LAST year, the worst flooding for nearly half a century affected around 10,000 properties at a total cost of about £1 billion. This year, even before autumn had really begun, swathes of southern England were already under water. The Environment Agency says that climate change could increase average rainfall in Britain by up to 20% by the 2080s. The bill, as well as the flood-waters, will continue rising, and there is a fight between the government and the insurance industry over who should pay it.
In most rich countries, the government forks out to compensate those who suffer flood damage. That hasn't been true in Britain since 1961, when the government offloaded responsibility for flood damage to the insurance industry. There was a “gentlemen's agreement” whereby the insurance industry guaranteed that all household insurance policies in Britain would include flood insurance.
Both sides did well out of the deal. The insurance companies got to jack up the premiums for millions of houses that would never be at risk of flooding. The government knew that it would never have to pick up the tab for flooding.
But one of the consequences of the agreement, according to David Crichton, an independent environmental consultant, is that the government cut back on spending on flood defences. “If most people in Britain had not been insured against flood”, says Mr Crichton, “there might have been more political pressure to build flood defences.” Britain does indeed spend little on flood defences compared with countries whose government also acts as insurer of last resort. Japan, for instance, has been spending between 0.2% and 0.9% of its GDP on flood defence every year since the 1950s, while Britain spends around 0.03% of GDP a year.
None of this mattered much when flooding was a small problem. But the Association of British Insurers (ABI) now argues that given the recent rise in the incidence of flooding, and the dire predictions about the future, the gentlemen's agreement needs rewriting.
The ABI says that the government should increase its spending on flood defences from £350m a year to £500m, and it wants tighter planning guidelines to discourage building on floodplains. It says that if there is not “substantial progress” in these directions by the end of 2002, its members will start re-assessing insurance policies in flood-prone areas. People who live in such places could face a drastic rise in their premiums or in excesses to cover flood damage, or they may simply be unable to get any insurance at all.
On a small scale, this is already happening. Several cases have been reported of companies withdrawing flood cover, or slapping excess charges of as much as £2,500 on people who have the temerity to claim on their policies. Companies have also been offering households helpful hints on how to reduce their exposure to flood damage. Tips include putting in tiled floors instead of carpets, or putting kitchen appliances on stilts.
The insurers' threat could have a knock-on effect on mortgages. The Council of Mortgage Lenders estimates that up to 5m people in nearly 1.8m homes, or 7.3% of the housing stock, are now at risk of flooding. Uninsured houses cannot be mortgaged.
Edmund Penning-Rowsell, of the Flood Hazard Research Centre at Middlesex University, argues that the government should call the insurance industry's bluff at the end of 2002. He points out that, thanks to that gentlemen's agreement, insurers enjoy the income from flood insurance they have sold to households on higher ground that rarely needed it in the first place. If the government made flood insurance optional, rather than compulsory, most households would then opt out—and the insurers might lose more money than if they had stuck with their old deal.
This article appeared in the Britain section of the print edition under the headline "Looks like rain"