The Government and insurance industry are continuing to make progress towards a new agreement on the future of flood insurance, Environment Secretary Caroline Spelman confirmed today.
The new approach under discussion aims to improve upon the current agreement between the Government and the industry - the Statement of Principles - by ensuring both the availability and affordability of flood insurance for the first time.
As part of discussions, the Government is now considering how the existing cross-subsidy that takes place within the insurance industry can be adjusted to make sure insurance prices remain affordable. Most insurance companies already raise a small sum from policy holders to cover the cost of insuring homes at high risk of flooding. The insurance industry has asked the Government to formalise this arrangement, so that all households can continue to get affordable insurance, and to correct a current inbalance in the market whereby some insurers are at an advantage in being able to solely offer products to low risk customers whereas others currently have to offer cover to many high risk properties.
The Government is adamant that any new approach will not place extra costs on policy holders or the taxpayer, but instead will capture money already within the insurance industry by formalising the voluntary arrangements already in place.
Environment Secretary Caroline Spelman said:
“We want to go further than the Statement of Principles to reach an agreement that ensures both the availability and the affordability of flood insurance for the first time.
“The insurance industry and the Government, working closely together, have made great progress towards this goal. We are now considering a cross-subsidy mechanism that would ensure high risk households can get affordable insurance without extra costs being placed on policy holders or taxpayers.
“The best and most sustainable way of keeping insurance affordable in the long-term is to help prevent flooding in the first place. We are spending more than £2.1 billion on flood risk management, and are on course to exceed our goal to better protect 145,000 homes by March 2015.”
The work between the Government and insurance companies is taking place against a backdrop of significant advances in flood risk mapping and forecasting which in turn is giving insurers the ability to predict 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 protect themselves against the risk of flooding.
The Government is 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.