Tuesday, 24 July 2007

Floods - why doesn't the government give more

The flooding of homes and businesses is heartbreaking but should the Government step in and help the victims?

So far, the amount (£14m) promised by the Government to help flood victims appears paltry compared with the £2 billion of estimated damage. Why so mean? The answer lies in the relationship between the state and the insurance industry. The overwhelming liability for flood damage falls on the insurance companies who have underwritten flood loss. If the government steps in with large amounts of cash those companies will refuse to pay out the full amount. The government will be acting as a second insurer and in effect funding the insurance companies rather than the victims.

But what about those who do not have insurance? The problem here is even more difficult. If the government steps in and provides grants for the uninsured the insurance companies will in their turn cry foul. The government would again be setting itself up as the insurer of last resort and, indeed, those who have paid for insurance would be tempted to rely on the Government in future and cancel their policies. The government is in a no-win situation and in principle good government should stay out of the reconstruction business except in as far as it can defray some of the extra cost borne by local authorities.

1 comment:

Leonie said...

People should read this.