Flood Re amendments 'completely inappropriate', says ABI

The Association of British Insurers (ABI) has outlined the concerns it will raise at the Water Bill committee meeting on 3 December, labeling some recent amendments to Flood Re “completely inappropriate”.

Its response follows the commentary on proposed flood insurance amendments released by the Department for Environment, Food and Rural Affairs (Defra) today, and will focus on concerns over Flood Re funding levels.

The government has said that it plans to take a surplus of the Flood Re pool – paid for by a levy on home insurers – if it reaches a certain level, or if the scheme ends.

ABI assistant director Aidan Kerr said: “It is completely inappropriate to start to prescribe what would happen.

“One possible approach that would be much better for customers and householders, if that starts to become an issue, would be to just reduce the levy so it doesn’t build up funds as quickly.

“There are less controversial ways that you could achieve the outcome much more efficiently. We are not asking [the government] to stipulate alternative approaches, we are just disappointed they’ve put in something which puts such a specific and directional set of wording in the enabling legislation.”

The ABI will also raise concerns over the concession made by the industry that short-term liquidity would be provided to Flood Re if a flood happens that exhausts its funds.

Under the Memorandum of Understanding the industry agreed to provide temporary liquidity on a short-term basis, particularly if a flood happens that exhausts its funds in the early years of the scheme.

It was a condition of the industry that any money it provides to Flood Re it will be able to get back over a reasonable period of time.

The ABI devised a mechanism to achieve this, however the government has now inserted a clause that says there will be certain circumstances in which that mechanism cannot work.

Kerr said: “Flood Re can only work if the insurance industry and government are working in partnership to work out what would happen if you have two or three really bad years. This almost starts to prescribe that there will be conditions that will allow whether it happens or not. If you start to prescribe conditions that mean it couldn’t happen then actually Flood Re can’t work.”

Kerr also said that the Commentary on Proposed Flood Insurance Amendments paints a “more realistic picture” of the nature of the legislation: “The explanatory note says these points are not resolved and yet the legislation speaks as though they are resolved. There is a bit of an inconsistency there.”