April 2, 2012 10:01 pm

Insurers offer hope for flood zones

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Some 200,000 homeowners in flood-prone areas who face the potential withdrawal of insurance next year could be rescued under proposals put forward on Tuesday by the reinsurance industry.

Nicknamed Project Noah, the plan from insurance broker Marsh involves setting up a new “risk pool” of more than 20 million homes in Britain to dilute the risks of providing flood cover, describing the move as a chance to break the deadlock in talks between the industry and government.

The model, which has taken its brokers two years to devise, would put all homes in Britain in a single pot – with the industry sharing the risk across the board. “The basic principle is that reinsurers would be willing to back the pot because the entire UK will not all flood at once,” said Hutton Swinglehurst, head of flood risk at the group.

Previous attempts to provide universal cover have been hampered by reinsurers’ reluctance to cover the sector because many insurers are concentrated in regions – meaning they are exposed to localised flooding.

Ministers, who have promised a statement on flood insurance this spring, are under pressure to produce a solution because the current ad hoc agreement with insurers – called the “agreement of principles” – will run out in June 2013.

Designed a decade ago as a short-term measure, it has enabled home insurance to be offered in high risk areas, as long as the government maintains flood defences. The Association of British Insurers has warned that without a deal, some 200,000 households may become uninsurable.

Talks to replace it come against a backdrop of claims tripling in high-risk areas in the last decade. The 2007 summer floods in England and Northern Ireland cost the economy more than £3bn, and the Cumbria floods in 2009 led to enormous damage including the loss of 20 road bridges.

A landmark study by Defra last month, the “climate change risk assessment”, pinpointed flooding as the biggest climate risk faced by British business. It estimated that the cost of flood defences could have to rise tenfold to £12bn a year by 2070 due to rising sea levels and heavier rainfall.

Defra said it welcomed the attempt to find a solution to the pressing problem. “Industry-led solutions that allow insurers to compete even for the highest risk homes, without government intervention in the market, would give the best value for taxpayers’ money,” a spokesman for the department said.

Project Noah has the backing of the reinsurance industry and was welcomed by the British Insurance Brokers’ Association. Eric Galbraith, chief executive of BIBA, said: “Project Noah is a deliverable reinsurance solution ensuring flood insurance availability for UK homes. The government can focus their spending on improving flood defences whilst homeowners should be paying a more equitable premium.”

The ABI has come up with a separate proposal for an insurance pot to cover all flood-prone areas – rather than the entire country – but its model depends on a government guarantee. “No other country in the world provides insurance for the most flood-prone properties without government support,” a spokesman said. However, ministers are understood to be determined not to do so given the stretched public finances.

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