Flood risk insurance: disaster averted?

27 June 2013

In a press release co-ordinated with the Government's announcement to Parliament on 27 June 2013 on infrastructure spending ...

… ABI has confirmed its willingness to continue the longstanding agreement which guarantees flood risk insurance for householders, even those living in the highest-risk areas.

The agreement secures Government commitment to defined flood defence spending for the period to 2020 and anticipates the creation of a not-for-profit fund (Flood Re) which will operate in a way similar to the motor insurers bureau (MIB) in respect of uninsured drivers.

The Flood Re scheme is not yet fully worked out and will be dependent upon the passage of a Water Bill, shortly to be introduced to Parliament and not expected to come into force before Summer 2015. ABI has published the following Q&A list (click here) which illustrates some of the difficult issues which will need to be negotiated during this process.

Our preliminary comments on this development are as follows:

  • the removal of the immediate threat of no flood cover for homeowners (and their lenders) for the 200,000 highest-risk properties is welcome;
  • the threat of claims against solicitors and surveyors arising from non-availability of cover for these properties has also receded;
  • the continuation of the ABI-Government agreement means that there will be a continued indirect cross-subsidy from most household policyholders for those living in flood-prone properties;
  • there are important exceptions for which the Flood Re scheme will not provide cover (e.g. homes in the highest Council Tax bands, those completed post 2008 and most business properties);
  • real cuts in public expenditure in flood defence and in other areas - in particular for local Government and highways maintenance - will contribute to increasing overall flood risk.