Stormy Negotiations Continue over the Future of Flood Risk Insurance

Cloudy weatherStorms and heavy rain have triggered even more flood alerts as homes and business get set to put up the barricades against torrents of water.

With 200,000 homes at serious risk of flooding and another 2.4 million that could go under water if nearby rivers break their banks or sea walls breach, the government and insurance companies are still in a spat over who pays to protect them if the worst happens.

The current ‘statement of principles’, which is a gentleman’s agreement saying insurers will offer cover providing the government improves flood defences, is running down and expires in June 2013.

Insurers are peeved because the government is cutting flood prevention investment as part of spending cuts – which is likely to increase the number of claims.

The typical cost of refurbishing a water-damaged property is around £20,000, even if such a home is assessed as being at a once in a century risk of flooding, that still amounts to £200 per year, on top of the normal cost of insurance cover.

In July, the then environment secretary, Caroline Spelman, said that a way forward ‘had been found’ but didn’t elaborate.  Then earlier this month, Department for Environment, Food and Rural Affairs (Defra) broke its silence in a written response to Conservative MP Nigel Adams.

Defra secretary Richard Benyon said: “A number of options are under consideration, including an industry-led levy that would allow policyholders in high flood risk areas to continue to secure affordable insurance. Our priority is to resolve detailed design issues. Discussions with the industry continue to be positive and further announcements will be forthcoming in due course.’”

However, Simon Douglas, director of AA Insurance argues these recent statements from the government have not given insurers much confidence in brokering a new deal.

“There’s little sign yet of a replacement. These families must be wondering whether they will be able to find affordable insurance from that date and I’m concerned at the apparent lack of progress.

“Whatever solution is reached, it has to be paid for if affordable cover is to be available to the most vulnerable homes.  If 1 in 6 homes in the UK are at some risk of flooding, especially given the increasing number of flash floods that can happen almost anywhere, that’s a big bill to pick up.

“The Treasury is not likely to be enthusiastic about underwriting such a risk.  Who picks the liability up is, I believe, where discussions may have stuck.”

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