AXA is urgently calling on the government to be clear about its plans for the UK’s flood defence strategy and future funding to ensure that households in flood-prone areas continue to be protected.
With the forthcoming Comprehensive Spending Review it is still not clear where the money will come from to implement the ‘Flood and Water Management Act’ (FWM), which passed into law just before the General Election. Uncertainty remains on how deep cuts to funding on flood defences might be, while the risk of flooding is set to increase as the UK experiences more frequent and extreme weather events. AXA managing director of claims, David Williams, is arguing that a long-term plan and early enactment of the remaining Pitt proposals are now essential.
In its presentation at the Conservative Party Conference on Tuesday 5th October, AXA will underline that without this certainty, insurers will find it hard to continue to provide affordable cover to those living in flood-prone areas once the insurance industry’s ‘Statement of Principles’ comes to an end in 2013.
‘The Statement of Principles’ agreement obliges insurers to provide cover as long as the government continues to invest in an adequate flood defence programme.
Unlike much of Europe, the UK benefits from an almost unique system of flood insurance whereby ABI members have committed to continue to offer flood insurance for domestic properties and small businesses as a feature of most standard policies.
Mr Williams comments: “The UK is at a crossroads. If funding for ongoing flood defences and mitigation cannot be guaranteed, or a risk-sharing approach cannot be agreed when the Statement of Principles finishes, it could potentially result in householders in high risk areas being faced with significant increases in insurance costs, or difficulty in finding suitable cover at all.”
Any new, risk-sharing scheme would need to involve insurers, reinsurers, government, businesses, communities and individuals. Many householders do not realise that flood insurance is heavily subsidised and discounted due to distortion in the insurance market brought about by the Statement of Principles. People in low risk flood regions are subsidising those living in higher risk regions. Recent AXA research highlights that householders are unaware of the true cost of flood protection, or of the risks to their insurance cover with the ending of the Statement of Principles. AXA’s research shows that over three-quarters of households (77%) living in higher risk flood regions were not aware that their insurance premiums were being subsidised by those living in a low risk region.
At the same time less than one in five householders living in a higher risk flood region thought their premium would need to rise by 40% to avoid any subsidisation: recent ABI research suggests that home insurance for those at significant risk of flooding is under-priced by 165%.
However, more than six in ten (62%) said that people who live in higher risk flood regions ‘should expect to have access to affordable flood insurance’. If they are to continue to retain this benefit, the question is who will pay? Interestingly just over half (57%) would be willing to pay an extra 50% on their insurance premium.
The need for certainty from government can only become more urgent. Many areas of the UK continue to face serious flood risk, highlighted by the recent substantial UK flood events including Boscastle (August 2004), Carlisle (January 2005), Hull & South Yorkshire (June 2007), large parts of the South West of England (June/July 2007), and Cumbria (November 2009).
Source : Axa News Release