UPDATE 1-UK insurers sceptical over flood cover plan | Silo Insurance

Tue Apr 3, 2012 11:58am EDT

* ?High likelihood? plan would require subsidy ? ABI

* ABI unaware of any insurer supporting Marsh plan

By Myles Neligan

LONDON, April 3 (Reuters) ? British insurers on Tuesday cast
doubt over a plan to provide affordable flood cover in high-risk
areas without government subsidies, saying it lacks industry
support and will probably require taxpayer funding to work
effectively.

Under the scheme, drawn up by insurance broker Marsh
, insurers would pool their residential flood exposure
across low and high-risk areas, limiting the scope for big
payouts, and making the risk attractive to reinsurers for the
first time.

The participation of reinsurers, who have historically
refused to cover individual insurers against floods because most
are exposed to at least one high-risk area, will do away with
the need for a government backstop, Marsh said.

?It takes the problem away from the British taxpayer,?
Hutton Swinglehurst, head of flood risk at Marsh UK, told
Reuters.

?We have the capacity available and pledged by the
reinsurance companies, and we believe we have a critical mass of
leading insurers to get going.?

But the Association of British Insurers, currently in talks
with the government about a rival pooling scheme that would
include a taxpayer guarantee, said the Marsh plan, dubbed
Project Noah, could still require funding from the public purse.

?Our modelling shows there?s a high likelihood this funding
measure would require some sort of support anyway,? an ABI
spokesman said.

?We are not aware of an insurer who actually supports it, so
we are sceptical.?

Britain has been hit by increasingly severe inundations in
the past ten years, with a series of floods in the summer of
2007 costing the insurance industry about 3 billion pounds
($4.80 billion).

Insurers have agreed to provide affordable cover to homes in
he highest-risk parts of the country in return for a government
commitment to boost flood defences under a deal that expires in
June next year.

The ABI said last month that 200,000 homes in flood-prone
regions will struggle to find affordable insurance if a new
arrangement is not found before then.

The Department for Environment, Food and Rural Affairs, the
government ministry responsible for flood defences, welcomed the
Marsh scheme.

?Industry-led solutions that allow insurers to compete even
for the highest-risk homes, without government intervention in
the market, would give the best value for taxpayers? money,? a
spokeswoman said.

Defra plans to spend 2.17 billion pounds bolstering
Britain?s flood defences between 2011 and 2015.

The ABI has said Britain is the only country not to provide
a subsidy to those most at risk of flooding, although this is
disputed by the government.

Britain?s major residential property insurers include Aviva
, RSA and Royal Bank of Scotland?s Direct Line
.

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