New flood insurance proposal facing a rocky road

September 6, 2013 7:39 am

It seems that the new Flood Re proposal is facing difficulties already – and it’s only a few weeks since it was first mooted.

We wrote in July about the Government’s last-minute breakthrough with insurers when facing the expiry of the current agreement on flood insurance. This comprised a plan to introduce a charge on all home insurance policies in return for continuing cover for homes in danger of flooding. The new system is intended to help up to 500,000 householders in flood-risk areas who would otherwise face much higher – and potentially unaffordable – insurance premiums.

But there has been a succession of reports from various organisations in the weeks following the announcement which have highlighted significant potential difficulties. These include one by the London School of Economics which, according to The Guardian, suggests that the new scheme underestimates the impact climate change will have on the number of properties at risk. A further report covered by The Independent by the Centre of Climate Change Economics and Policy and the Grantham Research Institute makes the same point.

However, another from the Department for Environment and Rural Affairs – in other words, from the Government itself – has, according to The Telegraph, found that the costs of the scheme are likely to outweigh the benefits and would “very likely be classified by the Office for National Statistics as a tax”. In addition, under European Union laws, the levy is also “likely to be deemed to constitute ‘state aid’, which is banned because it interferes with free market competition”.

And then there’s the problem of small businesses: these were included in the original agreement but at the moment would not be covered by Flood Re. This is highlighted by the British Insurance Brokers Association (BIBA) in its response, along with other pertinent points over the workability of the proposal.

So there is still a long way to go. I’m sure we’ll be revisiting this subject rather a lot over the next few months and years…