The United Kingdom's Department for Environment, Food and RuralAffairs (DEFRA) and the Association of British Insurers (ABI) havereached a flood insurance agreement that will ensure futurecoverage while recognizing the risks posed by floods.

A joint ABI/government letter notes that, in the UK, floodinsurance is provided by the private market as a standard featureof household and small business insurance policies. The governmentand insurance industry have worked to keep the coverage availableand affordable.

The letter states, "Since 2000, this has been achieved through a'Statement of Principles on flood insurance," which commitsinsurers to provide flood insurance "under certain scenarios" whilethe government manages the risk from flooding.

"However," the letter continues, "we recognize that thestatement of principles may distort the market, hinder thedevelopment of specialist flood insurance for the more difficultcases, and limit incentives for the uptake of cost-effectiveresilience measures to protect individual properties."

In light of this understanding, ABI and the government came toan agreement to continue making flood coverage available without"distorting the market."

The two parties agreed to:

o Improve understanding of flood risk through assessing both theprobability and consequences of flooding from all sources includingsurface water.

o Raise awareness in areas where flood risks aresignificant.

o Promote access to insurance for low-income households.

o Put in place a long-term strategy to reduce flood risk; setout the government's short-, medium- and long-term strategic floodprevention aims; assess funding needs; and ensure effective andprioritized allocation of resources and delivery over the mediumand long term in line with future government spending rounds.

With respect to reducing the flood risk, the government and ABIsaid that, in spring 2009, they will publish "the first version ofmodeling of flood and coastal erosion risk management scenarios fora 25-year period...." The scenarios will show the impact, outcomesand funding implications of various policy options, the groupssaid.

The groups also agreed to ensure "that the planning systemprevents inappropriate development in flood risk areas, and thatany essential new development in high flood risk areas is floodresistant and/or resilient."

ABI and the government said they will establish how to improvebuilding design in flood risk areas, and will also encouragehomeowners to adequately protect their dwellings.

An ABI statement said, "Implementing these steps should lead toa competitive flood insurance market, without the need for theStatement of Principles, which will therefore end in 2013."

Until then, ABI said, insurers will continue to make floodinsurance available under household and commercial insurance, wherethe flood risk is no worse than a one-in-75 annual risk." Insurerswill also cover existing customers that represent a "significantflood risk" as long as those customers have plans to reduce theirrisk to an "acceptable level" within five years.