Simon Lee, the chief executive of one of Britain’s largest insurance companies, has warned that negotiations with the Government over cover for flood damage are facing delay and could put thousands of homeowners’ policies at risk.
The present flood agreement between the Government and the insurance industry expires in six months and negotiations are proving slow, Mr Lee, the chief executive of RSA Insurance Group, said.
Under the current 10-year deal, UK insurers are committed to offering existing customers universal flood insurance at reasonable rates, even if they are in flood-affected areas, providing that the Government invests in flood defences.
Talks between the Government and the Association of British Insurers over a replacement deal have been continuing for months and experts have warned that more than 200,000 households could struggle to get affordable rates on flood insurance if an agreement is not reached.
“We’ve proposed a solution to the Government and I think they’re being a little tardy in responding to that solution,” said Mr Lee in an interview with The Sunday Telegraph. “It’s a very real issue.
“We thought we were making progress but are slightly concerned it has slowed down.”
A strong believer that climate change is a serious global problem, Mr Lee said he is extremely concerned about weather issues worldwide. Met Office figures confirmed last week that 2012 was Britain’s second wettest year on record and floods have affected thousands of people across the country.
Late last year, Mr Lee visited Brazil as part of an RSA “Rainforest Challenge” programme with the World Wildlife Fund, following an internal staff competition aimed at finding opportunities for new business from addressing climate change.
“I personally believe that climate change is happening,” said Mr Lee. “It’s hard to prove cause and effect at the moment but it’s quite clear there’s been an increasing number of extreme events over the past few years so that’s obviously very relevant for us as insurers.”
Alongside concerns about flood insurance, RSA is spending £100m preparing for the introduction of the European Union’s Solvency II regime, now postponed until 2016.
“It’s a European thing but the pendulum has swung and often when pendulums swing they swing too far,” said Mr Lee. “I think we need to swing it back because ultimately who pays for the cost of regulation? It’s the consumer.”
He criticised as “barmy” new European regulations banning motor insurers from differentiating premiums on the basis of customers’ gender. The changes, introduced across the European Union last month, prevent underwriters from rewarding young women drivers with lower premiums for their lower statistical risk of motor claims, compared with young men.
They also disadvantage male drivers in their late 70s, who have previously been offered cheaper motor insurance than women of the same age, since data showed they have fewer claims.
“It’s bonkers, it’s completely barmy,” said Mr Lee. “The whole basis of our insurance is charging the right price for the right risk.
“This directive has forced us to rework all our algorithms. It has cost us money and there’s also an opportunity cost involved.
“It’s one of those things that’s very easy to talk about but quite hard to do. It will be interesting to see how it plays out.”
He said implementing the gender directive was contributing to uncertainty in the “dysfunctional” UK motor insurance market.
This year is expected to see Government legislation on whiplash injury claims, while there is an ongoing Competition Commission inquiry into the UK motor insurance market.
The new Financial Conduct Authority, which comes into being in April (Paris: FR0004037125 - news) , has said it will look closely at the model for selling personal motor insurance. “Put all four of those things together and you’ve got a cocktail of uncertainty,” said Mr Lee.
Car insurance accounts for between 30pc and 40pc of RSA’s business worldwide but the company has reduced its UK personal motor book by 19pc over the past 12 months as market premiums have fallen by about 8pc. Motor premiums now account for only 5pc of RSA’s UK business. “There’s no other market that operates like UK car insurance,” said Mr Lee. “It’s the most competitive car insurance market in the world and there’s considerable uncertainty there at the moment.”
With regulatory uncertainty and slow economic prospects in Europe, RSA is looking overseas for growth and particularly targeting Latin America, where it has been operating in Brazil for 16 years.
The group is now Brazil’s biggest insurer of trade cargos and one of the world’s largest insurers of renewable energy, providing cover to 50 small hydroelectric plants and 20 wind farms across Brazil, where RSA’s operations have been growing by an annual 15pc to 18pc over the past six years.
While that rate is expected to have dipped slightly in 2012 as a result of Brazilian economic growth slowing from between 6pc and 7pc to about 2pc, the nation is expecting growth of 4pc to 5pc this year and Mr Lee expects annual compound growth of about 20pc a year in Latin America over the next five years. “Our premiums in Latin America have more than trebled in the last six years,” he said.