Minister says Defra is looking at taxpayer-backed fund, but rules out wider programme

Flooded sign with sandbag

A government minister has hinted that the state could subsidise property insurance premiums for low income homeowners in flood-prone areas, after the Environment Agency issued 200 flood warnings and alerts owing to recent heavy rain.

On Tuesday, Department for Environment, Food and Rural Affairs (Defra) parliamentary under secretary of state Richard Benyon said: “We are looking at whether there are feasible, value-for-money ways of targeting funds to provide support to those that need it most, in a manner that does not create perverse incentives or distort the insurance market.”

Benyon said Defra would give an update on this soon. A spokesman confirmed that the department was investigating setting up a taxpayer-backed fund for the poorest, but ruled out wider insurance subsidies.

Defra had already said it wanted to ensure low income earners were not priced out of flood insurance.

This week, Benyon was criticised by the Council of Mortgage Lenders, which warned that flood insurance was vital to keeping housing markets stable in areas likely to flood.

Homeowners and the insurance industry are awaiting Defra’s decision on a replacement for the Statement of Principles on flood insurance.

The statement is a contract that says insurers will underwrite most property premiums in flood-prone areas provided government spends money on flood defence. It expires in June 2013.

The ABI tabled its own solution, Flood Re, while broker Marsh drew up a separate proposal, Project Noah. The ABI has since suggested that the two could be merged.

Defra has also come under pressure from the ABI, British Property Federation and Local Government Association to make a decision.

The need for urgency has been reinforced by recent floods in Tewkesbury, where almost 2,000 houses have been evacuated.

Pass notes: Flood insurance

When will Defra issue a decision on flood insurance?
The department insists that it will reveal its decision by the end of spring. Some industry insiders have hinted an announcement is likely at the 22 May ABI property conference.

How many homes are at flood risk?
The ABI believes that about 260,000 UK homes are in flood-prone areas.

What is not covered by the Statement of Principles?
The statement does not guarantee cover for properties with more than a one-in-75 chance of flooding, nor those built in flood-prone areas since 2009.