Association of British Insurers (ABI) Director General, Huw Evans, reflects on the launch of Flood Re, a new scheme to help people living in flood risk areas get affordable home insurance.
For five long years, Flood Re - which finally went live on Monday April 4th - has been a dominant part of my professional life. I have been privileged enough - and occasionally unlucky enough - to be present at every stage of its development, from the early drawing board discussions to the recent 'go-live' countdown and many of the twists and turns in between.
Flood Re is a not-for-profit reinsurance fund, owned and managed by the insurance industry, which designed and built it from scratch. The scheme was agreed between the ABI and Government in a Memorandum of Understanding in June 2013 and is underpinned by the Water Act 2014. So as its first week as a live scheme draws to an end, what reflections can I offer on the value of the scheme and lessons learned along the way?
1. Being a 'world first' isn't easy
By far the most eye-catching claim for Flood Re is that it is a 'world first' public/private partnership to deliver affordable domestic flood insurance through a market-led solution. The scheme has attracted attention from around the world and is likely to be copied either whole or in part in years to come. But being a pioneer isn't easy; it means there is no previously trodden path to follow and for Government, insurers and regulators alike it has meant finding our way, often tortuously, to mutually agreeable new ways of working. The crunch points have occurred at different times for the respective parties but all of us have had to accept some uncomfortable requirements to get the scheme agreed.
2. Keep focused on the core rationale
Flood Re has always had a simple mission; to allow the provision of available and affordable home insurance across the UK through enabling a competitive insurance market to exist once again for homes that have become blighted by flood risk. Delivering the mechanics for this to happen has been tough enough but what has surprised me during the process has been the desire by some to add things to the scheme as if it were a Christmas tree that needed extra adornments. Campaigners have argued for businesses to be included despite the fundamentally different nature of business insurance and the lack of a widespread problem. Climate change activists have wanted to impose a raft of duties on Flood Re unrelated to its core insurance function. We have been right to resist these - despite the inevitable brickbats - so we could make sure the scheme we set out was delivered in the way we promised and on the timescales we promised to Parliament.
3. Collective endeavour and 'responsible capitalism' can work
We often see much scepticism in the political arena about whether shareholder-owned businesses can ever truly act in the public interest or work with each other to achieve common good. Flood Re demonstrates that both are possible and effective. General insurers, who compete with each other fiercely on a daily basis, have invested five years of executive and management time, over £20 million of direct funding and countless hours of working together to bring Flood Re to life. They have done this because they believe in social responsibility and want to genuinely help customers to access insurance. No hidden motives, no secret deals, just businesses working with Government to do the right thing.
4. The challenge of managing flood risk goes on
An illogical criticism sometimes levied at Flood Re has been that it doesn't solve the wider problems of sustainable development, effective water management and building greater resilience to flood risk. The simple answer is that it is not designed to; it is there to allow 25 years for better public policy, sustained flood defence investment and sensible development to take hold so that the domestic insurance market does not require a Flood Re any longer. But we do have to take this opportunity and put effective water management at the heart of our planning system, not the periphery, if Flood Re is to be more than a much-needed help to the homeowners of our time.
When I look back on the last five years, I can see very clearly how every step of Flood Re's journey has required extraordinary levels of commitment from the ABI, insurers, ministers, regulators and, most recently, from CEO Brendan McCafferty and his superb team who have worked 18 hour days over the last year to get to this point. For them, as for me, the reward was seeing the tearful relief of high flood-risk homeowners on the news on Monday who had been able to get an affordable insurance quote for the first time. Their joy was testimony that our hard work was worth it.