Insurers' flood talks with government break down

Talks between insurers and the government on how to insure flood-prone homes have broken down after the government refused to consider an overdraft facility for a proposed flood insurance fund.

The ABI this morning called for the government to commit to a joint flood insurance solution, saying the current talks had reached an ‘impasse’.

The news comes after the UK was hit by heavy flooding over the weekend, with more expected over the next two days.

Insurers and the government are trying to hammer out a replacement for the Statement of Principles, which ensures provision of flood insurance to homes in risky areas. The statement, an agreement between the government and insurers, is due to expire on 1 July 2013.

The ABI said the breakdown was caused by the government’s refusal to provide a temporary overdraft facility to a proposed not-for-profit special insurance fund for 200,000 high-risk households, which the ABI argues will otherwise struggle to get affordable household insurance when the current arrangements come to an end next year.

The temporary overdraft facility would be used to pay claims if there were 2007-style floods in the early years of the scheme before it had built up its reserves.

The ABI’s director of general insurance Nick Starling said: “The government has indicated it will not provide any temporary overdraft facility for the insurance industry’s not for profit scheme, which makes it very difficult for it to go ahead. As a result, negotiations have hit an impasse. Insurers know their customers are increasingly worried about flood cover and we will therefore continue talks with government to try and find a way forward.

“The severe floods experienced by many areas of the UK this year are a reminder of the rising flood risk facing the UK. It is therefore vital that insurers and government tackle this issue together - this is not just a problem for insurers. No country in the world has a free market for flood insurance with high levels of affordable cover without some form of government involvement.”

The ABI insisted that, contrary to some media reports, the insurance industry is not asking the government for support funding of any kind.