Otto Thoresen, director general of the Association of British Insurers has issued a statement outlining the organization’s position on flood coverage in the UK, in response to recent proposals from the government.
“This is a frustrating update from the Government,” he stated. “The insurance industry has spent the last 15 months discussing with Defra [the UK's Department for Environment, Food and Rural Affairs] how to develop a sustainable way forward on flood insurance for high risk households but it seems to be listening less and less.
“No country in the world has a free market for flood insurance which provides affordable and accessible cover for high risk households without some form of Government involvement and it makes no sense to rule out a subsidy before Defra have even done the analysis.
“To ensure potentially 200,000 high risk households have access to flood insurance in 2013, the Government needs to listen to the insurance industry and help develop a sustainable subsidy model which is paid for either by taxpayers, low risk households or both.”
Finding a long term way to provide flood coverage in the UK is becoming increasingly important, as the current measures in place – the Statement of Principles – are due to expire in 2013. Thoresen noted that the insurance industry has told successive governments since 2008 that they “will not be renewed in 2013.”
He added that it was a temporary measure, put in place in 2000, which is now “long past its sell-by date with a stealth subsidy from some low-risk customers to those in high flood risk areas and with a distorted insurance market which has left the original signatories with an unfair burden of risk.”
He stressed that “consumers deserve a permanent, sustainable solution to the flooding problem which is long overdue from the Government. The insurance industry remains committed to trying to work with Government and Parliament to find a way forward as soon as possible.”
In a discussion on the Statement of Principles the ABI reiterated that it was always seen as a temporary measure. In effect it charges more for homes in low risk areas in order “to subsidize cover for people in higher risk areas. It has also grossly distorted the home insurance market as the agreement only covers those insurers who were insuring flood risk properties when the statement was signed.”
The ABI called on the government to “work with the industry to make sure 200,000 homes do not find themselves without cover when the agreement expires in 2013,” which, it added, “has never been more urgent.”
In conclusion the ABI noted: “Nowhere in the world has a purely free market solution, without any Government supported safety net for those most at risk, that results in everyone having affordable flood cover.
“While a free market driven entirely by risk could work for some customers, we have asked the Government to seriously consider a risk pooling approach, which would provide a safety net for those people most at risk who could find themselves without insurance.”
Source: Association of British Insurers