Insurers give ultimatum to government to adequately manage flood risks

The ABI is to issue the government a harsh ultimatum in the autumn - meet its list of flood defence demands or 500,000 homes in high risk zones could lose cover.

Each November the ABI meets the government to discuss the industry’s Statement of Principles.

In the face of the recent flood catastrophe that has so far cost the insurance industry £3bn, Jane Milne, ABI’s head of property insurance, said this year’s discussion could be heated.

If the government does not take action, those homes could become uninsurable, she added.

“It won’t happen overnight and we think it’s completely avoidable,” she said.

She added that currently there were 500,000 homes in high-risk flood zones in England and Wales that were not defended to the ABI’s standards.

“We have set out a clearly defined action plan that we’re expecting from the government and we’re looking for evidence that it has been put into effect. If the commitment isn’t forthcoming there will be some very serious discussions.

“We are quite proud that we are the only major insurance market where private capital stands behind flood insurance. We want that to continue but for it to happen, the risk needs to be adequately managed.”

Milne said ultimately the UK might find itself in a situation more akin to the US where insurers offered cover only to people in moderate to low-risk areas.

The ABI is awaiting the results from the government commissioned Lessons Learned Review, led by Sir Michael Pitt, chairman of the South West Strategic Health Authority.

The flood review, which Milne said would give the ABI a better idea of where the government stood, will address key concerns such as, resilience of dams and associated structures, ability of critical infrastructure to withstand flooding and risk management.

The Statement of Principles is an agreement between the ABI and Defra that insurers will cover existing properties in flood plains as long as the government offers adaquate flood defence and risk management.

The ABI states that the 2.2 million properties in flood risk areas will be protected to a minimum standard of 1.3% annual probability or one in 75 years.

However, 15% of those properties have a significantly greater risk than 1.3% .

Milne argued that with climate change and increased flood probability, insurers are no longer on an even playing field with Defra.

In June, environment secretary Hilary Benn pledged to increase spending on flood defence and risk management to £800m within three years. However, Milne said the ABI wanted to see that money by April.

What the ABI wants the government to do

Cease building properties on flood plains

Assist in making existing homes in high-risk areas more flood resistant

Speed up delivery of £800m flood spending from 2010/2011 to April 2008

Increase flood spending to £1bn by 2010/2011

Bring existing flood defences, such as dykes and dams, up to standard

Invest £8bn in east coast flood defences and risk management over the next 25 years