A new year and still no new flood solution

The future of flood insurance is still unclear, following today’s news that environment secretary Owen Paterson is waiting for the ABI to fine-tune its proposal, Flood Re, to the government’s satisfaction.

The ABI has been in talks for years with the Department for Environment, Food and Rural Affairs (Defra) and the Treasury to find a replacement to the aging Statement of Principles on flood insurance, which expires on 30 June.

The statement is a contract between the ABI and the government according to which insurers would provide affordable flood cover for homes and small businesses in flood-prone areas provided that the government invested in flood defences. It was renewed for the last time in the summer of 2008.

All the parties knew that an alternative had to be found, but the talks dragged on with no solutions being agreed. Today, Paterson said that the government still wanted a flood insurance solution that was “affordable” and did not “burden the taxpayer,” according to the Yorkshire Post.

Paterson is referring to Defra objecting in November to the ABI’s Flood Re’s temporary overdraft facility as being too expensive.

The ABI and Defra are adamant that talks are ongoing and that a solution can be agreed. But the negotiators will have to work wonders to overcome Defra’s objections to a core part of the ABI’s flood solution.

However, a last-minute solution is still an option. The closest parallel to Flood Re is Pool Re, which covers terrorism risks. Both feature the government acting as an insurer of last resort, and both have been dogged by delays to negotiations, but the government did eventually swallow its pride and agree to back Pool Re. Let’s hope it does something similar with Flood Re.