Floods of Tears

by Prof Ryan Spox

Things that annoyed me today:

Mostly it has been the unacceptable risks posed by rain-induced flooding. In particular we refer to the recent tendency for the UK to experience prolonged heavy rain that results in the flooding of domestic and business properties. Now, we would suspect that there has always been a tendency for prolonged heavy rain to lead to flooding but what is new here is that in the last few years we have had an unusually high incidence of torrential rains and when that occurs, instead of swollen rivers flooding into water meadows, they are flowing through people’s houses. (Some might claim that the real cause for concern should be this new tendency for persistent, heavy rain which may be linked to Global Warming-related Climate Change. We shall stay away from such claims because, obviously, Climate Change is Just A Myth, propagated by greedy scientists with some kind of ill-defined personal stake in needlessly scaring us all.)

Anyway, we are very annoyed by the risks posed by all these recent floods. And here, obviously, we are referring to the risks posed to the future profitability of the UK’s major insurance providers. Yes, yes, we do realise that those unfortunates who find their living room waist-deep in a heady mix of river mud and raw sewerage may find the experience a tad traumatic but – for heaven’s sake people! – this has been happening for years now. Some of these people have had their houses flooded twice in one year. They should have got used to it by now.

No, the real threat posed by flooding is that insurance companies are gamblers and, like all gamblers, they don’t like to lose. And, when they do lose, they really, really, don’t like to pay out.

And that’s bad new for the rest of us, because the insurance companies have come up with a cunning scheme to minimise their future losses. Unsurprisingly, their plan is to make all the rest of us pay. (Insurance Scam) More specifically, their plan is to get BritGov to force everyone with a household insurance policy to pay a surcharge of around £8-£10 on top of their normal premium in order to build up a fund that will allow insurance companies not to lose money by settling customers’ legitimate claims. BritGov are, perhaps reluctantly, being bullied into accepting this because the alternative is to allow the insurance companies to simply declare certain properties uninsurable and so refuse to cover them.

Now, you may scratch your collective head at this and point out that there are all sorts of risks – and risk-prone individuals – that insurance companies regularly refuse to cover – drivers with neither licence nor MOT being an obvious one. If your house is flood-prone and the insurance company won’t cover you then, surely, that is a risk you chose to accept when you bought a house that was prone to flooding. And, if you did unwittingly buy a house that was prone to flooding – even if, historically, it never had before – then that is your own stupid fault for not thinking things through before you bought it. Caveat emptor, innit mate? As the Romans might have said.

However, because BritGov are much smarter than you, they know that we can’t have that sort of nonsense because an uninsurable house is, essentially, an unsalable house and the whole point of law and government is the protection of property rights. (Check your history people – that’s why governments came into existence.) Besides, since so much property is at risk from flooding, now or in the future, making it uninsurable and unsalable would have a negative impact on property values, going forward (as pundits like to say, but we don’t).

Which would be a Bad Thing, because never-ending property price increases are, clearly, a Good Thing. As everyone apparently knows.

So BritGov has insisted that insurance companies continue to offer policies to flood-prone properties. And that is a problem for the insurers because, if they actually have to pay out on their policies, then they are losing money yet their entire business model is based on selling you insurance against which they hope you will never need to make a claim.

Clearly, the regular occurrence of flooding is nothing to do with that typical mix of greed, corruption and incompetence that allowed construction companies to reap lovely profits by building on flood plains without making any attempt to even address the issue that “flood plains” are called that for a reason. Accordingly, we cannot expect those who reaped said profits to do anything about paying for the construction of flood defences. No, that is obviously a job for government because it is funded by tax-payers and they can afford that sort of thing.

But that has left us with the problem of how to provide affordable insurance cover for uninsurable properties. And that’s what led to the genius idea of making us all pay an extra £10 or so as a contribution to someone else’s cover even though that payment would never benefit us personally.

Now, just to be clear, we have no issue at all with the idea of BritGov collecting an extra £10 in taxes from every UK household and using that, in some way, to help fellow Citizens and socially-acceptable foreigners deal with the issues surrounding their uninsurable homes. After all, we are crazy enough to believe that a government’s primary reason for existence is to protect its Citizens from all sorts of threats, whether domestic, foreign or climate-related.

What we do find galling is that a supposedly “free market” system which espouses the individual’s responsibility to look after themselves, which decries any attempt at “business-unfriendly” regulation by an interfering “Nanny” state, which believes that, so long as the cash is rolling in, it’s OK to sell people stuff they neither need nor understand, still cries “Mummy!” every time it sees a slight bump on the road ahead.

So, as responsible citizens and, indeed, human beings, we are happy to contribute according to our ability in order to assist fellow humans, in accordance with their need. We’re just a bit reluctant to be scammed, again, in order to let faceless corporations duck their responsibilities whilst profiting from other people’s misfortunes.

The insurer’s themselves guesstimate that at least 200,000 UK households are at a serious risk of flooding “sometime” and up to 10% of the nation’s 26 million or so households may, conceivably, be at some risk of a flooding-like incident at some point during their prolonged existence. (Insurance Sums) (Other figures are less apocalyptic, but we wouldn’t expect the insurance companies to go in for panic-mongering, would we? It’s not like they have a vested interest in making this situation look worse than it is…) Interestingly, they also tell us that a “typical” household flood-related insurance claim is about £20,000 and so, even if said house only floods once every 100 years that means they would have to raise its annual premium by £200 because that’s what you get when you divide £20,000 by 100 years and they’re sure as hell not going to threaten existing profits in order to make that pay-out themselves.)

Now, bear in mind that the UK’s household insurers saw their profits rise by 11% last year, despite the increasing incidence in domestic flooding. And then reflect on the fact that, once those 26 million households are coughing up an extra £260 million per year, all it takes is a couple of relatively “dry” years and the insurance companies are looking at a nice extra profit to make their accounts look good, safe in the knowledge that, if there is a bad year and cash is tight, BritGov will bail them out thus protecting those all-important profits.

Still, instead of whining about it, let’s look at some alternative sums. The real number of interest here is not how many UK households might get a bit damp sometime in the next millennium but how many actually get flooded each year. It’s surprisingly hard to find out such a figure with just a cursory browse of the Internet but, given that about 900 households have been flooded in the past week’s heavy rain in SW England, let’s be generous and assume that 10,000 will suffer flood damage this year. Out of 26 million, that’s not really a lot. In fact, if BritGov collected an extra £10 per household per year in tax, it could easily fork out that average £20,000 payment to more than 13,000 households every year. Plenty enough to cover the reality. Any excess in a given “dry” year could go to increasing the fund or paying for better flood defences. Heck, we might even persuade those most at risk to pay £20 extra a year on the understanding that they really would directly benefit from this socially responsible collective action.

So, really, a modest tax rise (about 20p per week per household) could make the problem of uninsurable houses go away and we’d all be better off, if only in a spiritual way. Government gets to do what it’s supposed to do – protecting its Citizens, by benefiting from economies of scale whilst not being driven by the need to make a profit. The alternative, it seems, is that we pay the same amount of money in order to insure insurance companies’ profits against the risk that they might possibly have to make pay-outs at some indeterminate time in the future. Maybe.

We know which proposal we’d prefer.

At the moment, the talks between BritGov and the insurance companies are at an impasse because, as the BBC reports, BritGov is reluctant to agree to:

a temporary, interest-free, overdraft for the industry, to help it meet the cost of emergencies in the first few years of the scheme while the fund builds up.

Well, it seems only fair that tax-payers should meet all the costs, doesn’t it? After all, where would the economy be if businesses actually had to deliver what their customers had paid for?