Time called on flood insurance

The UK insurance market is slowly retreating from offering flood insurance as a standard feature of household and commercial property policies. That is the message from the latest iteration of the Statement of Principles issued at the end of last week.
This statement was first put in place after the severe floods during the autumn of 2003 and was tested beyond its limits by last year’s double flooding whammy. The insurance industry has used it relentlessly since to put pressure on government to increase flood defence spending and tightening up of planning permission for developments on flood plains. No-one can blame the insurance industry for doing that. The UK market is the only market in Europe where flood insurance is readily available. With weather patterns changing and flooding become a more frequent occurrence, the industry is entitled to ask for better flood prevention and an end to the obvious stupidity of allowing developers to build on flood plains.
The Association of British Insurers has got a lot of what it asked for but knows that in the current economic and political climate it is no good returning to their desks at their Gresham Street HQ with an air of smug triumph and sitting back reflecting on a job well done. They have rattled the government’s cage again and again, dropping dark hints that the Statement of Principles – and the obligation to keep offering flood insurance that goes with it – might not be sustainable for much longer.
What we have now is some certainty as far as insurance company bosses are concerned: the agreement to keep offering flood insurance will come to an end in 2013. If we have another summer like last year before then, expect to see insurers queuing up under the exit sign.
In the meantime, the industry has trimmed back its commitment with immediate effect with some properties no longer eligible for flood insurance and, as the British Insurance Brokers’ Association rightly points out, some new builds won’t get insurance after the end of this year.
The industry has so far handled all this with some skill but it has set a timebomb ticking. 2013 might sound a long way off at the moment but as that cut-off looms closer and the reality of flood insurance suddenly being much harder to find, at least at affordable rates, there could be a political explosion that will be hard for the ABI to contain.