ABI seeks more talks with Marsh on flood proposals

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ABI property committee chairman and Ageas chief executive Barry Smith has called for further talks to see if the industry can blend the ABI’s plans for the future of UK flood insurance with Marsh’s rival proposals.

Smith said that the ABI had already met with Marsh over merging the two proposals, but called for further talks to thrash out exactly what could be combined.

Both ideas have been put forward to replace the current Statement of Principles agreement between the ABI and the government, which expires in June 2013. The statement ensures that flood insurance is available and affordable as long as the government spends money on flood defence.

Under the ABI’s proposal, Flood Re, household insurers would contribute via a levy to a fund to be paid out after flooding. The government would act as an insurer of last resort for areas that are hit by extreme flood damage, and would also fund flood defences for risky areas.

Smith said the model was proven, and cited terrorism insurer Pool Re as an example of insurers clubbing together and funding a common pot to insure extreme risks.
Marsh’s proposal, Project Noah, would have UK insurers pooling their flood risks and ceding the bulk of them to global reinsurers.

Smith said: “There may be some parts of Noah that could be complementary to Flood Re, so I don’t necessarily see them as discrete solutions.

“My personal preference is that we look at a mutualisation of the Flood Re risk rather than it being placed back to reinsurers. That’s for others to discuss and debate as well. But there may be some parts of the Noah solution that could be relevant.”

He said: “I think what’s appropriate is that we look to work together to understand whether there can be some symmetry between, and therefore some leveraging on, all the solutions being tabled, or partial solutions tabled within the industry.”

Smith stressed that the industry should refine exactly what should be presented to the government over the next few weeks. He added: “It doesn’t mean we need to get into the micro-detail, but we need to build consensus on the principles and how we move forward from here.”

A Marsh spokesman said: “The government has made clear that it favours an industry-led solution on the issue of UK flood insurance.

“We look forward to working with the ABI and other interested stakeholders to help find the best way forward that meets the needs of both UK households and insurers.”

Smith added: “Not replacing the Statement of Principles would mean insurers would be forced to move to risk-based pricing for homes in flood-prone areas. For a number of properties, there is no price for insurance. The risk is too high.”