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Insurer urges government not to cut flood spending

AA Insurance is urging the government to resist any temptation to cut spending on flood defences in its autumn Comprehensive Spending Review.

In an open letter to environment secretary Caroline Spelman, AA Insurance director Simon Douglas said that any cut in spending on protecting flood prone parts of the UK could see hundreds of thousands of homes becoming uninsurable and un-mortgageable.

Insurance premiums would inevitably rise for everyone, he added.

Douglas said: “Millions of people are at risk of inundation from overflowing rivers, coasts and estuaries during extremes of weather and that risk is increasing all the time.

“Many leading commentators in the insurance industry are concerned that spending on flood defences, and supporting local authorities to help reduce the risk of flash flooding, should be significantly increased, not cut.”

Douglas points out that the Statement of Principles, which is an agreement between the Association of British Insurers and the government, currently guarantees that those living in flood-prone areas can continue to maintain insurance cover for their homes. However, the agreement is dependent on continuing investment in flood defence measures by the Government.

“If spending isn’t maintained, it will compromise the Statement of Principles, which could see many homes become uninsurable,” he said, adding that the Environment Agency has called for flood defence spending to be doubled over the next 25 years.

Douglas also says he is concerned that home insurance premiums could rise rapidly if this protection is removed. 

“Historically, both home buildings and contents insurance premiums have remained relatively static, but are showing signs of upward movement. Buildings insurance has on average risen by about 13% over the past year while the cost of contents cover has risen by only 6% over the same period.

“Insurers are concerned about future flood and storm damage claims which are likely to become more frequent and more severe as the climate warms and they will need to increase reserves to be able to pay out for large numbers of future claims.  If investment in defences – and that includes ensuring storm drains are kept clear and are improved to remove surface water – is not maintained, insurers will become increasingly fussy about who they insure and premiums will inevitably increase.”

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