Relief for flood-prone homes

2013 spending review promises flood defences

The Spending Round statement to Parliament on 26 June 2013 offered upbeat news to the owners of flood-prone homes. Chancellor of the Exchequer George Osborne promised the government "will set out plans for a major commitment to new flood defences for the rest of this decade".

Following this statement on 27 June, the Department for Food, Environment and Rural Affairs (Defra) issued a policy Reducing the threats of flooding and coastal change.

This is a very positive step forward that will lift a burden from the shoulders of many home owners

Simon Douglas, director of AA Insurance

ABI and government agree on affordable flood insurance

The Defra policy included an announcement that the government had reached agreement with the insurance industry to 'enable people living in the most flood-prone areas to get affordable flood insurance'.

AA Insurance welcomes the news that agreement in principle has been reached between the government and the Association of British Insurers on providing insurance cover for flood-prone homes.

Simon Douglas, director of AA Insurance, says: "This is much as we expected and the commitment not to impact on customer bills in general will be welcome news. However, removal of cross-subsidies does mean that there will be premium increases for those not at risk of flooding, probably by up to £10 on average.

"That's why legislation is required and this will take time. It's also disappointing that European Commission approval will be needed for something that really is a domestic issue – I hope that doesn't lead to further delays."

Mr Douglas added, however, that many questions still need answering.

"It still isn't clear whether the government will commit to stepping in if there is a serious once-in-200 year flood disaster," he pointed out. "I also think the £10.50 which is stated to be already being paid in cross subsidies is unlikely. Average premiums for high-risk properties are already over the amounts stated, so reducing these must have an impact on premiums across the board.

"The announcement also says that the new scheme will run for around 20 years and then no longer be required. Given the equivocal nature of climate change, and given the lifespan of the existing statement of principles – originally introduced in 2000 as a temporary measure – I wouldn't be surprised if the Food Re solution has a much greater longevity.*

"Nevertheless, this is a very positive step forward that will lift a burden from the shoulders of many home owners. A lot of midnight oil has been burned in developing this solution, so both the ABI and the government are to be commended."

* Flood Re proposes that the total cost of increased flood claims is spread through a levy on insurers to provide a not-for-profit 'pool' to meet claims from high-risk homes. It would rely on all homeowners being willing to fund the potential flood costs of others through the premiums they pay – possibly by around £10 per policy.

2 July 2013