Insurers warned of £27bn cost of flood damage

Increased risk of flooding could cost the UK and its insurers £27bn per year by 2080, according to a new report for the government.

The Foresight report, from the Office of Science Technology, warns that climate change and increased development in flood-prone areas could increase the number of people at risk from 1.6 million today to between 2.3 million and 3.6 million in 2080.

Government chief scientific adviser Sir David King said: "Flooding can have a devastating effect on people's lives. The scenarios in the report may seem a long way off, but the challenge of increased flood risk needs to be considered now."

The report used four models with different scenarios, gross domestic product growth, economic development and government structure. Though the outcome of the different models varied widely, ranging from total damage of £1.5bn to £27bn per year, all showed increased flood risk.

King said that the least damage would be caused by the 'high growth, low emission' model.

The steps needed to combat the risk of flood include increasing investment in flood prevention by up to £30m per year and reducing the emission of greenhouse gases in order to reduce global warming. Under these conditions, total damage would drop significantly.

Norwich Union (NU) head of underwriting Laurence Loughnane said: "The report reinforces what we at NU and the ABI have been saying, which is that floods are an important issue and will get worse."

The report highlights the additional risk from urban flooding as high density developments and increased rainfall put more pressure on already stretched sewer and drainage systems.

Though the report says the risk is uncertain, it calls potential damages "huge".

Responding to the report, environment minister Elliot Morley warned developers of the danger of building in flood prone areas against the advice of the Environ-ment Agency.

He said: "If developments are allowed to go ahead against agency advice insurers might think very hard about whether to give insurance for that development."

Esure head of home insurance Nikki Sellers backed up that statement. She said: "At the end of the day it is down to the planning guidelines issued by the government.

"Unfortunately we have John Prescott talking about building more homes in the Thames Gateway. We need to be a bit more strategic about new developments on flood plains. But if the agency does not recommend a development then, unless the builders have taken into account some preventative measures, insurers will say no to insurance."

The government currently spends around £314m per year on flood defence, an investment that will rise to £564m by 2005-06.

Although the money has been pledged, many insurers are concerned that after two relatively benign years the issue could drop off the government radar and spending levels could fall with it.

ABI head of general insurance John Parker said: "While the government has a significant flood management programme in place, in some areas the flood risk remains substantial. Increased government spending on flood defences in recent years needs to be sustained to ensure that flood insurance continues to be widely available."