Britons face insurance ‘crisis’ as UK trims flood defence

Ed Ballard in Bloomberg: ...Direct Line and Aviva Plc (AV/) are among British insurers threatening to tear up an agreement with the government that commits them to cover high-risk properties, even after claims rose threefold to 4.5 billion pounds in the last decade, because the U.K. is cutting spending on flood defenses. Smaller insurers not party to the so-called Statement of Principles are also cherry-picking low-risk homes and undercutting rivals, according to Aviva’s head of claims, Dominic Clayden.

...Britain’s coalition government is engaged in the biggest spending cuts since the Second World War to cut the country’s record budget deficit. It will reduce spending on flood defense to about 2.1 billion pounds over the next four years, from 2.36 billion pounds over the last four years, according to the Department for Environment, Food and Rural Affairs.

Government projects range from the construction of concrete and metal barriers, to building pumping stations and replanting forests in floodplains. One plan to build a 150 million-pound barrier to protect the city of Leeds, England from the River Aire, is now unlikely to be fully funded by the government, according to the U.K.’s Environment Agency. That means “we may not be able to provide the same scale of defenses as originally planned,” the EA said. “Many schemes in areas at high risk will continue to receive full funding from government, whilst others will receive large contributions that will go a long way towards meeting the amount needed,” DEFRA said in an e-mailed statement.

...ABI members agreed to subsidize the insurance of risky properties until June 2013 by charging homeowners in safer areas more, according to the agreement. Homeowners in affected areas only pay 42 percent of the true cost of their insurance, according to data published by Axa SA (CS) last year. “While in force to 2013, the Statement of Principles is unsustainable for future use and was agreed under very different circumstances,” said Kate Syred, home commercial director of Direct Line in an e-mailed statement. “Since then our knowledge of flooding risk and its management is more advanced.”...

Some flooding at Victoria Station in London, shot by Frankie Roberto