Flood insurance deal delay stores up trouble - for insurers and government

This comes with a health warning: by the time you get to the end of this blog a deal may have been announced.

I think that is unlikely because if a scheme to replace the Statement of Principles was remotely near to being ready ministers would have wanted to stand up and claim credit for getting a deal done. It was only a month ago that the Environment Secretary, Caroline Spelman (pictured), was raising expectations that she had almost cracked the twin challenge of affordability and availabilty. With Parliamentary pressure continuing right up until the House of Lords rose last week with the Labour peer Lord Dubs asking the government if it had a new scheme ready, there have been plenty of opportunities to make an announcement. Instead, the government has tried to dampen down expectations as its minister on duty at the dispatch box in the House of Lords last week, Lord de Mauley, spelt out, saying that it is "early days in the negotiations" with insurance industry on flood cover. If we are still only in the early days it makes one wonder what negotiations Mrs Spelman was involved in back in June.

These delays are beginning to take their toll in terms of bad publicity for the government and the insurance industry. The Local Government Association has been predictably strong in its criticism and the local media in the most flood prone regions have been giving the issue plenty of coverage. The Labour Party is also beginning to sense that the government might be vulnerable on this issue. Its environment spokesman in the Lords, Lord Knight of Weymouth (himself a recent victim of flooding) made it clear what his expectations were in last week's short debate: "Is it not therefore urgent that before DEFRA Ministers go on holiday, they must conclude a deal with insurers to incentivise householders to invest in flood resilience for householders' homes to be insurable and for their premiums to be affordable?" They went on holiday with no deal signed.

We may be enjoying a few days of dry summer weather but there is plenty of rain forecast for the weekend and with ground water levels so high it will not take much to spark some further flooding. The coverage of every incident will be accompanied by more stories about how householders in flood-prone areas are staring into an insurance-less abyss.

It is very hard to pin down why there is this delay when both government and insurers were making optimistic noises only a couple of weeks ago. Yes, the insurance industry has been divided about what the best solution is but that usually makes it easier for governments to impose their preferred solution. Of course, with the Environment Secretary having so firmly nailed her colours to the mast on affordability the sticking point will be about cost and who pays, or rather how the insuring public pays.

There isn't an easy answer to this as the simple truth is the overall risk has gone up so the overall cost has gone up which means that someone has to pay more. That takes us straight back to the core principle of insurance but one that the sophistication of modern risk assessment threatens in so many classes of insurance.

Well, I've got to the end of writing this and still no deal.