Home insurers were accused of hiding behind a disputed flood defence agreement with the government as an excuse for putting up premiums.
Speaking at the National Flood Forum in London, Benyon told delegates that renewing the statement of principles agreement would make no difference to millions of homeowners facing higher home insurance costs.
The statement is a pledge by the government to provide flood prevention works while insurers continue to offer cover to homes.
The agreement ends in May 2013 and the government and insurers are locked in a dispute about renewal.
The government is spending less on flood prevention as part of the programme of cuts. Insurance firms are increasing premiums or denying households cover as a result. The fear is millions of homes in flood risk areas will have no buildings cover and may become unmortgageable, pushing prices down and stranding owners in homes they cannot sell.
The minister claims the statement of principles is “widely misunderstood”.
“The current agreement does not apply to the majority of households at significant risk, nor does it apply to homes built since January 2009. It provides no universal guarantee of flood cover as many claim that it does, nor does the agreement influence the pricing of policies,” said the minister.
“The issue that confronts us today is not the ending of the agreement, as renewing it would not solve the problem. The real issue is that insurers are changing their approach to pricing flood risk.”
“In the past insurers have charged all policyholders basically the same price for flood cover regardless how likely future flood damage is. This is not because of the agreement, but because of other factors such as insurers wanting to keep policies simple and transaction costs low and avoid losing market share to other insurers.
“In practice this means that customers at low or no flood risk have been subsidising the cost of flood insurance in high risk areas through their premiums.
“This places insurers at risk of being undercut by other insurers who are cherry picking low risk customers. This, together with increasingly sophisticated tools for assessing customers’ flood risk, means that prices in flood risk areas are changing.
“Customers are increasingly likely to be offered terms that more accurately reflect the degree of risk the insurer is taking on, and this is a trend that has been taking place for some time.”
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