Insurers wait for government clarification before reviewing moratorium

The insurance industry is drowning in government spin surrounding the £150m increase in flood spending announced in the Comprehensive Spending Review.

Ambiguity surrounds the breakdown of these funds, but a spokeswoman for the Department of Environment, Farming and Rural Affairs (Defra) said the reason for the confusion was because of "complex accounting principles, which make the figures hard to understand".

She said ultimately the rise in spending would be £150m by 2005. There would be no new money for 2003-2004, but £55m would be invested in 2004-2005 and £150m in 2005-2006, which was a total increase of £205m. She said, however, that this actually meant £150m due to "complex procedures".

One insurer expressed concern over the ensuing chaos, particularly that there may be no money invested in 2003-2004, but Defra said the new money was being worked into the financial baseline and, because of previous spending reviews and extra funding, there would be £35m of old money for 2003-2004.

This lack of clarity is raising concern in the industry and Royal & SunAlliance (R&SA) personal lines managing director Steve Broughton said he thought the build up to £150m was a reasonable approach but "it is a strange build-up, where the money is invested six years later". He said R&SA was in "no rush" to renew the moratorium, but would support it if the insurer felt the government had made a "sufficient commitment" to flood defences.

Many insurers have committed to dealing with flood risk more accurately. R&SA is piloting a new digital flood map, which is more sophisticated than just a photographic map. A spokeswoman said the model draws on data from a number of suppliers and looks at the topography and exposure to flood.

l Swiss Re has published Opportunities and risks of climate change, which highlights the effects of climate change on insurers, with flooding as a major issue. It suggests that insurers need a "risk consensus - an agreement on what climate risks are, how they are to be handled and how the resulting burdens are to be shared".