Insurers could start to withdraw flood cover if the government fails to increase its flood defence budget in the forthcoming comprehensive spending review.
The ABI this week released its manifesto on climate change calling for a £750m a year increase in flood defence spending. Insurance Times has also learned the association has sent a letter to secretary of state for the environment David Miliband urging the government to take action.
It is feared that because of the benign season last year, flood risk has slipped further down Defra’s agenda.
The government slashed its flood defence budget in 2006 by £15m.
“The industry has done all it can,” said Alan Gairns, property development manager at Royal & SunAlliance. “If the government is serious about the issue, it will increase its funding. If not, we would have to take another look at our policies.”
Any review would lead to an escalation in household premiums, followed eventually by the withdrawal of cover entirely, he said.
As part of the ABI’s statement of principles, insurers have pledged the insurance industry will provide cover upon the condition the government pursues a sustained programme of investment in flood defence.
“We are dependent upon government action to maintain our premiums,” said Arthur Philp, underwriting policy manager at Norwich Union.
There are concerns that the spending review, which will include details of Defra’s budget for flood defence, could fall short of the £750m per annum sum the industry estimates is necessary to meet the danger of flood risk.
Meanwhile, an all-party Commons committee of MPs is calling on the Environmental Agency to explain why fewer than half of the country’s high risk flood defences were at target condition at the time of a recent National Audit Office review.
Chairman of the public accounts committee Edward Leigh said: “The Environment Agency has not done enough to improve the condition of our flood defences.
“No less than six years have passed since our committee asked for remedial action to be carried out as swiftly as possible.”
Government figures show that properties deemed high risk have doubled in the last five years.
Insurers braced for big claims from flash floods
Torrential downpours caused flash flooding across the Midlands and the North last week.
Over 600 homes have been affected.
The ABI estimated that the value of the ensuing claims would run into the tens of millions of pounds, adding that it would be months before the true extent of the damage would become clear.
Insurers have said it was too early to say whether it would be a bad year in terms of flooding.
It is estimated that the likelihood of flooding will increase by a factor of between 15 and 20 over the next 35 years.