Government ideas for solving the flooding problem have now been published. But the ABI's deadline is just months away. Will the government make the right choices under pressure? Andy Cook investigates
IN NOVEMBER 2000, Tony Blair waded in his wellies though the streets of Gloucester, nodding earnestly as householders told their tales of woe. He promised action. At the same time the Association of British Insurers (ABI), with Norwich Union in the vanguard, gave the government an ultimatum: sort out Britain's flood defences or we will stop insuring properties in high risk areas. The Department for Environment, Food and Rural Affairs (DEFRA) set up a review committee. And after 18 months of investigation and deliberation, it has produced a consultation document
It acknowledges that extra spending is needed and also recognises that insurers will raise premiums and may even pull out of insuring some areas. Importantly, it says the Treasury must bear the brunt of extra spending. It even advocates raising special taxes so that developers and householders in high risk areas can provide extra flood defence funding.
While the document goes a long way to providing a solution, time is running out. The ABI ultimatum expires at the end of the year and replies to the consultation document will not be with DEFRA until May. That leaves little time for the Treasury to come up with solutions.
The ABI admits the timetable looks tight and that a stand-off is looking likely. "Its time to stop talking and start doing," said ABI spokesman Malcolm Tarling.
His views are echoed by the underwriters at the sharp end, who have to subsidise premiums in flood prone areas with premiums from lower risk areas.
R&SA household underwriting manager Alan Gairns says: " A lot of money needs spending very quickly and while the idea of developers paying extra could solve the problem for new housing, the majority is existing stock."
That means householders could pick up a large slice of the bill.
The government recognises that consumers could be hit hard come New Year 2003. "A move towards actuarially-priced flood risks for individual households can be welcomed, as it would signal an increase in efficiency.
"However, there must also be recognition of the political problems that would arise as a consequence of a better functioning market in flood damage insurance that is, the impact on the net incomes of those living on the flood plain," says the consultation document.
Indeed DEFRA suggests that the government might consider subsiding policies through a transitional period while householders get used to paying higher premiums.
The consultation document recognises that brokers and underwriters can encourage better risk management, proposing that insurance companies could ask households to implement precautionary measures, such as kitchens made of solid wood or plastic and free-standing units.
York-based insurance broker Stephen Wilkinson says that better risk management measures are being recommended but excesses are rising.
"On the whole insurers are playing fair and there is no problem getting cover, but I am worried about the deadline," he adds.
The real problem is the scale of funding required. The Halcrow maritime report of 2000 estimates an extra £100m a year extra is needed just to maintain current flood defence standards. The Environment Agency reckons £200m per year above the current £390m per year is needed.
On the other side of the equation, insurers are expecting to payout £700m in claims from the autumn 2001 floods. DEFRA and the Treasury are facing some tough choices over the summer.
What's in the flooding consultation document?
The consultation document admits that extra funding is needed and the Treasury should be the principal source of funding. But it examines the possibility of developers and householders in flood prone areas paying a surcharge. It asks:
Do you think that a development connection charge for properties on the flood plain can be justified in principle? If not, why not? Are there any drawbacks with such a system? How should a flood plain be defined for this purpose?
If such a charge were introduced, should the funds be deployed locally or nationally?
Would you support property values as the basis of such a charge? Are you aware of alternatives?
A simple connection charge is unlikely to be enough.
So other funding schemes are explored: development charges payable directly related to defences required for the flood plain being developed; a flood plain levy; and a surface drainage charge.
The paper also explores the possibility of regional customer bodies which could raise funds locally. And it asks whether the Environment Agency should take over responsibility from the one currently dominated by regional authorities.
The review group that produced the consultation considered publicly-subsidised insurance with the government acting as the insurer of last resort. But the idea was rejected because the government, it is argued, would intervene in market decisions.
"The first priority is to encourage the insurance industry not to withdraw insurance cover and to keep premiums at a reasonable level."
To see a copy of the consultation document go to: www.defra.gov.uk
Replies must be made by 17 May to DEFRA, Area 3E, Ergon House. 17 Smith Square, London SW1P 3JR. Or email: fund.rev@defra.gov.uk
