The United Kingdom's Department for Environment, Food and Rural Affairs (DEFRA) and the Association of British Insurers (ABI) have reached a flood insurance agreement that will ensure future coverage while recognizing the risks posed by floods.

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

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

"However," the letter continues, "we recognize that the statement of principles may distort the market, hinder the development of specialist flood insurance for the more difficult cases, and limit incentives for the uptake of cost-effective resilience measures to protect individual properties."

In light of this understanding, ABI and the government came to an 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 the probability and consequences of flooding from all sources including surface water.

o Raise awareness in areas where flood risks are significant.

o Promote access to insurance for low-income households.

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

With respect to reducing the flood risk, the government and ABI said that, in spring 2009, they will publish "the first version of modeling of flood and coastal erosion risk management scenarios for a 25-year period...." The scenarios will show the impact, outcomes and funding implications of various policy options, the groups said.

The groups also agreed to ensure "that the planning system prevents inappropriate development in flood risk areas, and that any essential new development in high flood risk areas is flood resistant and/or resilient."

ABI and the government said they will establish how to improve building design in flood risk areas, and will also encourage homeowners to adequately protect their dwellings.

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

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