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Talks over UK flood insurance subsidy break down

Source: Thomson Reuters Foundation - Mon, 26 Nov 2012 12:22 GMT
Author: Reuters
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* Govt refuses overdraft for flood insurance fund - ABI

* Floods threaten 70,000 properties - Environment Agency

* Govt "disappointed" by ABI statement - spokeswoman

By Myles Neligan

LONDON, Nov 26 (Reuters) - Britain has refused to bankroll a fund to subsidise insurance for households in flood-prone areas, derailing talks over the scheme just as rising waters threaten thousands of homes across the country.

The owners of about 200,000 British homes in areas at risk of flooding can afford insurance only because of a deal under which insurers agreed to cover them at a loss in return for a government commitment to boost spending on flood defences.

That agreement expires next July and insurers say its successor needs to be in place by Christmas to give them time to adapt.

The government, however, has told the insurance industry that it will not provide an overdraft for the fund, leaving discussions deadlocked, the Association of British Insurers (ABI) said on Monday.

"The government has indicated it will not provide any temporary overdraft facility for the insurance industry's not-for-profit scheme, which makes it very difficult to go ahead," Nick Starling, the ABI's director of general insurance, said.

Reuters reported last week that a government refusal to provide a financial backstop had cast doubt over the flood scheme, dubbed Flood Re, after months of talks.

GOVERNMENT DISAPPOINTED

The breakdown in discussions comes amid renewed heavy flooding across England, with 500 properties affected since Wednesday and a further 70,000 at risk, according to Britain's Environment Agency.

A spokeswoman for Britain's Department for Environment, Food and Rural Affairs, the ministry responsible for flood policy, said the government still aims to find a way of providing affordable insurance for homes that are at risk of flooding.

"We're disappointed the ABI has chosen to make this statement," she said. "We're committed to continue working with the industry to find a solution."

Under Flood Re, drawn up by the ABI, all households would pay a levy of up to 20 pounds (${esc.dollar}32) a year into a fund that would cover claims from high-risk homes. The government would act as insurer of last resort in the event of an extreme flood that overwhelmed the fund

Britain has been hit by several severe cases of flooding over the past ten years, with one in the summer of 2007 costing insurers about 3 billion pounds.

The industry was already facing a bill of about 500 million pounds this year after heavy rain brought floods in June. The latest flooding could boost total claims to 1 billion pounds, accountancy firm PricewaterhouseCoopers estimated last week.

Britain's biggest home insurers include Aviva, RSA and Direct Line.

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