Managing the Impacts of Flooding

Caroline Spelman Excerpts

Wednesday 11th July 2012 Written Statements

[The Secretary of State for Environment, Food and Rural Affairs (Mrs Caroline Spelman)]

In 2008 it was agreed that the current statement of principles on the provision of flood insurance between the Government and insurers would not be renewed following its expiry in June 2013.

In order to make sure that insurance for homes at risk of flooding remains widely available and affordable, work is underway to establish a successor arrangement to the statement of principles. Recent events have once again underlined the importance of safeguarding the widespread uptake of affordable insurance.

The central objective of this work is to reach an agreement with insurers whereby insurance bills remain affordable without placing unsustainable costs on wider policyholders and the taxpayer. There is the potential to deliver a new approach that is a step change better than the current statement of principles, by for the first time directly addressing the affordability of flood insurance.

This is a complex issue, as insurers themselves recognise, and we have undertaken to work with the Association of British Insurers (ABI) to look at ways of providing safeguards. A number of proposals have come forward from the industry and we are continuing to consider a range of options.

These discussions have made significant progress. The Government are considering with the industry’s support a way of formalising existing pricing arrangements and maintaining the current cross-subsidy in place between policyholders. This would be by means of an internal industry levy, as proposed by insurers themselves. By reflecting existing arrangements, the levy would avoid increasing costs for those not at risk whilst helping households to continue to afford insurance in flood risk areas.

This work is taking place against a backdrop of significant advances in flood risk mapping and forecasting which in turn is giving insurers the ability to more accurately ascribe the level of flood risk to individual properties.

As this knowledge base expands it will bring considerable benefits, not least in terms of helping Government, local authorities, households and businesses plan for and mitigate the risk of flooding. Investment by all in preventing flood damages from occurring will remain the best and most sustainable way of achieving affordable insurance over the long term.

The Government and insurers are determined to see insurance premiums remain affordable and widely available, particularly in light of the pressure household budgets are currently under and the pattern of flood events we have seen over recent years.

The priority is now to resolve detailed design issues including how support would be targeted. We are looking to develop with insurers a model that delivers benefits to households in need of support whilst avoiding poorer policyholders subsidising wealthier ones. We are looking for an approach which also encourages individuals and communities to consider the actions they can take to keep future premiums down.

This measure would be intended to facilitate a gradual change in the market but would still mark a step change in Government’s role in the management of flood risk. As such any proposal will require detailed scrutiny before it could be introduced.

Meanwhile, this Government are continuing to fulfil their role in reducing flood risk by spending more than £2.17 billion on flood and coastal erosion risk management in England over the current four-year spending period. Sixty new schemes are moving into construction this year under our new partnership approach to funding which has already brought forward £72 million in additional investment from other sources. We expect that the benefits of our investment in risk management will be reflected in reduced insurance premiums going forward.

The recently published national planning policy framework fulfils the Government’s commitment to avoid unnecessary building in floodplains and this outcome has been welcomed by the ABI and others. We are helping insurers incorporate the protection afforded by property-level protection measures into their pricing models and, with the industry’s help, are publishing a guide to help households find the best means of accessing insurance in flood risk areas. We are also working with local authorities and other partners to look at the extent to which communities, through acting together, can help to manage the costs of flood insurance.

Intensive discussions with the insurance industry are continuing and we will announce further details in due course. I undertake to update the House at the most appropriate points.