Global warming may raise premiums: Maria Scott warns of the possible effect of new research into coastal flooding

PEOPLE living in flood-prone areas could face higher insurance premiums as a result of insurers investigating the effect of global warming on coastal storm patterns.

Insurance companies will meet on Monday to consider the results of a study on coastal flooding commissioned by the Association of British Insurers.

The study, by Sir William Halcrow & Partners, consultant engineers with expertise in marine engineering, attempts to lay down a research model that insurers can use to assess the entire coast of Britain for its vulnerability to storms, in particular storm surges.

These are caused by a combination of strong wind and certain tidal patterns that push water into an estuary or on to a bank. There is a theory that global warming will cause more surges in future.

Tony Paish, chief economist at the ABI, said the floods at Towyn, on the North Wales coast, three years ago were the result of a small storm surge. This incident did not actually cost insurers much as many of the flooded homes were not insured.

Insurers also say that they did not increase premiums or raise excesses on the Towyn householders' policies as a result, partly because a sea wall was repaired after the flood, cutting the likelihood of further claims.

Mr Paish said the last serious case of storm surge flooding in Britain was in 1953. This hit the Thames estuary and parts of East Anglia and the cost of damage would run into many hundreds of millions of pounds in today's prices.

Insurers were increasingly concerned about coastal flooding and wanted to gather accurate information on where it was most likely to happen so that they could prepare themselves financially.

Mr Paish would not be drawn on the likely effect on premiums in flood-prone areas. But if the insurance industry's recent history is anything to go by increased premiums are likely to be a favoured way to deal with the problem.

Last week's floods in Scotland are not thought to have been caused by a storm surge and, although the damage to homes was devastating, insurers are not bracing themselves for huge claims.

However, Perth-based General Accident, whose head office is close to the worst-affected areas, said it would be looking closely at the causes of the floods. This is the second time in three years that the River Tay has burst its banks in the same place.

Donald Malcolm, manager of GA's home retail account, who has lived in Perth all his life, was shocked at the weather pattern over the past two weeks. The area has experienced winds, snow and then thaw in quick succession.

'I have never known snowfalls to come and go so quickly. This snow was freakish,' he said.

Claims had started to come in but it was too early to say what the cost would be and whether these would affect premiums. He added: 'We will have to look at the long-term patterns.'

Mr Malcolm said premiums were not the only way to pass on the cost of large flood claims. Excesses could also be increased.

As insurers become more nervous about flood claims, homeowners may be a little reassured by the knowledge that they cannot withdraw flood cover from them completely.

The industry reached agreement with the Government in 1961 that flood cover would always be available, although no stipulations were made about premiums.

At present, the ABI says, 98 per cent of people are covered for flood damage at normal rates and 2 per cent pay extra.

The last large set of flood claims to hit the industry came in 1984 after floods in the north of England and Scotland, which cost insurers pounds 274m.

Since then there have been much larger amounts paid out for storms, with pounds 1.08bn for the 1987 hurricane in south-east England followed by pounds 2.2bn, again mainly in the South, for storms in February 1990.

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