UK insurers privately expect the existing agreement guaranteeing cover for homes at high risk of flooding will be extended when it runs out on 30 June.
Three leading UK insurance firms with knowledge of ongoing negotiations between the industry and the government told City A.M. that a replacement deal is unlikely to be finalised within two months.
As a result, two said they expect the existing agreement – known as the Statement of Principles – to be extended for anything up to a year to buy time to find a permanent solution. At the moment insurers agree to insure homes at high risk of flooding on the condition that the government invests in defences.
The Association of British Insurers (ABI) is locked in talks with Conservative minister Oliver Letwin over a proposal that would involve building up an emergency fund by charging a levy of around £8 on all household insurance policies in the country. “The main sticking point is the government wants to defer the risk of a big event happening in the early years,” one insurer said. “This could require extra reinsurance.”
It is understood that the government also wants the flood levy fixed at a set rate for several years to avoid fluctuating bills. The ABI and the government said they are committed to the ongoing negotiations.
Thousands of householders have been living in fear the current ruling would not be renewed as a free market would mean insurers could charge what they like, and many could find themselves unable to afford home insurance. It would also make their homes difficult to sell.
The ABI estimated some 200,000 homes would face insurance problems if the agreement were not extended, with flood-prone areas like Boston and Skegness and the Vale of Clwyd worst hit.
Last year was the wettest on record in England, and was not far short of being the wettest ever across the UK. Of the five wettest years on record, four have been since 2000.