Government analysts doubtful about economic viability of scheme
The insurance industry’s solution to offering home insurance cover to flood risk homes is under threat on two fronts, from a potential EU law breach and a study indicating the scheme is poor value for money, the Telegraph reports.
The scheme, organised under a non-profit making company called Flood Re, will mean that by 2015 every home insurance policy will have an element intended to pay for subsidising repairs to buildings on flood plains and other high-risk areas.
Flood Re works by charging every household £10.50 on their insurance premium so that a fund is generated that can cover a one-in-200 year flood event. Any losses worse than that will be footed by the government.
This arrangement means insurers can offer affordable premiums to around 500,000 household in flood-risk areas.
But the Telegraph reports that the arrangement is likely to interfere with ‘free market competition’ and therefore breach EU laws.
In a separate blow, the Department for Environment has found that economic costs of the scheme are likely to outweigh the benefits.
This means that “strictly speaking” it will “not achieve the level of value for money normally required of government policies”, the department said.
The impact assessment is yet to be finalised.
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