In the wake of ABI's jab at government flood spending

The Association of British Insurers (ABI) announced that the government’s £800m a year pledge to invest in Britain’s deteriorating flood defences is not enough and that insurers may not be able to provide cover.

In response to insurer threats to withdraw household cover, the government agreed to immediately review its investment decision.

Aon said it was concerned about the impact on commercial policyholders if flood insurance was withdrawn, Bill Gloyn, chairman of European real estate at Aon, commented: “Property owners could become more exposed to repair costs as high risk, uninsurable regions become more widespread - as threatened by the ABI. They will be particularly concerned if the rental income from tenants is interrupted following damage, creating problems in the servicing of debt payments to their banks.”

He added: “One solution would be to have a state supported insurance pool to handle claims, as happened in the case of terrorism when the market withdrew cover following the City of London bombs in 1992. Without this replacement cover, the lack of insurance would cause widespread breaches of commercial contractual obligations - to banks, landlords and tenants.”

Gloyn said that the real solution for the removal of flood insurance must ultimately lie with the government: “This will either be by setting up an insurance pool, easy to do by extending the existing terrorism arrangements or - even better for those at risk - by committing sufficient expenditure to provide adequate defences and, thereby, helping to persuade insurers that flood remains a viable insurance proposition rather than a guaranteed loss making line of business.”