Julian Knight: Rain keeps falling, so insurance will keep on rising

The breakdown of a deal with Government on flood defences will affect all our premiums
  • @ukmoneyguru

It's official, the summer of 2012 has been the wettest for a century. We are used to the Met Office issuing yet another flood alert. And this may well be the shape of things to come as some climatologists reckon the UK is going to get even damper over the next few decades as the gulf stream shifts around the North Atlantic. This makes adequate flood cover even more crucial – particularly as surface water drainage problems mean flooding can occur whether you are below sea level or at the top of a hill.

Since the dramatic floods of 2000, there has been an agreement in place that insurers will continue to cover people in flood risk areas – potentially a couple of million homes and businesses – providing the Government continues to fund flood defences. However, this deal expires next June and I have been told the insurance industry is unlikely to renew it or even extend the deadline into the following year.

One major insurance firm has told me that it and its counterparts are frankly fed up with the Government to-ing and fro-ing over funding proper defences – particularly bearing in mind the current austerity. The Environment Secretary Caroline Spelman has made all the right noises that a new deal could be struck which may even be better for consumers than the current arrangement. She has though come up against that omnipresent road block of the Treasury which, as ever, do not want to commit the funds to keep the insurers sweet.

These are incredible tough times but surely spending cash on defences – which will create jobs and business profit – is a much better use of resources than paying benefits or the high salaries of middle and top managers in the public sector? In fact spending more on flood defences could be part of George Osborne's fiscal Plan A plus.

The Association of British Insurers says that "constructive talks are going ahead" but it is "a long way from a deal" with the Government. What's more, there seems to have been a change in many insurers' attitude, they are now beginning to favour a levy deal whereby, in effect, all policyholders will pay a top up on their insurance premiums to allow for homes and businesses at risk of flood to continue to be covered.

Fundamentally, any levy is just enshrining the usual business of insurance, in that risk is spread across a pool of policyholders, but the costs of cover are bound to rise quite sharply for all us, particularly if wet summers like this one become the norm.

Not so much a case of watch this space as look to the heavens.

It's only basic decency

With the exception of Lloyds, UK banks have an atrocious record on basic accounts: they are very restrictive and opening them often comes with too stringent identity criteria, gleefully thrust on applicants by staff who, frankly, don't want poorer customers to darken their door.

Now, Move Your Money, the anti-high-street banking campaign, has teamed-up with London Rebuilding Society to offer the "Change Account" which has a full range of services such as direct debits, standing orders, a visa prepaid debit card, a budgeting facility and mobile banking.

The account charges £1 a week – which is far from ideal – but this is nothing compared to the extra costs imposed by companies, such as utilities, for not having access to direct debits. Later in the year national charities and advice bodies will also offer the change account.

Let's hope that Britain's building and friendly societies look at this pilot and see there is something to be said for encouraging the three million Brits who currently don't have a current account to get one. I don't expect the banks to pay any heed.

Paltry compensation

Ulster bank is to offer £20 to customers hit by its computer meltdown earlier this year. For many who put up with Ulster's incompetence – bounced payments and unavailable money – for far longer than their NatWest counterparts on the mainland, £20 is pathetic and the minimum the bank can get away with.

Instead, Ulster should have to refund all its retail banking charges for 2012.