London (Reuters) - A plan to guarantee affordable insurance for homes in Britain’s flood-prone regions has taken a step forward after months of talks between insurers and the government.
The “Flood Re” fund will replace an agreement which expires next month, under which insurers offer subsidised cover to some 200,000 flood-prone homes in exchange for a government pledge to build more flood defences.
Talks between the Association of British Insurers (ABI) and the government broke down in November 2012, when the Britain’s heavily-indebted government told insurers it would not provide an overdraft to the proposed fund.
But the two sides said on Thursday they had agreed a memorandum of understanding (MoU) on how to develop the not-for-profit scheme.
“The MoU is a first step towards establishing Flood Re, and confirms it as the government’s preferred option,” the ABI said in a statement.
Insurers already charge an average of 10.50 pounds on every household premium they sell to cover homes in flood-prone areas. Flood Re will siphon off that levy into a fund to build up a reserve to cover future flood claims from high-risk homes.
Britain has been hit by several severe floods in the last 10 years, including in 2007 which cost insurers about 3 billion pounds.
Britain’s biggest home insurers include Aviva Plc, RSA Insurance Group Plc and Direct Line Insurance Group Plc.
Editing by David Holmes