Millions of small businesses could find it harder to buy insurance after government funding for flood defences was cut in the wake of the Comprehensive Spending Review.
Insurers, who have seen claims increase substantially after recent floods, may either seek to increase premiums or refuse cover altogether, according to a property and insurance expert.
Bill Gloyn, chair of the British Property Federation’s insurance committee and partner at insurance broker Jardine Lloyd Thompson, says: “Flooding is a catastrophic risk… If cover is not available – and that is already the case in some areas of the UK – the consequences are almost too frightening to contemplate.
“The widespread breaches of contract will lead to chaos and a potential collapse of the property market – both commercial and residential. Without insurance there is no mortgage. Without mortgages, there is no property market.”
The extension of an agreement between the insurance industry and government to insure the bulk of homes at risk of flooding, which ends in 2013, is dependent on the government continuing its previously proposed programme of flood defence work.
However, Chancellor of the Exchequer George Osborne has earmarked only £500m a year to spend on flood defences from 2011 to 2015. This is a reduction of £216m – and substantially less than the Environment Agency’s recommended total of £1bn a year by 2035 to maintain the number of houses currently protected.
The BPF has argued for continued investment in flood defences to meet future risks, and also for insurers to take greater account of actions taken by landlords to reduce the threat of flooding to their property.