January 2020

Prepared by the Funds, Insurance, Markets & Pensions Division,

Department of Finance

finance.gov.ie

Summary of Public Consultation on

Climate Change and Insurance in the

context of the ‘Climate Action Plan

2019 to Tackle Climate Breakdown

January 2020

——

Contents

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

1 Detail of Consultation ................................................................................................................ 3

1.1 The public consultation questions posed in the paper were as follows:................................ 3

2 Executive Summary of Responses:.......................................................................................... 5

2.1 Thematic overview ................................................................................................................. 5

2.2 Summary of Insurance Industry and other related views .................................................... 10

2.3 Summary of Representative Group’s views......................................................................... 12

——

1 Detail of Consultation

The Insurance Policy section in the Department of Finance is currently progressing ‘Action 177’ of the

Climate Action Plan to Tackle Climate Breakdown to ‘Review the challenges associated with the

availability of property (home and business) insurance, and possible responses to this issue’.

In the context of the Climate Action Plan, the Department of Finance launched a public consultation

on climate change and insurance in July 2019. A public consultation paper was prepared to assist this

goal. The paper provides an overview of what the Government is doing to mitigate flood risk, the

current insurance model in Ireland, the risk posed by climate change, and lessons from other countries.

A few key areas which were examined and on which views were sought are as follows:

 Mitigation of flood risk in order to make long-term ‘un-insurability’ less of a problem;

 Unavailability of cover where flood defences are built to a “1-in-100 year” standard;

 Greater transparency in relation to flood risk data;

 Pooling of risk as a solution; and,

 Whether certain areas are uninsurable because of the nature of their flood risk.

The closing date for submissions was 15 October, 2019, and late submissions were also accepted.

12 submissions were received from industry, business associations, professional bodies, a political

party and members of the public.

1.1 The public consultation questions posed in the paper were as follows:

1. Have you encountered greater difficulty either getting or renewing flood cover due to

weather/climate-related issues?

2. Do you agree that managing flood risk is the best way of increasing insurability? If not you might

explain why, and also you might set out what additional approaches you think would be more effective.

3. Do you have any particular comments or views on the above? Aside from flooding are you aware

of any other climate-related exclusions in any property insurance policies you hold?

4. Have you had a claim refused arising from weather/climate-related issues?

5. Do you agree with the Government’s strategy to increase flood insurance coverage?

6. If you disagree, what alternative approaches are available to the Government? In responding to this

question you might outline the benefits of such an alternative vis-a-vis the current approach and

provide a view on the potential long-term costs of it.

7. What do you think can be done to increase the level of flood insurance in areas where demountables

have been built?

——

8. What if any reasons have been provided to you by insurers where insurance has been refused

where flood defences have been built?

9. Have insurers demonstrated any flexibility when you have engaged with them on this matter; for

instance providing cover with an excess?

10. What are your views on the use of policy excesses/ policy exclusions as a risk management tool

by insurers?

11. Do you agree that from a cost benefit analysis perspective that there may be areas where it will

not be possible to manage flood risk sufficiently so as to make them insurable?

12. If you disagree with this statement, please explain why. For instance do you believe flood cover

should always be available, even where there is certainty that a location will be flooded regularly?

13. Where insurers have declined to provide flood cover, have they offered cover for other household

risks such as fire and theft?

14. Please provide any views you have on options 1 to 3.

15. Are there any other options that the Government could consider?

16. Do you agree that if the Government were to put in place an insurance pool arrangement that it

would have to manage its long term exposure to such an arrangement? How would it do this? For

instance should it exclude businesses, or houses built after a certain date from the pool as has

happened in the UK with Flood Re?

17. What are your views on the feasibility of a Flood Re type approach?

18. If you favour such an approach, what can be done to make it more attractive to industry to develop?

19. Do you agree with the limitations imposed on Flood Re in the UK as to who it should apply to?

20. Do you have any views on the US system?

21. What are your views on Individual Property Protection (IPP) as a concept, even though it does not

seem to have had any impact from a cost of insurance perspective in the UK yet?

22. What do you think can be done to increase flood risk data transparency?

23. Do you accept that greater flood risk data transparency can also have the effect of making flood

cover in certain areas more difficult to obtain?

24. What are your views on the role for InsurTech in broadening insurance provision in relation to

climate/weather-related events? Please outline any ideas you have as to how this could be done.

——

2 Executive Summary of Responses:

We have broken the summary up into two parts one of which is thematic and the other is a summary

list of the main points from both industry and other representative groups and individuals which

enables a clear overview of the issues raised.

A range of views were received from industry, representative groups and members of the public, many

of which were broadly supportive of the current government policy which is focused on the

development of a sustainable, planned and risk-based approach to managing flooding problems.

Groups and individuals who have experienced the impact of flooding provided an insight into the

challenges surrounding the availability of flood insurance. Suggestions were also made surrounding

the exploration of alternative models, improvement in the transparency of data, and arguments for and

against compulsory insurance.

2.1 Thematic overview

While not exhaustive, the key common themes that were raised by a number of submissions can be

summarised as follows:

Flood Cover in areas with Demountable Flood Defences

We received feedback from representative groups and members of the public that their experience is

that where communities are protected by the Office of Public Works (OPW) flood alleviation 1:100

year standard (i.e. assessed by the OPW to having a 1 in 100 year flood risk) households and

businesses are still being refused flood insurance cover or charged large excess loadings. Examples

were provided of the Fermoy, Clonmel and Mallow schemes where OPW have completed defence

works but flood cover is still difficult to obtain.

Industry contended that there are complexities involved with demountable flood defences. Their

argument is that while demountable flood defences are effective where correctly deployed, there are

significant interdependencies, including manual intervention, which significantly increase the risk of

failure, particularly over time. Because of this potential exposure and concerns about demountable

flood defences being deployed correctly or in time, insurers have a limited risk appetite for providing

flood insurance in areas where demountable defences are in place. Consequently insurers may wait

until the efficacy of flood management measures is proven before providing insurance in particular

flood-prone areas.

The use of Policy Excesses/ Policy Exclusions as a Risk Management Tool by Insurers

There were varied responses in relation to policy excesses/policy exclusions as a risk management

tool by insurers. One view contended that flood insurance claims are generally very costly and an

increased excess is of limited value as a risk management tool in such circumstances and that policy

exclusions are a useful tool for insurers to continue to provide coverage for other perils.

——

The industry submission however argued that excesses and exclusions of flood cover (while providing

cover for other perils such as fire etc.) are an essential risk management tool for insurers. Their view

is that they can act as an alternative to not providing cover at all.

Submissions from members of the public and representative groups in some instances raised issues

with this practice, such as that it appears to be a way for insurers to continue to gather premiums with

little risk and that it is a crude instrument which is being used by the insurance industry and there has

to be some form of independent review of this strategy.

Legislating for Compulsory Flood Insurance Cover

Some representative groups and members of the public claimed that the Government should legislate

for compulsory flood insurance cover where OPW works have completed a flood relief scheme to the

required EU standard or where the OPW has certified the flood risk to be low or medium (1 in 100 year

risk, or better).

For example, with regards to the idea of legislating for compulsory insurance, one consumer group

disputes the view expressed by others that making the provision for flood insurance compulsory will

have the effect of making it unaffordable. In support of their view that consumer group argue that this

is not the experience of car insurance in Ireland, where insurance is mandatory.

Their submission supports legislating to compel insurance companies to provide flood insurance citing

‘The Joint Committee on Environment, Culture and the Gaeltacht Report on Flooding and Property

Insurance in Ireland 2015’ as the basis for this view. That Report concluded that, as a last resort, 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 group conveyed their support for the proposed Flood Insurance Bill 2016 by Deputy

McGrath.

Industry expressed their scepticism for any kind of compulsory flood insurance cover. Their argument

is that insurers operate in a regulated industry and are required to conduct their business in a prudent

manner. Solvency II requires them to have detailed and effective risk management systems in place.

As with all risks, insurers are required under Solvency II to price and mitigate flood risks and must

price cover in line with the probability of a property being flooded. Therefore they contend that making

the provision of flood insurance compulsory would have no effect on making it affordable and could

result in a potential loss of insurance undertakings to the Irish market.

Flood Risk Data and Transparency

In relation to flood risk data, submissions from industry emphasised the importance of receiving

information from OPW so that they can factor it into their underwriting decisions. On the idea that the

production of greater flood risk data could have the effect of making flood cover in certain areas more

difficult to obtain, industry contend that flood hazard areas are well known to insurers and what they

are primarily interested in are the benefit areas protected by flood defence schemes so that they can

provide more flood cover to more people.

——

Responses from a number of representative groups and members of public in contrast asserted that

the information supplied by Insurance Ireland (the representative body for insurers) to the OPW is

inaccurate as to the true levels of flood insurance cover in areas where flood defences have been

completed. Concerns were expressed that the Memorandum of Understanding (MoU) between the

OPW and Insurance Ireland - which provides for the exchange of data in relation to flood defence

schemes completed to the desired standard - is not working as there is a view that insurers have not

adjusted their attitude towards the availability of flood cover.

A solution proposed by a couple of groups is that an independent overseer be given the task to verify

and ensure that where a reduced risk of flooding has been achieved due to the completion of flood

protection works to an accepted defence standard by OPW, that this data is acted upon in a timely

manner to improve the insurability, and affordability of insurance of businesses and homeowners in

affected areas. It was suggested that the Central Bank of Ireland (CBI) would be the most appropriate

overseer of the application of this data, with the initiation of scheduled audits to encourage the

responsiveness of Insurance Ireland members to improvement in affected flood prone areas

Some submissions from the public and representative group also recommended that mechanisms

should be put in place to ensure the number of homes and businesses in high-risk flood areas that

have no insurance can be calculated and tracked. Similarly, submissions from consumers suggested

that further work is required on the collation of information on the economic losses, costs and damage

arising from extreme events and that it would also be useful if the climate projections used by the

industry to guide their decision making were made available.

OPW CFRAM Maps – use of these maps by the Insurance Industry in flood assessment risks

A common theme raised in responses was about whether OPW Catchment Flood Risk Assessment

and Management (CFRAM) Maps which show the flood risk for 300 communities should be used by

insurers for risk modelling.

Regarding the CFRAM study, one submission noted that due to the difficulties of flood risk modelling,

there is an argument that the 1-in-100 year flood risk measure is not necessarily the best measure

and that it is important that such models are calibrated for expected future rainfall and not historic

events. Industry pointed out that it uses its own flood modelling tools for assessing the level of risk

that it is willing to underwrite in relation to individual properties, and does not use the OPW Flood Maps

to inform its flood modelling.

There was some support from members of the public and representative groups that insurers should

use the CFRAM maps studies and other up to date information on OPW projects completed, with data

being continually updated as to flood events in the future to mitigate flood insurance price increases.

Planning, Prevention and Property Protection

Industry and environmental groups noted the importance of vigilance in the area of planning to ensure

that properties are not built on floodplains in the future.

Industry and consumers are mostly supportive of the concept Individual Property Protection (IPP). A

number of submissions argued that Government should consider the merits of incentivising proactive

——

individual flood resistance measures and flood resilience measures such as those applied via the

Individual Property Protection in the UK.

One submission proposed an option for Government to consider is the application of higher

development levies for flood-prone areas to compensate for the additional cost of building flood

defences, flood monitoring, warning systems and any Government-sponsored insurance schemes.

Insurance Pool Model like the UK Flood Re Model

Regarding the UK model Flood Re, industry were not in favour of an Irish version of this as they argue

that Ireland does not have the scale to build up an adequate fund. The set-up costs would be high and

there would be significant ongoing running costs. In addition, an appropriate flood insurance premium

would need to be set. Reinsurance would need to be acquired and this could be difficult to obtain.

A consumer representative group made the case for using a percentage of the money raised from

existing insurance levies such as the Insurance Compensation Fund (ICF) in order to establish a

support scheme for communities who currently cannot get flood insurance cover.

Submissions from representative groups and members of the public were split on the merits of a Flood

Re Model like the UK. One group proposed that a Government backed scheme could be set up

specifically for not-for-profit owners’ management companies (“OMCs”). Another group made the case

that all major works schemes completed by the OPW should be covered by commercial insurers. It

was also suggested that communities who do not pass a cost benefit analysis for flood defences would

need a Government backed insurance scheme.

Coastal Erosion / Flooding

A number of submissions from members of the public and representative groups argued that the

discussion on climate change impacts on insurance cannot be solely focused on mainland flooding

issues, as there has been other impacts such as the issue of coastal erosion and coastal flooding.

There were recommendations that accelerated action and investment on this issue takes place and

that Government publish a national mitigation plan on this issue.

Sustainable Activities of Insurers

Submissions from some public groups contended that households face the prospect of more

expensive and/or more curtailed insurance due to climate change meaning that home owners will have

to build up rainy-day funds to cover or absorb these risk events. It was expressed that in addition to

financial compensation for losses after an extreme weather event, insurance can provide incentives

to increase understanding of risk and take steps to reduce it while seeking to avoid maladaptation.

One submission put forth the argument that insurers can have a positive influence on customer

behaviour such as reducing car accidents and increasing life expectancies by encouraging customers

to alter their behaviours. The submission suggested that in a similar way insurers can contribute to

customer behaviour by rewarding houses where flood resilience measures are in place and

contributing to the identification of at-risk houses.

——

A recommendation is that the Department of Finance should look at ways of promoting the

development of these ethical products and the Department should consider where responsibility lies

for encouraging and monitoring insurer’s practices in relation to climate related risks.

Ireland National Adaptation Policies

A submission from an independent advisory body highlighted that in November 2018, the European

Commission published an evaluation of the EU strategy on adaptation. The assessment shows a

number of areas where further progress is required and found that in Ireland, adaptation has not been

mainstreamed in insurance or alternative policy instruments, where relevant, to provide incentives for

investments in risk prevention.

A Just Transition

A number of submissions highlighted that vulnerable socio-economic groups are the least well

equipped to adapt to climate change impacts and associated challenges such as insurance.

Community resilience building also came up in submissions as a resource which could assist those

vulnerable who live in low lying fluvial, pluvial and coastal flood prone locations.

——

2.2 Summary of Insurance Industry and other related views

The main views of the insurance industry and related submissions are as follows:

 Were broadly supportive in principle of current Government policy in relation to increasing flood

insurance coverage which is focused on the development of a sustainable, planned and risk-based

approach to managing flooding problems.

 Noted the importance of vigilance in the area of planning to ensure that properties are not built on

floodplains in future.

 In relation to flood risk data emphasised the importance of receiving information from OPW so that

they can factor this information into their underwriting decisions.

 On greater flood risk data having the effect of making flood cover in certain areas more difficult to

obtain, it was contended that flood hazard areas are already well known to insurers and what they

are primarily interested in are the benefit areas protected by flood defence schemes so that they

can provide more flood cover to more people as flood models cannot take account of such flood

defence information until it is made available.

 Regarding the CFRAM study it was noted that due to the difficulties of flood risk modelling, there

is an argument that the 1-in-100 year flood risk measure is not necessarily the best measure and

that it is important that such models are calibrated for expected future rainfall and not historic

events.

 On flood defences/ demountable defences, the view was expressed that the fixed defence

approach is essential when building flood defences. The main argument for this is that while

demountable flood defences are effective where correctly deployed, there are significant

interdependencies, including manual intervention, which significantly increase the risk of failure,

particularly over time. Should a failure occur and flooding results as a consequence, the financial

impact for insurers, it is argued would most likely be very significant. Because of this potential

exposure and concerns about demountable flood defences being deployed correctly or in time,

insurers have a limited risk appetite for providing flood insurance in areas where demountable

defences are in place. Consequently insurers may wait until the efficacy of flood management

measures is proven before providing insurance in particular flood-prone areas.

 There were differing views expressed on the use of policy excesses/ policy exclusions as a risk

management tool by insurers. One view is that flood insurance claims are generally very costly

and an increased excess is of limited value as a risk management tool in such circumstances and

that policy exclusions are a useful tool for insurers to continue to provide coverage for other perils.

The other view was that they are useful as they serve the purpose in some cases for enabling the

This section includes the views of the Society of Actuaries

——

provision of flood cover in circumstances where it would not be otherwise be possible to provide

it.

 There was a proposal that Government consider the use of higher development levies for flood-

prone areas to compensate for the additional cost of building flood defences and flood monitoring

and warning systems and any Government-sponsored insurance schemes.

 Regarding the UK model Flood Re industry was not supportive as they set out that Ireland does

not have the scale to build up an adequate fund. The set-up costs would be high and there would

be significant ongoing running costs. In addition, an appropriate flood insurance premium would

need to be set. Reinsurance would need to be acquired and this would be difficult to obtain. Whilst

acknowledging there are economies of scale achievable in the UK that are not achievable in

Ireland, another view pointed to the considerable insurance management expertise in Ireland with

an established captive management industry which may be able to provide management facilities

at better value-for-money than suggested in the consultation paper.

 The potential of InsurTech was noted but it was acknowledged that it is in its early stages.

——

2.3 Summary of Representative Group’s views

The main views of representative groups and individual members of the public are as follows:

 Representative groups and members of the public were broadly supportive of current Government

policy of increasing flood insurance coverage but several submissions raised particular

issues/concerns.

 The feedback from consumers is that where communities are protected by the OPW flood

alleviation 1:100 year standard (i.e. assessed by the OPW to having a 1 in 100 year flood risk)

schemes are still being refused flood insurance cover or charged large excess loadings. This is

particularly so in areas where there are demountables – i.e. flood defence systems that require

action to be taken to be effective.

 Some consumer groups contend that insurance refusals are often not on a scientific basis and

that there is a lack of transparency from insurers.

 Consumer groups expressed their dislike of the retention practice (i.e. the practice of making

interim payments) by insurers and claims insurers have ignored the Consumer Protection Code

by not advising homeowners who notify a claim of their right to retain their own representative.

 Some consumer groups asserted that the information supplied by Insurance Ireland is inaccurate

as to the true levels of flood insurance cover in areas where OPW have completed alleviation

schemes. From these groups there was some criticism of the Memorandum of Understanding

(MOU) between the OPW and Insurance Ireland. It was argued that the exchange of data in

relation to flood defence schemes completed to the desired standard is not working as well as it

should be and that insurers have not adjusted their attitude towards the availability of flood cover.

 A solution that some consumers proposed is for insurers to be allowed to refer to CFRAM studies

and to OPW projects completed, with data being continually updated as to flood events in the

future to mitigate flood insurance price increases.

 Another solution that a number of groups argued for is the appointment of an independent overseer

to verify and ensure that where a reduced risk of flooding has been achieved due to the completion

of flood protection works to an accepted defence standard by the OPW, that this data is acted

upon in a timely manner to improve the insurability, and affordability of insurance of businesses

and homeowners in affected areas. Some consumer groups suggested CBI as the most

appropriate overseer as they would be able to carry out scheduled audits to encourage the

responsiveness of Insurance Ireland members to improve their coverage in areas where defence

works have been built.

 Some support from consumer groups for the development of a data platform to be used by public,

Government and private companies to aid the understanding of flood risk and resilience, and agree

——

with its value for increasing transparency, and underpinning objective data-based analysis for

assessing against flood risk.

 A number of consumer groups recommended that mechanisms should be put in place to ensure

the number of homes and businesses in high-risk flood areas that have no insurance can be

calculated and tracked. Similarly, there was suggestions that further work is required on the

collation of information on the economic losses, costs and damage arising from extreme events

and that it would also be useful if the climate projections used by the industry to guide their decision

making were available.

 Some consumer groups expressed support for legislation by Government to compel insurance

companies to provide flood insurance.

 A number of consumers proposed that accurate weather forecasts and alerts on a more localised

basis could assist to increase the level of flood insurance in areas where demountables have been

built.

 A number of submissions by consumers raised the issue of coastal erosion and coastal flooding

with recommendations that accelerated action and investment on this issue takes place and that

Government publish a national mitigation plan on this issue.

 In relation to Individual Property Protection a number of submissions by consumers argued that

Government should consider the merits of incentivising proactive individual flood resistance

measures and flood resilience measures such as those applied via the Individual Property

Protection in the UK.

 Community resilience building is another theme that came up in submissions from consumers for

vulnerable, low lying fluvial, pluvial and coastal flood prone locations.

 A theme in consumer responses is that that prevention is a key element of adaptation, particularly

in the context of planning new developments, new infrastructure and sustainable land use.

 Submissions from representative groups and members of the public were split on the merits of a

Flood Re Model like the UK. One group proposed that it could be set up specifically for not-for-

profit owners’ management companies (“OMCs”) of managed residential estates to provide

affordable block insurance to OMCs that cannot currently secure cover, or that face prohibitively

expensive premiums. The scheme would extend beyond flood cover, to capture risks such as fire,

public liability, etc. They set out their argument for such a model on the basis that OMCs and

apartment blocks are not commercial properties.

 A number of submissions by consumers and representative groups raised that the Department of

Finance should consider international models such as the American crop insurance model, the

French Flood Insurance model and New Zealand’s “no fault” car insurance model.

 A common theme among submissions from consumers and representative groups was that

Government, industry and communities should consider the implications of climate change and

where possible adapting “green” friendly policies/adaptations such as natural flood barriers.

——

 There was a suggestion to get engagement of new entrants in the flood prone segment of this

market will require that transactions costs facing new entrants who have expertise in the pricing

of such markets to be minimised.

 One submission proposed a potential moral hazard by providing the example where land is initially

zoned as high risk of flooding (Scenario A) and land prices reflect this policy; then the zoning is

changed to allow building, and the revised land prices reflect this new status (Scenario B). Buying

land under A, and selling under B, is a rent-capture practise. The submission contends the policy

system needs to reflect the reality of the incentives to “game the system”.

 A submission highlighted that in November 2018, the European Commission published an

evaluation of the EU strategy on adaptation. The published evaluation package also contains

assessments of each EU Member State’s national adaptation policies under an adaptation

preparedness scoreboard prepared by the Commission. The assessment shows a number of

areas where further progress is required and found that in Ireland, adaptation has not been

mainstreamed in insurance or alternative policy instruments, where relevant, to provide incentives

for investments in risk prevention. The submission recommended that further engagement with

other European countries on addressing the issue of insurance and climate change should take

place. Overall, the submission contended that climate change and insurance policy should

integrate more closely with the National Adaptation Framework, along with sectoral and local

adaptation policy under it. This the submission argued should include considering potential risks

such as changes in forest fires and wind speeds or storminess due to climate change.

——

Tithe an Rialtas. Sráid Mhuirfean Uacht,

Baile Átha Cliath 2, D02 R583, Éire

Government Buildings, Upper Merrion Street,

Dublin 2, D02 R583, Ireland

T:+353 1 676 7571

@IRLDeptFinance