Fascinating discussion on the potential blight facing hundreds thousands of properties in the UK who will struggle to get flood insurance after June next year, which is when the insurance industry's voluntary flood agreement with the Government ends. Progress in coming to an accommodation with DEFRA is slow, according to my source in the ABI.
This has serious implications, as the affected homes will find it virtually impossible to get mortgages.
I suggested that Weather Derivatives, might provide a way around the problem- these are basically bets on the weather- you take out a position that rainfall on a catchment area will not exceed a certain level. If it does you get a payout (regardless of whether you suffer a loss).
Because the transaction costs are lower (no need for claims adjusters and no possibility of fraudulent claims), these can be provided cheaper than standard flood insurance.
Weather derivatives have been around for years- they are the basis of the "snow guarantee" you can take out on your skiing holiday, and are even used to insure communications satellites against solar storms!
I have promised to set up a meeting between the Environment Agency and some derivatives traders to explore this further.
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