Making a Statement

The government’s announcement that it will spend £2.15bn on flood defences over the next three years has been met with derision by the insurance industry.

Yet the cries from the ABI that Whitehall has "completely failed to grasp" the importance of improving Britain's flood defences could ring hollow unless it moves to amend its statement of principles -an agreement between the ABI and Defra that insurers will cover existing properties in flood plains provided the government offers adequate flood defence and risk management.

Despite the fact that the statement has changed little since it was introduced in January 2003 there are strong signs the next revisit, scheduled for next month, could involve either a black marker pen or a large pair of scissors.

In August, when it used the word "ultimatum" to describe its imminent dealings with the government, the ABI gave its strongest indication yet that it could move to radically alter the document.

The Comprehensive Spending Review will have done little to appease it. Though the government has all but delivered that which it said it would – an increase in flood defence expenditure to £800m per year by 2011 – the ABI has demanded that figure be made available by April. And that was before the summer floods.

Three billion pounds later its opinion, unsurprisingly, hasn't changed.

Perhaps the government's ongoing Lessons Learned review will force it to reconsider.

On the other hand, perhaps not. The government’s mind - if the CSR and the EA's insistence that flood defences are adequate are anything to go by - is already made up.

The problem is two-fold. One, the money earmarked is less than required, and two (and much more significantly) a solution cannot be bought. Intellectual capital must be brought to bear upon issues like drainage and flood mapping.

Indeed, what is clear is that the statement of principles is increasingly not worth the paper it is written on. The government at least appears to think that is the case. Half a million homes in England and Wales falling outside its remit - but continuing to be afforded cover - testifies to that.

Nor is the ABI alone. RMS have waded in by saying the state needs to do much more to understand the nature of the risk the nation faces. It has added a dollar sum to its arguments too, estimating insured losses in the UK of £1.5 billion every 25 to 35 years.

The difference between the RMS and the ABI, however, is the latter has the power to affect change.

One outcome could see an amendment to the statement with exclusionary terms for inadequate drainage, or inclusionary terms for adequate flood resilience measures. Another, more drastic development could be wholesale withdrawal from the market.

While unlikely - and an absolute publicity nightmare from the ABI's point of view - what is absolutely certain is that next month's meeting will prove far more than "heated", as the ABI said it would be two months ago.

Instead, it could result in the first in a series of seismic shifts around the way the insurance industry manages flood risk.