James Moore: Insurance industry set for a soaking in flood misery

Outlook We might be in the middle of a drought (at least according to water companies which don't like the idea of splashing out to fix leaky pipes) but it seems that floods are on their way.

This means another round of big losses for the insurance industry, which coughed up £3bn in 2007, not to mention agony for householders as they try to pick up the pieces when the waters have receded.

Given the way the industry conducts business, particularly when customers have cause to claim on their policies, it is hardly a surprise that few people feel much sympathy for it when it complains. But on the issue of floods it has a right to feel hard done by.

The last government gave developers carte blanche to throw up houses on flood plains, while doing little to improve flood defences. The current administration appears close to doing the same thing by the way it is reforming planning regulations.

The Chartered Insurance Institute (CII) says it doesn't have to be like this. Yesterday it published a paper by one of its members showing that where industry and government are willing to co-operate and come up with sustainable flood-management plans, such as in Scotland, insurance losses (not to mention householder agony) can be minimised, if not eliminated.

The CII doesn't just criticise government south of the border for failing here. It says that in Scotland, the Association of British Insurers helped to fund the creation of flood-liaison groups involving industry representatives and local politicians which did much to tackle the problem. By contrast, the insurance industry's biggest trade body seems to have preferred bellyaching south of the border.

With both sides sitting on their hands, flood misery and insurance losses are here to stay. Given the storm that would be created if insurers withdrew flood cover in England, the paper predicts they will simply raise premiums in places where the issue has been tackled (Wales and Northern Ireland as well as Scotland) to subsidise cover where it hasn't (England).

The English have long complained (with some justification) that their taxes are used to subsidise more generous public services in the Celtic hinterlands. It looks like some of that money is going to come pouring back.