Solution to flood insurance problem 'doesn't hold water'

The Government's solution to the problem of insuring homes with a high risk of flooding may not be sustainable because it fails to take account of the likely costs associated with climate change, a new policy paper warned today.

Under the proposal agreed between the government and the Association of British Insurers (ABI), those 500,000 UK homeowners living in areas so flood-prone that insurers refuse to cover them would remain insurable through a £10.50-a-year levy on all residential premiums due to be introduced in 2015.

The £180m raised annually would be managed by a not-for-profit fund known as Flood Re, and the ABI calculates this would be enough to cover the 500,000 homes most at risk of flooding.

However, two research bodies are warning that the government's proposal, put out to consultation in June, does not factor in the full likely effect of climate change.

"The flood risk is expected to increase due to climate change and continued development of flood plains for residential and commercial property, which increases the exposure of homes and businesses," warned Dr Swenja Surminski, one of the authors of the report by the Centre for Climate Change Economics and Policy and the Grantham Research Institute.

"The design of the Flood Re scheme, which is expected to last until at least 2035, has not taken into account adequately, if at all, how flood risk is being affected by climate change. For this reason, it may prove to be unsustainable because the number of properties in the future that will be at moderate or high probability of flooding has been significantly underestimated," she added.