ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: The floods of 2007 were of course under a Labour government and as the hard hit flood victims pick their possessions out of the puddles someone is always going to be counting the cost. As we were discussing, the insurance industry has worked out a deal with the government that will take effect next year. The Flood Re Pact will mean that vulnerable low lying plains will be bailed out by a fund created by adding a little bit to everyone’s home insurance premiums. Well with me to discuss that and the immediate aftermath of the floods is the Managing Director of Underwriting at AXA, David Williams. Very good to talk to you, Mr Williams and I refer back to 2007 and indeed beyond that emerging from floods earlier, there’s already a scheme isn’t there, a Statement of Principles. Why do we need to go further, why do we need Flood Re?

DAVID WILLIAMS: The Statement of Principles was just a loose agreement which promised that insurers would continue to offer renewal to existing policy holders, this goes much further. So there were no specifics about premiums under the Statement of Principles, what this does is it guarantees affordable flood insurance across the UK going forward. Also you mentioned the cost to every policy holder, insurance spreads the risk of the few over the many and therefore there was already a subsidy going on but it was hidden away. This way it is much more transparent and much fairer with everybody contributing.

DM: But isn’t insurance – I’ve been reading the blogs and the tweets about this and people are saying, okay, hold on a minute, I’m going to have to pay a bit more on my insurance bill, if I want to build my house out of straw and light a lot of coal fires in the house, I’m not going to get buildings insurance am I, the basic point being if there is a certainty or a very high probability of getting flooded, surely that’s not what insurance does. You don’t insure people against something that will happen.

DAVID WILLIAMS: We live on an island and quite a small island relatively speaking and, as we’re seeing, there are increasing numbers of extreme weather events and floods. The UK is fairly unique in Europe and the world in providing flood insurance as part of an insurance policy. In other countries you might have to rely on a state hand out from some sort of catastrophic incident fund and I think we should be proud of that. People benefit greatly from being able to purchase insurance and this is a way of making sure that not just those in the better areas can afford flood insurance.

DM: But in fact the basic philosophy of insurance though is just that point though, insurance is insuring you against unforeseen events. If it is pretty likely you are going to get flooded that changes the nature of insurance doesn’t it?

DAVID WILLIAMS: I think insurers have a wider responsibility than just selling a policy and then paying for the damage afterwards. When we’re talking about the floods, everybody focuses on the things that we’re doing so we are making interim payments to customers of £1000 straight into their bank and sorting out alternative accommodation but what we are also doing is talking to them about resilient repair and protection. We have experts who can provide advice so what we need to do in conjunction with Flood Re is ensure that those high risk households also know what they can do to mitigate this …

DM: Is there a quid pro quo here, I mean is the insurance industry also saying, well okay, given the hundreds of thousands of houses that we need to build, many of those are going to be in areas which may flood. We want to see, we want you to enforce, we want the government to enforce the fact that these houses are so-called resilient. We have seen over the course of the last few weeks many plans that can make houses a lot, lot safer from water damage.

DAVID WILLIAMS: There is a huge amount that you can do. If you look at Holland for instance, the way they approach planning and building very much takes into account the threat from flood waters and we need to do much more of that.

DM: So are you demanding that?

DAVID WILLIAMS: Very much so. We are saying that we will not provide flood insurance cover if people build in flood plains unless …

DM: But you were just telling me that you are going to because of this subsidy.

DAVID WILLIAMS: No, no, no, but the Flood Rearrangement applies in respect of existing properties, it doesn’t apply in respect of new properties and certainly what we’re saying in our discussions with the government is that if they are going to build in areas which are currently high risk flood plain areas, then they need to be doing things either in terms of the nature of the construction or investing in flood defences to stop those areas becoming a problem. The other issue of course is that it’s not just building those properties in flood plain areas, by building on a field that will currently soak up water you’re going to send that water somewhere else so we need to be really, really mindful and really careful in our planning and building to make sure that we are not just moving the problem somewhere else.

DM: Okay, posher houses are exempt from this as well aren’t they? The top of the council tax bands.

DAVID WILLIAMS: Yes, a lot of negotiation went into setting up Flood Re and there is going to be an amount charged to every policy holder of £10.50 and I suppose it is a bit of a political discussion and decision as to whether or not that should apply to absolutely everybody and the government’s view was that it shouldn’t apply to Band H houses. Interestingly I saw a survey that one of the national newspapers ran yesterday and 78% of the people that responded to the survey felt that that was absolutely right so the subsidy will be provided but it will be provided on all houses up to Band H.

DM: So a proportion, okay, of the poshest houses not getting, perhaps not being able to get insurance, this could have an effect on the housing market couldn’t it? They won’t be able to get a mortgage if they can’t get insurance.

DAVID WILLIAMS: They won’t be able to benefit from the lower affordable rates within Flood Re, they will still be able to use the conventional …

DM: But that is up to individual insurers to decide whether they are too much of a risk and they can’t have it.

DAVID WILLIAMS: Or to charge appropriate premiums or make cover subject to additional protections, maybe large deductibles, so the view is that these larger houses will be able to approach the conventional insurance market as they currently do but they won’t get the benefit of the subsidy and the cheaper insurances from the Flood Re.

DM: But I suppose to turn that question round, that if this weren’t available it could have an effect on the housing market certainly when mortgage providers are looking at the whole package, they’ll want to see if they can get insurance.

DAVID WILLIAMS: That was one of the dangers in terms of the Statement of Principles didn’t go far enough in terms of we were continuing to provide cover but in certain areas premiums were being pushed up and deductibles were being pushed up. That could have caused problems with mortgages, having problems with mortgages as you say has an impact on the house market and housing prices generally so by agreeing to Flood Re we can make sure that for the vast majority of houses there is affordable flood insurance.

DM: We’re running out of time, how quickly can you have it in operation?

DAVID WILLIAMS: It is complicated, the Statement of Principles has been extended until it’s fully in place but we are talking 2015.

DM: Okay, good to see you, Mr Williams, thank you very much indeed. David Williams there from AXA.