Few details given in latest announcement on Statement of Principles replacement

Flooded road

MPs have dismissed claims that the replacement for the Statement of Principles on flood insurance will include higher home premiums.

Under the Statement of Principles, insurers agree to provide affordable flood insurance for homes and businesses if government reduces the risk by building flood defences.

The agreement expires next June, and the Treasury, ABI, Marsh and Department for the Environment, Food and Rural Affairs (Defra) are working on a replacement.

This week Defra secretary of state Caroline Spelman announced that the talks had made “significant progress” and that the government was considering formalising the present levy on homeowners that subsidises property premiums in flood-prone areas.

This led to reports that homeowners could end up paying more for their property premiums, but Spelman has moved to quash that. She said that no plans for a levy had been agreed, and that there would be no extra cost to consumers.

All-Party Parliamentary Group on Insurance and Financial Services chair Jonathan Evans MP said: “The concept being peddled in some corners that there should be a 10% additional levy on all property owners has no prospect of being put into effect, in my view.

“Already, homeowners have seen insurance costs rise 12% last year and 7% the year before. The idea that there could be some additional 10% levy in my book is a non-starter.”

Marsh and the ABI have both tabled proposals to replace the Statement of Principles (see timeline).

No decision has been reached, despite Defra promising to announce the basic outline of the replacement by the end of spring this year.

However, Insurance Times understands one area discussed recently is how to meet the cost of extreme flooding, likely to be based on the ABI’s Flood Re.

Aviva is the largest listed general insurer with the biggest exposure to the UK floods this year, facing claims of £20m-£40m for the first half of 2012, says Panmure Gordon analyst Barrie Cornes.

Timeline: Statement of Principles

June 2001
Statement of Principles launched

July 2008
Statement renewed until 30 June 2013

July 2011
The ABI unveils Flood Re as a replacement for the Statement

November 2011
Marsh moots Project Noah: flood risks pooled and reinsured

April 2012
ABI and Marsh talk on combining the two proposals

May 2012
MPs reveal a flood risk pool is being discussed

July 2012
Caroline Spelman gives update on flood levy

Pass notes: Flooding fix

What other recent developments have there been?
This week saw a report published by the Committee on Climate Change’s adaptation sub-committee, which advises the government on climate change. The report recommends more should be spent on flood defence.

What has the government done?
It cut spending on new flood defences by 25% this year, despite the 2007 Pitt Review recommending that spending should be increased year-on-year. The committee’s Sebastian Catovsky said he expected the government could announce new spending plans next year.

How big is the flooding problem?
The ABI estimates that about 260,000 properties in the UK are at risk of flooding, a number expected to rise. Also, a Defra climate change risk assessment report, published in January, predicted that annual flood losses in England and Wales could grow from the current average of about £1.2bn to up to £12bn by the 2080s without swift action.