27th June 2013
The Government and the insurance industry have agreed a preliminary deal on flood insurance which will create Flood Re a central pool of money to help insure affected homes funded through a general insurance levy.
The Government claims hundreds of thousands of households in flood-prone areas will be guaranteed affordable flood insurance though insurance bosses say there is still a lot of work to be thrashed out on the details.
“The new agreement will cap flood insurance premiums, linking them to council tax bands so that people will know the maximum they will have to pay,” said the Department for the Environment, Food and Rural Affairs in a statement.
Funding will come from a new industry-backed levy will enable insurance companies to cover those at most risk of flooding says Defra. All UK household insurers will have to pay into this pool, creating a fund that can be used to pay claims for people in high-risk homes.
This may cause some controversy, for example about the fact that everyone who takes out insurance will end up having to pay to cover people with homes in areas prone to flooding. Some may criticise reckless development on flood plains and ask why they should pay to develop it.
For now Environment Secretary Owen Paterson said: “Flooding is terrible for anyone affected by it. We have worked extremely hard with the industry to reach an agreement on the future of flood insurance. There are still areas to work through but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future.”
Otto Thoresen, the Association of British Insurers’ director general, sounding a decidedly more sceptical note, said: “Insurers’ priority has always been to ensure that flood insurance remains affordable and available for everyone who needs it. Today’s announcement is the start of a process that aims to deliver affordable flood insurance to high flood risk households.
“Getting to this stage has required compromise by both sides and there remain issues that need to be overcome. For Flood Re to be established successfully there needs to be an unprecedented level of partnership between the Government and the industry. But insurers and the Government are now working towards a shared vision, with Flood Re as the Government’s preferred choice.
“Flood Re would be a major undertaking for UK insurers and the work insurers have undertaken to get here reflects the industry’s desire to cover flood risk at an affordable price in the face of the increasing flood threat in the UK. The hard work now begins for both sides if we are to make this vision a reality.”
The proposals will be given legal backing through the Water Bill, published later today, and the Government says will last for at least the next 20 years. Until the Water Bill has passed through Parliament and Flood Re is set up, the industry will continue the current agreement – the Statement of Principles.
In addition, to help keep flood insurance affordable in the long-term, Defra says it will continue to invest in flood defences and has provided a six-year long-term commitment to provide £370m of capital investment in 2015/16 rising with inflation until 2020/21: a figure confirmed yesterday in the Government’s Spending Review.
It says the investment means that over 300,000 more households will be better protected by 2021, bringing the overall risk down and helping to secure affordable insurance for people long-term.
The Government says it is currently spending £2.3bn on flood defences meaning that 165,000 homes will be better protected by 2015.
New measures will also be added to the Water Bill that will be published later today to give Government legal powers to regulate the insurance industry, if needed, to keep flood insurance affordable.
The legislation will also allow water companies to switch provider. Environment Secretary Owen Paterson said: “We need to address growing pressure on our water resources. These reforms will make the sector more resilient and help us build a stronger economy.
“Creating a modern customer-focused water industry is crucial. We have listened to businesses who want more choice, and our new measures will give them the freedom to switch supplier and find a more competitive deal.”
Last month, prior to this agreement, the Guardian one once of many papers reporting concerns that homes in affected areas would be left in limbo.