Fitch analyzes uncertainty over extension of UK flood insurance plan

Insurance Journal: The end in June of the UK government’s agreement with the country’s insurance industry, the Statement of Principles (SoP) agreement, which provides insurance in high flood risk areas, “may prove positive for the UK insurance industry,” according to a report from Fitch Ratings.

Extension of the program has been under discussion for some time, but it’s by no means certain that it will be continued. Fitch notes that “as many as 200,000 UK property owners in flood-exposed regions” may see a “return to a system where insurers can price appropriately for risk and where existing market distortions are removed would,” which, the rating agency indicated, would be “beneficial for UK insurers’ credit profiles.”

The Association of British Insurers has indicated that it is opposed to renewing the program as it believes it “grossly distorts the insurance market. Under the SoP, the insurance industry agreed to provide flood cover to existing domestic property and small business customers at significant flood risk provided the government announced plans to reduce the risk to below a 1 in 75 chance of flooding within five years from July 2008.”

However, the insurance industry has been frustrated by the lack of speed with which these improvements have been made and has expressed concern about the £171 million [$277 million] cuts made to the Environment Agency’s budget for flood defenses....

A television interview during the 2007 floods in Upton-upon-Severn, shot by Iain Cuthbertson, Wikimedia Commons via Flickr, under the Creative Commons Attribution-Share Alike 2.0 Generic license