DEFRA has been accused of “passing the buck and leaving others to pick up the pieces” over flood insurance rules.
Caroline Spelman has announced DEFRA and the insurance industry are “considering a cross-subsidy mechanism” that will see homes and businesses in low risk areas paying higher premiums to subsidise insurance in flood-prone places.
A DEFRA spokesman denied premiums would rise if this was to be agreed as “most insurance companies already raise a small sum from policy holders to cover the cost of insuring homes at high risk of flooding.”
After an estimated £1bn worth of damage was caused during flooding in 2000, the previous government struck up a deal with insurers to improve flood defences in exchange for insurance coverage for the country’s worst hit areas.
Next year, when this deal expires, homes and farms in high risk areas could be left without insurance unless a new deal is agreed.
“Not only does this penalise homeowners in low flood risk areas, but it is forcing homeowners and families who are already under financial pressure to pay extra to their insurance companies.”
Alan Cripps, RICS
In a statement to MPs on Wednesday (11 July), Ms Spelman confirmed the government is close to reaching an agreement with insurance companies.
“We are now considering a cross-subsidy mechanism that would ensure high risk households can get affordable insurance without extra costs being placed on policy holders or taxpayers,” she said.
According to DEFRA, the proposals, which were branded “vague and unfair” by Royal Institute of Chartered Surveyors, “will capture money already within the insurance industry by formalising the voluntary arrangements already in place”.
However, it was forced to admit the money in these voluntary arrangements comes from the pockets of all insurance payers.
“Not only does this penalise homeowners in low flood risk areas, but it is forcing homeowners and families who are already under financial pressure to pay extra to their insurance companies,” said Alan Cripps, RICS associate director.
“And there is no indication of how this extra money will be used or managed. Once again, the government is passing the buck and is leaving others to pick up the pieces.”