Insurance Post

Flood row heats up

The temperature of the row between the Association of British Insurers and the government over spending on flood defences keeps risisng. The government thinks it has been generous, while the insurance industry (and many others) believes it falls far short of what it required. Both sides have a point.
For the last couple of years the ABI has campaigned hard for spending on flood defences to be raised from the £570m a year currently budgeted to £750m a year. When the severe flooding in Yorkshire and Humberside struck at the end of June and the new Environment Secretary Hillary Benn almost immediately announced an increase in spending to £800m a year, appearing to trump the ABI. Of course ,we now know that increase is not immediate and will be phased in, not hitting £800m until 2010-11. Next year it will be £650m and the year after £700m. This partially explains the ABI’s anger and the industry’s feeling of being let down as the net effect on the spending plans is £100m lower than had been expected.
Of course, by the end of July we had another severe flooding incident, this time in Gloucestershire. No account seems to have been taken of this in the most recent public spending announcement. The government spending has stayed the same while the insurance industry’s claims costs have over doubled to more than £3bn for the two incidents. This clearly rankles with the industry.
Mr Benn was blunt in his defence of the government’s commitment to boost flood defence spending when he spoke at last night’s Post Magazine Business Leaders Forum Parliamentary Reception. He obviously felt hard done having announced an increase significantly above previous plans (ie before he upped the amount at the beginning of July) and was looking for praise and not condemnation. Such is the politician’s lot.
This argument will not go away. Mr Benn has very sensibly set-up an independent review under Sir Brian Pitt to focus on the lessons learnt from the floods – “what was done well and what could have been done better” in Mr Benn’s words. It is hard to imagine that this review will not make some very strong recommendations about the urgent need to protect our infrastructure better, water treatment plants and power facilities in particular. Will these be given priority over other planned but currently unfunded schemes? Will schemes to protect homes and businesses be bumped off the schedule to accommodate the recommendations of the Pitt review?
It will be very hard for the government, having set up the review, not to back its recommendations with additional spending. You can be certain that the ABI will be making that point very vigorously.
If the government doesn’t respond positively it will surely only be a matter of when and not if the industry starts withdrawing cover from the most exposed flood prone areas.

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