Universal UK flood cover in doubt as government cuts threaten Statement of Principles

The warnings come as an agreement between the Association of British Insurers (ABI) and the UK government, known as the Statement of Principles, by which the insurance industry has said it will provide universal flood cover in return for government action and spend on flood defences, is set to run out in June 2013. The UK's coalition government has budgeted £529m a year for flood defence over the next four years. This is a decrease from the £665m figure in 2010/11 and raises fears that a renewal of the Statement of Principles may not go ahead. The UK's Environment Agency reported in 2009 that flood defence spend would need to reach £1bn a year over the next 25 years in order to maintain existing levels of protection.hide"The frequency and severity of flooding in the UK is undoubtedly rising. The government cannot rely on the insurance industry, and its customers, to keep footing the bill while it reneges on promises to improve the flood defences which would prevent these frequent, costly and distressing incidents. Every pound invested in flood defences saves £8 in costs further down the line. Why should the private sector bear the £8 cost if the government will not keep its part of the bargain and invest the £1?" said Steve Bracey, Managing Director of Lockton's Real Estate and Construction team. The UK's Council of Mortgage Lenders warned earlier this year that a lack of affordable flood insurance could lead to borrowers being unable to get cover, which would breach the terms of their mortgage. "This issue impacts the commercial property market as much as the domestic. Much recent development has seen conversion of old port hinterlands, for example, into new retail malls. Significant investments are at stake if the premise on which these places were built-that the government would invest in the infrastructure that would create the protection-is flawed," warned Mr Bracey. Member of Parliament Diana Johnson has said that premiums are becoming unaffordable for her constituents. "The insurance market is effectively closed in Hull. If you don't have insurance you can't get it and premiums are going up," she said. This summer the British Property Federation (BPF) predicted that businesses and homeowners would likely face difficulties in obtaining flood cover and prohibitively expensive insurance premiums if the Statement of Principles is not renewed. Currently there remains little sign of a suitable renewal or alternative to the current agreement. The BPF has called for urgent action to secure a new arrangement. It said that the end of the agreement, which guarantees near universal provision of flood cover, could leave thousands of businesses facing unaffordable bills and around 200,000 homes in high flood risk areas uninsurable. Insurance buyers would feel the effects as soon as June 2012 as yearly insurance policies renewed in this month would run to the 2013 agreement deadline, it said. The ABI said in the summer it wants to continue to provide flood cover but that 'this can only happen if the government agrees with the industry a new, long-term and sustainable flood insurance model.' Nick Starling, Director of General Insurance at ABI said: "The need for that agreement is urgent. The current agreement is well past its best-by date as it distorts the market for both consumers and insurers. This is why we need a new approach, based on some form of pooling arrangement, to ensure that flood cover remains available to those at higher risk," he said. The UK's shadow environment secretary Mary Creagh said this week that 'communities that have been devastated by flooding should not have to go through that terrible experience again'. She added that investment in flood defences was 30% down on 2010 levels, and urged the environment department to resist any treasury attempts to cut even more from the flood defence budget. According to Lockton, 294 flood defence projects that had indicative funding in 2010, to begin work in the following two years, have received no funding at all. Major river schemes affected include those due to cost £58m in Leeds, £6m in Thirsk, Yorkshire and £1.3m in Croston, Lancashire. Other stranded projects include a £12m tidal barrier to protect Ipswich and a £6m coastal defence project at Fleetwood, near Blackpool.

Universal UK flood cover in doubt as government cuts threaten Statement of Principles

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