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Deal on insurance lifeline for 200,000 flood risk homes pushed back as insurers and Government fail to reach agreement

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As many as 200,000 homeowners who risk seeing their property rendered worthless because they can't get insurance against flooding have been given a month-long reprieve after insurers extended an agreement to provide cover.

The Association of British Insurers (ABI) said that its members would continue to cover household insurance to existing properties at high risk of flooding for a month beyond the end of an agreement that obliges them to give the cover.

The current 'Statement of Principles' expires on 30 June. The agreement is between insurers, via the ABI, and the Government and states that insurance companies will continue to offer cover to homes and businesses at significant risk of flooding on the condition that the Government, via the Environment Agency, invests in flood protection measures that reduce the risk to those homes.

Damp squib: The deal to guarantee flood insurance for all homes has been pushed back.

The two sides have been trying, but have so far failed, to come to a new arrangement.

The failure to come up with a replacement deal would mean a genuinely free market for home insurance would take hold in which insurers could simply withdraw cover from at-risk homes leaving them potentially worthless.

  More... Call for progress on flood insurance deal as at-risk homes face being unable to get cover from July How to cut home insurance costs 'You would never think that our house could ever flood' - and how flood victims are trapped in homes they can't insure Could you get a better deal on your home insurance? Find out here

The current agreement does not place a limit on premiums. It simply commits insurers to making cover available to all and owners of homes hit by flooding have already seen steep hikes in their premiums.

The ABI said that, in practice, the agreement had led to cross-subsidisation in home insurance with the majority paying more so that the homes most at risk have lower premiums.

In a letter to Owen Patterson, Secretary of State for Environment, Food and Rural Affairs (Defra), Otto Thoreson, Director General of the ABI, said: 'Our teams have worked very closely to attempt to bring this work to a successful conclusion, but there are still important issues to resolve before we will be able to conclude our negotiations on a replacement to the Statement of Principles.'

WILL I HAVE TO PAY MORE TO COVER SOMEONE ELSE'S HIGH RISK HOME?

Some will be tempted to bemoan any agreement to extend insurance to homes at risk of flooding on the grounds that it will be paid for, at least in part, through higher premiums for everyone.

In reality this has already been happening but proposals currently under discussion would make this more explicit.

However, it is important to remember that it is not simply homes by rivers or on flood plains that are at risk of flooding. Many of the major flooding events in recent years have struck in areas where creaking drainage systems have failed to cope with extreme rainfall.

This type of flash flooding can strike almost anywhere so, even if you don't believe your home faces a high flood risk, you could end up relying on a system that makes us all pay more. 

An ABI spokesman added: 'There's no done deal and quite obviously it could be that a free market for home insurance could resume. However, we are making progress and the extension to the current deal shows our members' commitment to providing this cover if the Government shows the right level of support.

'The truth is that the current deal was only ever designed as a short term measure but it has been stretched to more than ten years. We have seen a significant increase in flood events in that time and a new deal has to take account of that.'

On the table is a plan, known as 'Flood Re', whereby the Government would underwrite major flood events and step in to help meet costs. It may involve a 'levy' on all insurance polices to cover the costs of flooding.

It remains to be seen whether such an additional charge would be simply included in the price of policies or presented as an explicit charge that is separate.

Environment Secretary, Owen Paterson, said: 'Negotiations are at an advanced stage, so it’s good that the ABI is standing by the Statement of Principles and we hope to resolve the remaining issues soon.

'Both the Government and the industry are working hard on an agreement to secure affordable insurance for people at risk of flooding.'

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