Caroline Spelman addresses the ABI Conference on climate change and flood risk

Thank you for this opportunity to speak to you today on this very pressing issue.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Caroline Spelman

Thank you for this opportunity to speak to you today on this very pressing issue.

Let me start with the big picture.

We are living through an era of great change: economic, social and environmental.

Across all sectors of society, and across the world, leaders are looking for new conceptual models to understand and respond to the great changes we are witnessing.

In a few weeks I’ll be joining a gathering of such leaders, at the Sustainable Development Summit in Rio.

There we’ll be working towards tangible outcomes which will put us on the path to a strong, green, climate-resilient economy. **

The climate change challenge is two-fold.

We must decouple economic growth from carbon, to avoid disastrous climate change much later in the century.

And we must prepare our economy for the climate extremes that are already inevitable - examples of which we are already seeing.

There is an increasing frequency of natural events that is chartable. I’m sure that you all remember the devastating Australian floods.

It’s already very clear that adaptation and resilience are vital to a truly sustainable economy.

The UK leads the world in climate science, and Government will ensure it continues to do so. No amount of science can predict the future with complete accuracy. But what we are able to do is map the possibilities, assess the risks and take the actions needed, to ensure our future resilience and well-being.

Thanks to science, we know about changing rainfall patterns, rising sea levels and the increasing threat of flooding.

Now we need to work out what these changes mean for the economy, for society - and for nature.**                                   **

Earlier this year, Defra published the first ever Climate Change Risk Assessment: a groundbreaking piece of work drawing on climate change models from around the world. Drawing in the power of supercomputing these models have been superimposed upon each other. Again the UK is leading the way with this risk-based approach.

The CCRA shows us the range of challenges we face.

The report also analyses the opportunities presented by climate change itself, and by the need to adapt. Taking up these opportunities is part of the challenge.

We know from the Climate Change Risk Assessment that more people and properties will face flood risk as our climate changes.

Without action, annual damages to properties could rise to between £2 and £12 billion by the 2080s, taking projected population growth into account. This would have a very major impact on our economy.

The Risk Assessment sets out the challenges - but not the solutions. Also it doesn’t factor in changes in policy, plans, and behaviour - our ability to adapt between now and the 2080s.

So, armed with the science, Government, the business sector and civil society need to work together to develop the right solutions.

And we are.

For example, we’ve been working with underwriters to explore the role of insurers in supporting businesses to adapt to climate change. We will continue to work with you as we develop Climate Ready, the cross-government programme for adapting to climate change risks.

And I welcome the contribution that many of you have made to the ClimateWise report; highlighting the importance of collaboration both within the industry and across sectors, to achieve adaptation.

The CCRA makes it clear that the rising risk of flooding is the UK’s most significant climate challenge. 

We know we can’t ever prevent flooding altogether. 

But we can ensure our homes and businesses are better protected, and our communities more resilient, to the devastating impacts that flooding can have. 

Since the floods of 2007, the insurance industry has really stepped up to the mark.

I saw evidence of this close up, when I went to Cornwall in 2010 to see the effects of the floods there, and talk to the people who had been affected.  I was really struck by the crucial role of insurers and loss adjusters in giving practical advice in the immediate aftermath - and in the difficult days that followed. 

The professionalism and compassion shown by the industry was moving and impressive. I speak from personal experience, having been flood out by a burst pipe in my home.

The idea of this support being unavailable - of flooded households being left to fend for themselves - is unacceptable.

Together we must ensure that this does not happen.

We are currently one of the few nations in the world that enjoys flood cover as a standard part of domestic insurance.

This system has existed for more than half a century, and it is a system we all value.

The ‘Statement of Principles’ between Government and insurers on flood risk was most recently revised in August 2008 and Ministers at the time agreed with insurers that it should be the last such agreement, and would not be subject to renewal.

The Statement of Principles has provided some reassurance about the continued availability of flood insurance in specific circumstances.

But it is widely misunderstood. 

The current agreement does not apply to the majority of households at significant flood risk, nor does it apply to homes built since January 2009.  

It provides no universal guarantee of flood cover, as many claim it does. Nor does the agreement influence the pricing of policies. 

So renewing the Statement of Principles as they currently stand would not in fact solve the problem.

As I’ve shown, scientific understanding is improving all the time. Armed with this new information insurers have to change their approach to pricing flood risk.

Improved flood models allow high and low risk customers to be identified and charged different amounts.  In fact recent ABI research suggests around a fifth of households in significant flood risk areas already pay a risk-reflective price.

Risk-based insurance pricing provides an incentive for households, businesses and communities to reduce their flood risk.  In the long-term this will save everyone money.

But risk-reflective insurance pricing needs to be introduced gradually, allowing markets to adjust steadily, whilst supporting those unable to bear the true cost of flood risk to their homes.

There is no easy answer.  The last Government did not find one. But we will.

Other countries provide useful insights - but no clear steer.  In the US, for example, the federal Government-backed insurance scheme is $17 billion in debt to the taxpayer - so they’re now considering more sustainable options. In Germany, the market-based solution led to an increase in uninsured properties.

The ABI and others have come forward with practical proposals for how to secure universal and affordable insurance.

I am grateful for the time and effort the ABI are putting in to develop these proposals and the constructive discussions we continue to have.

I am also grateful to the National Flood Forum for the continued engagement and active contribution of their members in developing ideas, in particular those from the Morpeth Flood Action Group.  Similarly, insurance brokers have come forward with helpful, innovative proposals.

We have made progress.

We are in intensive discussions with the ABI and others and we are looking carefully at the models that have been proposed.

We want to do everything we can in partnership with the industry to address the needs of householders.

Especially at this difficult time for the economy, we have to think about the wider economic context of any solution - we have to get this right.  

We have a common interest with the industry in avoiding unaffordable bills.

I would like to be able to lay out the full answer for you today.  But I don’t believe the ABI or its members would want me to cut across our ongoing dialogue that we’re having by commenting on the details of these discussions.

What I can say is that we want to see a solution that benefits those households living with flood risk, particularly ones on lower incomes.  We must also create transparency for customers.  They will need help and guidance about what they can do to limit the scope for future price rises.

No one should be in any doubt as to the importance and the urgency I attach to this issue. We remain committed to working with the industry and others to secure a deliverable, value for money proposal that we can quickly take forward.  I understand the urgency and I’ve been pleased to see that spirit mirrored on the insurers’ side. I think we can get something better.

In the meantime both insurers and Government need to meet their responsibilities. 

And we must keep working in partnership.

Partnership with each other, and with others. 

The leadership shown by the Local Government Association in tackling resilience issues in partnership is one good example.

Local authorities are at the forefront of building the UK’s resilience to climate change.   This Thursday I will be co-chairing a meeting with local authority leaders to discuss how we can best work together.  Only together can we support local action to make the UK ‘Climate Ready’.  Working together to tackle flood risk, sharing data and making the best use of science, so that our efforts have the greatest impact possible.

Individual local authorities are already showing leadership in helping their communities to better access insurance.  In Kingston-upon-Hull the city council is working directly with insurers to ensure a common understanding of local flood risk and what’s being done to reduce it.

Government action is fourfold.

First and foremost will be our continued focus on the management of flood risk. 

I would like to take this opportunity to reaffirm Government’s commitment to manage the risk of flooding for the five million properties at risk in England.

Our core focus is to continue to invest in new and improved defences.  Despite hard times, my department will spend more than £2.17 billion on flood and coastal erosion risk management in England over the current four year spending period.  Flood risk management is by far our largest area of capital expenditure - that’s why I fought so hard to protect it in the comprehensive spending review.

Although it is 6% less per annum than the previous Government’s spend, the new partnership approach to funding means that the money can go further.

Here I want to pay tribute for developing this policy to the civil servants who work in Defra. This was not an idea from politicians, either in this Government or in the last but something developed by the civil servants and I want to give credit where credit is due.

Last year we launched our new Partnership Funding system.  This significant reform recognised that bringing together national and local, public and private funding would allow us to achieve far more in partnership than the taxpayer could alone afford. 

It creates the opportunity for as many communities as possible to enjoy the benefits that flood and coastal defences bring. 

Its impact is already exceeding our expectations.  We now have £72 million in external contributions committed, enabling schemes such as the one in Morpeth to go ahead.  In this case it was Northumberland County Council who stepped forward.

Another scheme will help protect the town of Cockermouth, so dramatically flooded so memorably in 2009.  In this case funds are being raised from a variety of sources including the councils, the chamber of commerce and charitable donations.

Schemes across the country are already providing social, economic and environmental benefits - and crucial peace of mind - to local residents and businesses.

These and the sixty new schemes starting this year will help us exceed our goal to better protect 145,000 households by March 2015.  Of these, 100,000 households will be in areas of significant risk of flooding.

So that’s at least 100,000 households that will be able to secure ongoing affordable insurance as a result of Government action.

I would like to congratulate the partners involved in these and the other flagship projects springing up across the country. 

Nationally, it’s likely that there’ll be up to a third more schemes going ahead over the coming years than if we retained the old ‘all or nothing’ national funding approach.

Secondly, our changes to the planning system will put a stop to inappropriate new development.

The National Planning Policy Framework will make the planning system less complex and more accessible, to protect the environment and to promote sustainable growth.

I know you share our view that new buildings should be located away from flood risk whenever possible, and that the risk should be assessed, avoided and managed.

So I was glad that you welcomed the NPPF and the technical guidance for flood risk management, which was published with it.

And I’m sure that local authorities will find your guidance on insurance and new development extremely helpful.

Thirdly we are improving the provision of flood warnings and flood risk information.

We’ve introduced new, clearer flood warning codes, and the latest figures show that over a million properties are now signed up to receive direct flood warnings. We are on target to extend this free service to at least two thirds of properties in the highest risk areas by 2015.

Our flood risk modelling is already the most advanced in the world.

We’ve made real improvements in updating and sharing this information.  The National Flood Risk Assessment can now be kept up to date by local teams, so that insurers and other licensees can keep track of the impacts on flood risk as flood defences are completed.

Our priority is to reduce flood risk. But flooding will inevitably happen.

So, fourthly, Government has a crucial role both in the emergency phase and in helping recovery.

We take seriously our role as Lead Government Department in response to major flood emergencies.

That’s why last year we conducted Exercise Watermark - the country’s largest and most successful civil contingencies exercise ever.  Yet another recommendation from the Pitt Review that this Government has implemented.  

Over 125 community events took place.  We tested new Government-funded rescue boats and other assets.  I chaired meetings of the COBR committee with ministerial colleagues to simulate a major flood event.

When flooding has passed Government then has a crucial role in helping communities recover.  The Bellwin mechanism is there to help meet local authorities’ immediate response costs. 

And there are general principles whereby Government reserve funds can be made available to help communities recover from exceptional emergencies.

It was under this mechanism that the Government supported communities affected by public disorder just last summer, providing over £10 million to help communities and High Streets recover.

As I said at the beginning, we are living through times of great change. With this change comes challenge.  Dealing with flood risk is among the most urgent of these challenges.  

And it’s one I’m confident we can meet.  The UK’s insurance industry is world-leading.  You have the expertise, the energy and the appetite to meet the climate change challenge head on.  And with this Government’s help, we will succeed.

Published 22 May 2012