UK Insurance Agreement Extended

There is currently in existence an agreement between the UK government and the Association of British Insures (ABI) that means owners of homes and businesses in flood risk areas can get affordable flood insurance.

The agreement – known as the Statement of Principles – was first set up in 2008 only as a temporary measure. In return for the insurance industry keeping a lid on insurance costs of those in flood zones, the UK government was to work on shoring up flood defences in those vulnerable areas.

However, the Statement of Principles was due to expire at the end of June 2013. No updated or replacement agreement as yet has been forthcoming. Instead, it was announced earlier this month that the Statement of Principles expiration date will be extended to the end of July 2013.

Some estimates say that around 200,000 homes are at risk of flooding in the UK, and no permanent extension to the Statement of Principles agreement will leave those home-owners vulnerable.

But it seems that it is taking longer to find a new agreement than at first thought, although at least discussions between the 2 parties – the ABI and the UK government – are ongoing.

Owen Patterson, the Minister for the Environment said that the negotiations to agree to a new flood insurance model are very close to coming to a conclusion. In the mean time, the old agreement has been extended.

It is difficult to decipher exactly what direction the UK government wishes to take on flood insurance. On the one hand they seem happy to extend the existing agreement, yet on the other, appear to be cutting any flood defence budgets, which is after all, their part of the deal. This may well be, or form part of, the stumbling block. If the government is no longer prepared to pay for the improvement of flood defences, there will need to be a completely new flood insurance model in pace.

The ABI has already proposed a new model, but one that may well make some home insurance customers outside of flood risk areas unhappy. In their new proposal, affordable flood insurance will still be available for those in flood risk areas. Premiums would be set at an agreed amount and there would be a levy for insurers which is likely to be passed on to their customers, some of whom may not be at risk of floods. This is a controversial area and has been given some attention in a statement by the ABI. As the Q and A statement from the ABI website says:

Q. I am not at flood risk so why should I have to pay a levy on my policy to subsidise those who are?

A. Anyone can be affected by flooding – you do not need to live near a river or by the sea. Flash floods, which can hit almost anywhere, are becoming increasingly common. It is important for the whole country that flood insurance remains widely available and affordable, to prevent whole communities being blighted, the property market being affected, and taxpayers increasingly being asked to help out flood victims without insurance cover.

We will have to wait and see what form any new agreement or flood insurance model in the UK may take. For now, at least the current agreement has been extended, and if we can believe Owen Patterson and the ABI, talks are at least continuing.

ABI; DEFRA (PDF version of the Statement of Principles, 2008)