Britons Facing Floodwaters May Be Left Without Insurance
Britons Facing Rising Floodwaters May Get No Insurance
Andrew Yates/AFP/Getty Images
Britain’s coalition government will reduce spending on flood defense to about 2.1 billion pounds over the next four years, from 2.36 billion pounds over the last four years, according to the Department for Environment, Food and Rural Affairs.
Britain’s coalition government will reduce spending on flood defense to about 2.1 billion pounds over the next four years, from 2.36 billion pounds over the last four years, according to the Department for Environment, Food and Rural Affairs. Photographer: Andrew Yates/AFP/Getty Images
Emma Summerfield returned home on a rainy November evening in 2009 to find her vacuum cleaner afloat on a rising tide in her cellar.
Hours later, her 18th century mill-house in Cumbria, northern England, was six feet deep in water. When the water receded, it left rooms wrecked, walls destroyed, and the sewage of four nearby cottages everywhere.
“It’s just a house, but we’d put our heart and soul into it,” Summerfield said in a telephone interview. “Trying to get the house back together was absolute hell.”
After an insurance payout of about 90,000 pounds ($145,764) from Royal Bank of Scotland Group Plc (RBS)’s Direct Line unit, Summerfield, 36, was back in her home seven months later. Now, because insurers are reassessing the viability of flood insurance, thousands of future victims may not be so fortunate.
Direct Line and Aviva Plc (AV/) are among British insurers threatening to tear up an agreement with the government that commits them to cover high-risk properties, even after claims rose threefold to 4.5 billion pounds in the last decade, because the U.K. is cutting spending on flood defenses. Smaller insurers not party to the so-called Statement of Principles are also cherry-picking low-risk homes and undercutting rivals, according to Aviva’s head of claims, Dominic Clayden.
“We’re not going to look to renew the Statement of Principles -- it’s bust,” Clayden said in a telephone interview. The market is being “dragged down” by new insurers that haven’t signed up to the agreement, he said. He declined to identify individual companies.
Aviva declined 2.1 percent to 315.3 pence in London trading, compared with a 1.9 percent fall in the 28-member Bloomberg Europe 500 Insurance Index.
Spending Cuts
Britain’s coalition government is engaged in the biggest spending cuts since World War II to cut the country’s record budget deficit. It will reduce spending on flood defense to about 2.1 billion pounds over the next four years, from 2.36 billion pounds over the last four years, according to the Department for Environment, Food and Rural Affairs.
Government projects range from the construction of concrete and metal barriers, to building pumping stations and replanting forests in floodplains. One plan to build a 150 million-pound barrier to protect the city of Leeds, England from the River Aire, is now unlikely to be fully funded by the government, according to the U.K.’s Environment Agency. That means “we may not be able to provide the same scale of defenses as originally planned,” the EA said.
“Many schemes in areas at high risk will continue to receive full funding from government, whilst others will receive large contributions that will go a long way towards meeting the amount needed,” DEFRA said in an e-mailed statement.
Risky Properties
Insurers agreed with the government in 2000 to cover homeowners in flood-prone areas so long as the state pays for measures decrease flood risk to ensure coverage is affordable and widely available, according to the Association of British Insurer, which lobbies for British insurers.
ABI members agreed to subsidize the insurance of risky properties until June 2013 by charging homeowners in safer areas more, according to the agreement. Homeowners in affected areas only pay 42 percent of the true cost of their insurance, according to data published by Axa SA (CS) last year.
“While in force to 2013, the Statement of Principles is unsustainable for future use and was agreed under very different circumstances,” said Kate Syred, home commercial director of Direct Line in an e-mailed statement. “Since then our knowledge of flooding risk and its management is more advanced.”
Insurers have told the government they don’t plan to renew the Statement of Principles, said a DEFRA spokesman.
“We need to find a new mechanism to ensure that flood insurance is still available,” he said.
High-Risk Areas
Too many homes are also being built in high-risk areas without steps being taken to manage flood risk, according to Aviva’s Clayden. Insurers paid out 4.5 billion pounds in flood claims between 2000 and November 2010, according to the Association of British Insurers.
Britain’s planning regulations enable house-builders to construct homes on flood-prone land. Between 12,000 and 16,000 new homes were built in areas of high flood risk annually in the past decade, 10 percent of all new homes in the period, according to the Committee on Climate Change, a government adviser.
The “government’s got to choose -- they can’t walk away from this,” Clayden said. “I go to places called Water Meadow Close and you think ‘what are you guys doing here?’”
The frequency and severity of floods hitting Britain is increasing because of climate change, which has led to fiercer rainstorms, increased river flows, and higher storm surges, according to the Environment Agency. More than five million U.K. households are judged to be at moderate or significant risk of flooding, according to the agency.
‘Looming Crisis’
“This is a looming crisis,” said Jamie Reed, a lawmaker for Cumbria for the opposition Labour Party in an e-mailed statement. “Massive flood defense cuts have completely distorted the insurance market for homeowners and businesses. This could leave whole swathes of the country uninsurable and thousands of properties unmortgageable.”
ABI members can refuse coverage for high-risk homes built since 2009 or impose higher premiums. Emma Summerfield’s annual premium doubled to 1,000 pounds since her home was flooded.
Nigel Allen, a 53-year-old director of a printing company in Oxford, discovered he had to pay 1,400 pounds to insure his house with Lloyds Banking Group Plc (LLOY)’s Halifax unit, compared with 400 pounds for his old home with Aviva, after moving to a new property that was flooded in 2007.
“The new insurance was a bit of a shock,” Allen said in an interview. “Aviva weren’t interested.”
Contribute More
An agreement governing the management of flood risk is still possible, according to Ben Cohen, a London-based analyst at Collins Stewart Hawkpoint Plc.
“Historically they’ve tended to find compromises on this sort of thing,” said Cohen. “Maybe if the government would contribute a bit more the industry would come round to providing the coverage.”
Without a new arrangement many homeowners won’t be able to afford insurance, ABI spokesman Malcolm Tarling said.
“The risk for our industry is that we reach 2013 and there’s no agreement for how flood risk will be managed centrally,” said Tarling. “Then there could be issues around the availability and affordability of flood insurance for people at highest risk.”
To contact the writer on the story: Ed Ballard in London at eballard2@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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