November 27, 2012 6:27 pm

After the floods

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UK should invest in defences, not insurance subsidies

The floods that hit Britain over the past week have left three people dead and almost 1,000 homes submerged. The storms have given renewed urgency to the question of whether Britain’s flood defences are adequate amid increasingly volatile weather. But they do not make the case for subsidising those who have chosen to make their homes on flood plains.

The government and the insurance industry are at loggerheads over how to safeguard those most at risk from flooding. It is estimated that 200,000 households could find themselves without cover when a voluntary industry agreement to keep insuring existing customers expires next year. Insurers are proposing to set up a fund, financed by a permanent levy on all household policies. It wants the government to backstop any losses for a few years while the fund builds enough scale to handle extreme events.

The Treasury has sensibly rejected this open-ended commitment. Though insurers insist they would only require temporary support (for how long is not specified), the pledge carries as much certainty as a weather forecast. In the US, state-backed insurance schemes are almost permanently in deficit. The increasing volatility of weather patterns makes flooding – and consequently claims – more, rather than less, likely.

The government should not be let off the hook, however. It has cut investment in flood defences, breaking the bargain struck with insurers in 2000. Looser planning rules have also made matters worse. According to one report, 160,000 homes have been built in risky areas in the past 10 years.

There may be a case to support those who have found themselves the innocent victims of reduced investment in flood defences. This policy should be re-examined. But if the government is to offer any limited backstop for this group, it should equally ban development on flood plains or other high-risk areas. Politicians should be clear about what responsibility they will assume for the damage wreaked by freakish weather.

No one who has seen the images of families wading through their homes could dispute that flood insurance is necessary. But insurance is only viable if risks are priced appropriately. Asking the taxpayer to support “affordable” – or, more appropriately, subsidised – insurance has the perverse effect of encouraging people to live in unsafe places. If the cost of living in risky places is prohibitive, potential residents might be put off and new tragedies avoided.

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