(Reuters) -LONDON | Tue Apr 3, 2012 5:29pm BST -Insurers on Tuesday cast doubt over a plan to provide affordable flood cover in high-risk areas without government subsidies, saying it lacks industry support and will probably require taxpayer funding to work effectively.Under the scheme, drawn up by insurance broker Marsh (MMC.N), insurers would pool their residential flood exposure across low and high-risk areas, limiting the scope for big payouts, and making the risk attractive to reinsurers for the first time.
The participation of reinsurers, who have historically refused to cover individual insurers against floods because most are exposed to at least one high-risk area, will do away with the need for a government backstop, Marsh said.
“It takes the problem away from the British taxpayer,” Hutton Swinglehurst, head of flood risk at Marsh UK, told Reuters.
“We have the capacity available and pledged by the reinsurance companies, and we believe we have a critical mass of leading insurers to get going.”
But the Association of British Insurers, currently in talks with the government about a rival pooling scheme that would include a taxpayer guarantee, said the Marsh plan, dubbed Project Noah, could still require funding from the public purse.
“Our modelling shows there’s a high likelihood this funding measure would require some sort of support anyway,” an ABI spokesman said.
“We are not aware of an insurer who actually supports it, so we are sceptical.”
Britain has been hit by increasingly severe inundations in the past ten years, with a series of floods in the summer of 2007 costing the insurance industry about 3 billion pounds.
Insurers have agreed to provide affordable cover to homes in the highest-risk parts of the country in return for a government commitment to boost flood defences under a deal that expires in June next year.
The ABI said last month that 200,000 homes in flood-prone regions will struggle to find affordable insurance if a new arrangement is not found before then.
The Department for Environment, Food and Rural Affairs, the government ministry responsible for flood defences, welcomed the Marsh scheme.
“Industry-led solutions that allow insurers to compete even for the highest-risk homes, without government intervention in the market, would give the best value for taxpayers’ money,” a spokeswoman said.
Defra plans to spend 2.17 billion pounds bolstering flood defences between 2011 and 2015.
The ABI has said Britain is the only country not to provide a subsidy to those most at risk of flooding, although this is disputed by the government.
Britain’s major residential property insurers include Aviva (AV.L), RSA (RSA.L) and Royal Bank of Scotland’s Direct Line (RBS.L).
(Reporting by Myles Neligan; Editing by Helen Massy-Beresford and Jon Loades-Carter)
By Myles Neligan
LONDON | Tue Apr 3, 2012 5:29pm BST.