFRAM programme.

86 See oral presentation by Mr. Tony Smyth, Director of Engineering Services, to the Joint Committee on Finance, Public Expenditure and Reform, 15th April 2015. Accessed at: http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/committeetakes/FIJ2015041500002?opendocument#C00100. 87 Ibid. 88 Letter from OPW to Committee Clerk, 25 September 2015.





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9.4 FLOOD MAPPING / RISK ASSESSMENT

The OPW is currently carrying out the Catchment Flood Risk Assessment and

Management (CFRAM) Programme, a comprehensive programme of assessment for 300

mainly urban areas across all national river catchments. The 300 areas (known as Areas

for Further Assessment or AFAs) were selected following a national Preliminary Flood

Risk Assessment in 2011. Under the CFRAM programme, detailed flood mapping is being

produced in order to identify and map the existing and potential future flood hazards and

risks in each AFA. A statutory consultation process on draft flood maps is scheduled to

take place later this year. Following the finalisation of the flood maps and the

assessment of appropriate flood risk management options, the final output from the

CFRAM programme will be Flood Risk Management Plans for each of the 300 AFAs. These

plans will contain specific measures to address, in a comprehensive and sustainable way,

the significant flood risks identified. The CFRAM programme will be used to determine

national priorities for future State investment in flood protection, including the River

Shannon. Funding for the implementation of the plans is being considered as part of the

Capital Investment Programme.89

89 Ibid.



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9.5 UK FLOOD REINSURANCE SCHEME

On the 29th January 2015, the European Commission announced that, under EU state

aid rules, it had approved the UK Flood Reinsurance scheme.90 The aim of the scheme is

to ensure the availability of domestic insurance at affordable prices for flood-related

damage.

The Commissioner in charge of competition policy, Ms. Margrethe Vestager, said:

"Today's decision ensures that insurance coverage against high flood risks is

available at affordable prices to those UK citizens who need it most, because

they live in regions vulnerable to flooding. It is a great illustration of how the

Commission and Member States can work together to design effective aid

measures that contribute to important public policy goals."

90 http://europa.eu/rapid/press-release_IP-15-3884_en.htm.

http://europa.eu/rapid/press-release_IP-15-3884_en.htm



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10. COMMITTEE’S RECOMMENDATIONS

1) Upon hearing evidence presented by the stakeholders, the Joint Committee

concluded that among the contributory factors to the problem of getting

affordable insurance cover for flooding are the increased incidence of severe

weather events combined with increased development on flood plains and low-

lying coastal areas. Due to the anticipated increase in precipitation events which

may give rise to more frequent flooding, the Committee considers it prudent that

the Department of the Environment, Community and Local Government’s 2009

Planning Guidelines for Flood Risk be amended and that consideration be given to

a ban on future building on flood plains and in low-lying coastal areas which are

prone to sea flooding.

2) The Committee noted that since the publication of the Guidelines for Flood Risk

Management 2009, the most severe floods have occurred almost on an annual

basis. The city of Cork alone has recently experienced two catastrophic flood

events – in 2009 and 2014. This would indicate the need for a review of these

Guidelines with a view to their reassessment.

3) Another factor identified by the Committee is the problem of householders located

in geo-coded areas who were refused cover or had their premiums increased

even though their property had not been flooded. 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 their homes are no longer

mortgage-able and the value of their homes plummets. However, the Committee

was informed by insurance industry witnesses that geo-coding pinpoints a

property, so there is confusion as to the reason for this problem. This issue

requires a systematic investigation by the Central Bank of Ireland to determine its

extent and advise on appropriate measures.



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4) The OPW outlined to the Committee the considerable investment that the State

has made in the construction of flood defences and that the insurance industry

has benefited considerably from this through reduced claims payment costs for

flooding. However, representatives of the insurance industry 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.

The Committee would urge sustained levels of State investment in flood defences

and river maintenance in vulnerable areas. In particular, investment is required

to ensure an effective river maintenance programme on the Shannon; to remove

the impediments in the Shannon and try to reduce water levels to the lowest level

consistent with navigation purposes so that the river is able to take additional

water at critical times; put in place an effective flood warning system; and carry

out essential maintenance work on the Shannon, including removal of silt and

trees.

Such funding such should be carefully targeted in accordance with the findings,

recommendations and priorities set out in the Catchment Flood Risk Assessment

and Management Programme currently being conducted by the OPW.

5) The Committee considers it necessary to extend nationwide the successful flood

warning systems operated by some local authorities. In the UK, for example, a

Floodline is in operation with a website and phone number which gives local and

national flood warnings. This is managed by their Environment Agency and

available on their website. The Floodline phone number is available on weather

forecasts. The Committee therefore welcomes the proposal from the OPW in

conjunction with Met Éireann to introduce a new interim National Flood

Forecasting Service as the first stage in the implementation of a full national flood

forecasting service.



138 | P a g e

6) 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:

a. matching the insurance industry’s priority areas with State planning for

Flood Remediation works; and

b. informing the industry of the technical standards of the State works so

that insurance underwriters can take this into account in assessing risks.

A Memorandum of Understanding between Insurance Ireland and the OPW was

signed in March 2014, agreeing a basis on which information can be provided to

the insurance industry on Flood Relief schemes completed by the OPW in relation

to areas impacted by flood loss. It commits insurers to take full account of

information provided by the OPW on completed flood defence schemes when

assessing exposure to flood risk.

Our ambition is that this will lead to the inclusion of properties that were

previously excluded from insurance and to the reduction of premiums to more

affordable levels. The Committee welcomes enhanced co-operation between the

insurance industry and State authorities, but the public needs to know that

defence works, once completed, are having an impact on premiums and the

insurance products being offered to customers. Early indications from the

insurance sector are that flood risk insurance is widely available in areas where

flood relief schemes have been completed by the OPW.



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7) Notwithstanding these efforts, further measures may be necessary to support

those without insurance. A partnership between the government and the

insurance industry may be necessary to forge a new agreement for the provision

of insurance to policyholders in localities excluded from flood cover. A number of

such partnership schemes were proposed by stakeholders, Committee members

and other Members.

The UK model may be instructive. 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, has been 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 (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.

A proposal along these lines, in the form of a trust fund, partly funded by a levy

on the insurance industry itself or on all holders of property insurance, was

suggested to the Committee, and ought to be given serious consideration. The

Committee is however cognisant of the fact that non-life policy holders already

pay levies of 5% on their policies, and a continual extension or increase in levies

would not be sustainable.



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8) Alternatively, or in the interim, various models in place in other countries should

be examined to see what can be learned. In a number of European countries, the

State intervenes by providing natural catastrophe insurance. A scheme similar to

the Belgian National Disaster Fund scheme could be considered. The scheme

provides fund in very limited circumstances 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). Another model

which might be considered is France’s Caisse Centrale de Réassurance (CCR) /

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.

These models can provide the State with examples of how it can intervene to

ensure all citizens have access to flood insurance. However, it must be

acknowledged that there is no perfect solution to this issue.

9) If, after examining the various models, no adequate solution can be reached, the

State could consider the merits of introducing legislation that would compel

insurance providers to provide flood insurance to everyone. The Committee,

however, views this as a last resort measure if all other potential solutions have

been exhausted.



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11. APPENDIX 1 - GLOSSARY

Adverse selection: When you do business with people you would be better off

avoiding. This is one of two main sorts of market failure often associated with insurance.

Adverse selection can be a problem when there is asymmetric information between the

seller of insurance and the buyer; in particular, insurance will often not be profitable

when buyers have better information about their risk of claiming than does the seller.

Ideally, insurance premiums should be set according to the risk of a randomly selected

person in the insured slice of the population (55-year-old male smokers, say). In

practice, this means the average risk of that group. When there is adverse selection,

people who know they have a higher risk of claiming than the average of the group will

buy the insurance, whereas those who have a below-average risk may decide it is too

expensive to be worth buying. In this case, premiums set according to the average risk

will not be sufficient to cover the claims that eventually arise, because among the people

who have bought the policy more will have above-average risk than below-average risk.

Putting up the premium will not solve this problem, for as the premium rises the

insurance policy will become unattractive to more of the people who know they have a

lower risk of claiming. One way to reduce adverse selection is to make the purchase of

insurance compulsory, so that those for whom insurance priced for average risk is

unattractive are not able to opt out.

Source: http://www.economist.com/economics-a-to-z

CFRAM: Catchment Flood Risk Assessment and Management (CFRAM) programme to

identify and assess flood risk. A 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.

The OPW provides the following useful Web site about CFRAM:

http://www.cfram.ie/

http://www.economist.com/economics-a-to-z




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Claims specialist: A professional who assists insurance claimants to claim from

insurance companies (engaged by claimants)

Geocoding: The process of converting street addresses or other locations (ZIP codes,

postal codes, city & state, airport IATA/ICAO codes, etc.) to latitude and longitude, which

can be entered into a GPS device or geographical software. Source:

http://www.gpsvisualizer.com/geocoding.html.

GPS: Global Positioning System (GPS) is a technology that uses the position of satellites

to determine locations on earth. GPS can calculate the longitude and latitude of locations

and transmit this information to a receiver, which enables the person using GPS to

correctly locate destinations.

IFA - Irish Farmers Association www.ifa.ie

Loss Adjuster: A professional who is appointed by insurance companies to investigate

the circumstances of a claim under an insurance policy and to advise on the amount that

is payable to the policyholder in order to settle that claim. Loss adjusters are generally

appointed by insurance underwriters.

Market Failure: When a market left to itself does not allocate resources efficiently.

Interventionist politicians usually allege market failure to justify their interventions.

Economists have identified four main sorts or causes of market failure.

The abuse of MARKET POWER, which can occur whenever a single buyer or seller can

exert significant influence over PRICES or OUTPUT (see MONOPOLY and MONOPSONY).

EXTERNALITIES - when the market does not take into account the impact of an

economic activity on outsiders. For example, the market may ignore the costs imposed

on outsiders by a firm polluting the environment.

PUBLIC GOODS, such as national defence. How much defence would be provided if it

were left to the market?

Where there is incomplete or ASYMMETRIC INFORMATION or uncertainty.

http://www.gpsvisualizer.com/geocoding.html

http://www.gps.ie/gps-lat-long-finder.htm

http://www.ifa.ie/



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Abuse of market power is best tackled through ANTITRUST policy. Externalities can be

reduced through REGULATION, a tax or subsidy, or by using property rights to force the

market to take into account the WELFARE of all who are affected by an economic

activity. The SUPPLY of public goods can be ensured by compelling everybody to pay for

them through the tax system.


Moral Hazard: One of two main sorts of market failure often associated with the

provision of insurance. The other is adverse selection. Moral hazard means that people

with insurance may take greater risks than they would do without it because they know

they are protected, so the insurer may get more claims than it bargained for.


NPWS (National Parks and Wildlife Service) http://www.npws.ie

OPW (Office of Public Works)

In September 2004 (following the Report of the Flood Policy Review Group), the

Government confirmed the Office of Public Works as the State's lead agency to

implement future policy, and to be tasked with delivering an integrated multifaceted

programme aimed at mitigating future flood risk and impact.

The OPW provides the following useful Web sites about flooding:

http://www.opw.ie/en/floodriskmanagement/

http://www.flooding.ie/


Public Loss Assessors: professionals who assist insurance claimants to claim from

insurance companies (engaged by claimants), not to be confused with the insurance Loss

Adjusters.



http://www.npws.ie/

http://www.opw.ie/en/

http://www.opw.ie/en/floodriskmanagement/

http://www.flooding.ie/




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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.

SME – Small and Medium Enterprises

SVP - Cork Society of Saint Vincent de Paul



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12. APPENDIX 2 – OFFICIAL REPORT, VIDEO RECORDINGS,

WITNESSES

25 September 2012

Irish Insurance Federation: (Now Insurance Ireland)

Mr. Michael Kemp, Chief Executive;

Mr. Michael Horan, Non-life Insurance Manager.

Official report | Video

26 February 2013

Irish Rural Dwellers Association:

Mr. James Doyle, chairman, and Mr. Neilie O'Sullivan, PRO;

GAA: Mr. John Kelly;

IFA: Mr. Sean Brosnan;

the McGillycuddy Reeks Study Group: Mr. Micheál O'Connell.

Official Report | Video

12 March 2013

Irish National Flood Forum

Mr. Enda O’Donovan, Director & Honorary Secretary;

Cork Society of St Vincent de Paul: Mr. Brendan Dempsey;

Dodder Flood Group: Seaosaimhnín Ní Bheoglaoich;

Bandon Flood Group: Ms Gillian Powell;

Skibbereen Flood Group: Mr. Michael Thornhill;

Ballinasloe Flood Group: Mr. Mick Tully.


19 March 2013

Irish Insurance Federation

Mr. Kevin Thompson, chief executive officer;

Mr. Michael Horan, non-life insurance manager.



http://www.oireachtas.ie/viewdoc.asp?DocID=21838&&CatID=127&StartDate=01%20January%202012&OrderAscending=0

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2013022600003?opendocument#C00100




http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2013031900003?opendocument#B00100




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26 March 2013

Kildare County Council

Michael Malone, County Manager;

Mr. Alan Dunney, Senior Executive Engineer;

Mr. Joe Boland, Director of Services for water services and the environment.


16 April 2013

Irish Claims Consultants Association:

Mr. Éamonn Downey, acting president.

Owens McCarthy, claims specialists:

Mr. John O'Donoghue, managing director

McCarthy Insurance Group:

Mr. Paul Kavanagh.

Society of St. Vincent de Paul (Cork):

Mr. Brendan Dempsey.


23 April 2013

Office of Public Works

Tony Smyth, Director of Engineering Services;

Liam Basquille, Principal in Engineering Services.




http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2013041600010?opendocument#M01700






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13. APPENDIX 3 – ORDERS OF REFERENCE OF THE COMMITTEE

ESTABLISHMENT OF THE DÁIL SELECT COMMITTEE

[ORDER OF THE DÁIL 12 JUNE 2012]

With effect from Tuesday, 19th June, 2012 the following committee was established:

Select Committee on Environment, Culture and the Gaeltacht

Departments within the remit of the select committee

Department of the Environment, Community and Local Government

Department of Arts, Heritage and the Gaeltacht

Number of members of the select committee: 15

ESTABLISHMENT OF THE SEANAD SELECT COMMITTEE

[ORDER OF THE SEANAD 12 JUNE 2012]

With effect from Tuesday, 19th June, 2012 the following committee was established:

Select Committee on Environment, Culture and the Gaeltacht

Departments within the remit of the select committee

Department of the Environment, Community and Local Government

Department of Arts, Heritage and the Gaeltacht

Number of members of the select committee: 6

ESTABLISHMENT OF THE JOINT COMMITTEE

[FIRST MEETING 17 JULY 2012]

[Dáil] Select Committee on Environment, Culture and the Gaeltacht

[Seanad] Select Committee on Environment, Culture and the Gaeltacht

Chairman: Michael McCarthy T.D.

Vice Chairman: Noel Coonan T.D.

Number of members of the Joint Committee: 21



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A. FUNCTIONS OF THE COMMITTEE – DERIVED FROM STANDING ORDERS [DSO 82A;

SSO 70A]

(1) The Select Committee shall consider and report to the Dáil on—

(a) such aspects of the expenditure, administration and policy of the relevant

Government Department or Departments and associated public bodies as the

Committee may select, and

(b) European Union matters within the remit of the relevant Department or

Departments.

(2) The Select Committee may be joined with a Select Committee appointed by Seanad

Éireann to form a Joint Committee for the purposes of the functions set out below, other

than at paragraph (3), and to report thereon to both Houses of the Oireachtas.

(3) Without prejudice to the generality of paragraph (1), the Select Committee shall

consider, in respect of the relevant Department or Departments, such—

(a) Bills,

(b) proposals contained in any motion, including any motion within the meaning of

Standing Order 164,

(c) Estimates for Public Services, and

(d) other matters as shall be referred to the Select Committee by the Dáil, and

(e) Annual Output Statements, and

(f) such Value for Money and Policy Reviews as the Select Committee may select.

(4) The Joint Committee may consider the following matters in respect of the relevant

Department or Departments and associated public bodies, and report thereon to both

Houses of the Oireachtas—

(a) matters of policy for which the Minister is officially responsible,

(b) public affairs administered by the Department,

(c) policy issues arising from Value for Money and Policy Reviews conducted or

commissioned by the Department,

(d) Government policy in respect of bodies under the aegis of the Department,



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(e) policy issues concerning bodies which are partly or wholly funded by the State or

which are established or appointed by a member of the Government or the Oireachtas,

(f) the general scheme or draft heads of any Bill published by the Minister,

(g) statutory instruments, including those laid or laid in draft before either House or

both Houses and those made under the European Communities Acts 1972 to 2009,

(h) strategy statements laid before either or both Houses of the Oireachtas pursuant to

the Public Service Management Act 1997,

(i) annual reports or annual reports and accounts, required by law, and laid before

either or both Houses of the Oireachtas, of the Department or bodies referred to in

paragraph (4)(d) and (e) and the overall operational results, statements of strategy

and corporate plans of such bodies, and

(j) such other matters as may be referred to it by the Dáil and/or Seanad from time to

time.

(5) Without prejudice to the generality of paragraph (1), the Joint Committee shall

consider, in respect of the relevant Department or Departments—

(a) EU draft legislative acts standing referred to the Select Committee under Standing

Order 105, including the compliance of such acts with the principle of subsidiarity,

(b) other proposals for EU legislation and related policy issues, including programmes

and guidelines prepared by the European Commission as a basis of possible legislative

action,

(c) non-legislative documents published by any EU institution in relation to EU policy

matters, and

(d) matters listed for consideration on the agenda for meetings of the relevant EU

Council of Ministers and the outcome of such meetings.

(6) A sub-Committee stands established in respect of each Department within the remit

of the Select Committee to consider the matters outlined in paragraph (3), and the

following arrangements apply to such sub-Committees—

(a) the matters outlined in paragraph (3) which require referral to the Select

Committee by the Dáil may be referred directly to such sub-Committees, and

(b) each such sub-Committee has the powers defined in Standing Order 83(1) and (2)

and may report directly to the Dáil, including by way of Message under Standing Order

87.



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(7) The Chairman of the Joint Committee, who shall be a member of Dáil Éireann, shall

also be the Chairman of the Select Committee and of any sub-Committee or Committees

standing established in respect of the Select Committee.

(8) The following may attend meetings of the Select or Joint Committee, for the purposes

of the functions set out in paragraph (5) and may take part in proceedings without

having a right to vote or to move motions and amendments—

(a) Members of the European Parliament elected from constituencies in Ireland,

including Northern Ireland,

(b) Members of the Irish delegation to the Parliamentary Assembly of the Council of

Europe, and

(c) at the invitation of the Committee, other Members of the European Parliament.



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B. SCOPE AND CONTEXT OF ACTIVITIES OF COMMITTEES (AS DERIVED FROM

STANDING ORDERS [DSO 82; SSO 70]

(1) The Joint Committee may only consider such matters, engage in such activities,

exercise such powers and discharge such functions as are specifically authorised under

its orders of reference and under Standing Orders.

(2) Such matters, activities, powers and functions shall be relevant to, and shall arise

only in the context of, the preparation of a report to the Dáil and/or Seanad.

(3) It shall be an instruction to all Select Committees to which Bills are referred that they

shall ensure that not more than two Select Committees shall meet to consider a Bill on

any given day, unless the Dáil, after due notice given by the Chairman of the Select

Committee, waives this instruction on motion made by the Taoiseach pursuant to Dáil

Standing Order 26. The Chairmen of Select Committees shall have responsibility for

compliance with this instruction.

(4) The Joint Committee shall not consider any matter which is being considered, or of

which notice has been given of a proposal to consider, by the Committee of Public

Accounts pursuant to Dáil Standing Order 163 and/or the Comptroller and Auditor

General (Amendment) Act 1993.

(5) The Joint Committee shall refrain from inquiring into in public session or publishing

confidential information regarding any matter if so requested, for stated reasons given in

writing, by—

(a) a member of the Government or a Minister of State, or

(b) the principal office-holder of a body under the aegis of a Department or which is

partly or wholly funded by the State or established or appointed by a member of the

Government or by the Oireachtas:

Provided that the Chairman may appeal any such request made to the Ceann Comhairle

/ Cathaoirleach whose decision shall be final.



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14. APPENDIX 3 – MEMBERS OF THE JOINT COMMITTEE

Deputies

Mr James Bannon TD (Fine Gael)

Mr Noel Coonan TD (Fine Gael) Leas-Chathaoirleach (Vice Chairman)

Ms Ruth Coppinger TD (Socialist Party)

Mr Barry Cowen TD (Fianna Fáil)

Mr Robert Dowds TD (Labour)

Mr Eamonn Maloney TD (Labour)

Mr Michael Mc Carthy TD (Labour) Cathaoirleach (Chairman)

Ms Helen McEntee TD (Fine Gael)

Mr Tony Mc Loughlin TD (Fine Gael)

Ms Michelle Mulherin TD (Fine Gael)

Ms Catherine Murphy TD (Independent)

Mr Fergus O’Dowd TD (Fine Gael)

An t-Uasal Seán Ó Fearghaíl TD (Fianna Fáil)

Mr Brian Stanley TD (Sinn Féin)

An t-Uasal Peadar Tóibín TD (Sinn Féin)

Senators

Senator Terry Brennan (Fine Gael)

Senator Cáit Keane (Fine Gael)

Senator Denis Landy (Labour)

An Seanadóir Fiach Mac Conghail (Neamhspleách) (Independent)

An Seanadóir Labhrás Ó Murchú (Fianna Fáil)

Senator Ned O’Sullivan (Fianna Fáil)



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Notes

1. Deputies appointed to the Committee by order of the Dáil on 12 June 2012

2. Senators appointed to the Committee by order of the Seanad on 14 June 2012

3. Deputy Ciarán Lynch elected as Cathaoirleach on 19 June 2012

4. Deputy Noel Coonan elected as Leas-Chathaoirleach on 19 June 2012

5. Deputy Barry Cowen replaced Deputy Niall Collins by Order of the Dáil on 19 July

2012

6. An Teachta Seán Ó Fearghaíl replaced Deputy Robert Troy by Order of the Dáil on 19

July 2012

7. Deputy Michael Mc Carthy replaced Deputy Ciarán Lynch by Order of the Dáil on 10

October 2012

8. Deputy Michael Mc Carthy elected as Cathaoirleach on 16 October 2012

9. Deputy Michael Colreavy replaced Deputy Sandra McLellan by Order of the Dáil on 17

January 2013

10. Deputy Peadar Tóibín replaced Deputy Michael Colreavy by Order of the Dáil on 22

January 2013

11. Senator Pat O’Neill replaced Senator Catherine Noone by Order of the Seanad on 19

July 2013

12. Senator Hildegarde Naughton replaced Senator Pat O’Neill by Order of the Seanad on

26 September 2013

13. Deputy Ruth Coppinger replaced Deputy Luke ‘Ming’ Flanagan by Order of the Dáil on

11 June 2014

14. Deputy Robert Dowds replaced Deputy Kevin Humphreys by Order of the Dáil on 17

July 2014

15. Deputy Eamonn Maloney replaced Deputy Gerald Nash by Order of the Dáil on 17

July 2014

16. Deputy Fergus O’Dowd replaced Deputy Paudie Coffey by Order of the Dáil on 2

December 2014

17. Senator Terry Brennan replaced Senator Hildegarde Naughton by Order of the

Seanad on 2 December 2014

18. Deputy Helen McEntee replaced Deputy Marcella Corcoran Kennedy by Order of the

Dáil on 26 February 2015



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Notes

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

Documents

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