Britons Facing Floodwaters May Be Left Without Insurance ? San ...

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Aug. 19 (Bloomberg) -- Emma Summerfield returned home on a rainy November evening in 2009 to find her vacuum cleaner afloat on a rising tide in her cellar.

Hours later, her 18th century mill-house in Cumbria, northern England, was six feet deep in water. When the water receded, it left rooms wrecked, walls destroyed, and the sewage of four nearby cottages everywhere.

"It's just a house, but we'd put our heart and soul into it," Summerfield said in a telephone interview. "Trying to get the house back together was absolute hell."

After an insurance payout of about 90,000 pounds ($145,764) from Royal Bank of Scotland Group Plc's Direct Line unit, Summerfield, 36, was back in her home seven months later. Now, because insurers are reassessing the viability of flood insurance, thousands of future victims may not be so fortunate.

Direct Line and Aviva Plc 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.

"We're not going to look to renew the Statement of Principles -- it's bust," Clayden said in a telephone interview. The market is being "dragged down" by new insurers that haven't signed up to the agreement, he said. He declined to identify individual companies.

Aviva declined 2.1 percent to 315.3 pence in London trading, compared with a 1.9 percent fall in the 28-member Bloomberg Europe 500 Insurance Index.

Spending Cuts

Britain's coalition government is engaged in the biggest spending cuts since World War II 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.

Risky Properties

Insurers agreed with the government in 2000 to cover homeowners in flood-prone areas so long as the state pays for measures decrease flood risk to ensure coverage is affordable and widely available, according to the Association of British Insurer, which lobbies for British insurers.

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 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."

Insurers have told the government they don't plan to renew the Statement of Principles, said a DEFRA spokesman.

"We need to find a new mechanism to ensure that flood insurance is still available," he said.

High-Risk Areas

Source: http://news.tradingedgemaster.com/britons-facing-floodwaters-may-be-left-without-insurance-san-francisco-chronicle/

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