Premiums seen to rocket for flood-risk households

By Jennifer Hill

LONDON (Reuters) - Insurance is set to become unaffordable for people living in areas at risk of flooding, as insurers vie to compete on price, an industry survey shows.

Premiums for those in flood-prone areas could shoot up unless flood defence spending is increased, according to more than 90 percent of 200 insurance professionals questioned.

The survey was conducted for the business and information technology firm Computer Sciences Corporation (CSC).

Up to 2.2 million properties in Britain are in flood-prone areas. Thousands of homeowners were hit this summer by the worst flooding in 60 years.

Of the insurers surveyed, 61 percent said price competition would drive the industry to end its current practice of subsidising homes on flood plains by charging higher premiums to everyone.

This reflects a growing trend towards more precise pricing for risk, with 88 percent of respondents saying the industry must start to segment and price risk based on increasingly detailed personal information to compete on price.

Fierce competition is viewed as the single greatest challenge facing the insurance industry over the next five years, driven by the rise of Internet aggregators, which allow consumers to compare prices easily.

John Maitz, vice president for CSC's financial services arm in Europe, the Middle East and Africa, said the insurance industry is reaching a "tipping-point".