Unprecedented floods put insurance scheme in the spotlight

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The U.K. has been in the grip of one of the wettest winters for many a year. In fact the BBC recently reported that England had the wettest January since records began in 1766 and it appears likely that it may turn out to be the wettest winter overall on record too.

Against this background it is perhaps surprising that there has not been more press coverage of an important agreement between the government and insurance companies as to the provision of insurance for residential properties located on flood plains.

Last July an earlier agreement between insurers and the government came to an end and there was a real risk that flood-prone properties were in danger of being left uninsurable. Although no new agreement was finalised, a so-called “memorandum of understanding” was signed which proposed the development of 'Flood Re'-a scheme to provide insurance cover for high risk properties.  It was proposed that Flood Re become operational some time in 2015 and was intended to replace the ‘Statement of Principles’, under which insurers offered affordable flood coverage to the vast majority of households, in return for government maintaining it's spending on flood defences

However, although insurers are in the business of assessing risk and dealing with claims they are not necessarily best placed to control the amount of investment in flood defences.  At the same time the question of flood spending is a controversial one with the present government claim that it is spending a record amount on flood defences being contradicted by Sir Andrew Dilnot, Head of the UK Statistics Authority, who has called for official figures to be published in the public interest.

Against this background it is important to know where you stand as a property owner. Flood Re covers some 350,000 households and you can use The Environment Agency’s interactive map to check if you are one of them.  If you are then as from 2015 the cost of the flood related aspect of your buildings insurance will be capped.  According to the Association of British Insurers the cap will be £210 per year for properties in council tax band A and B, rising to £540 a year in band G. The premiums will go into a central fund and be used to pay out claims.  Insurers will also pay into the fund a levy which amounts to £10.50 per year on every home insurance policy. As currently defined, Flood Re will exclude most buildings cover for:

  • Leasehold properties;
  • The entire private rented sector;
  • Housing association homes;
  • New-build homes constructed after January 2009;
  • Council homes; and
  • Properties in council tax band H.

Tenants should still be able to buy contents policies for rented homes. However, if a landlord struggles to obtain buildings cover then the tenant and landlord alike will face problems in the event of flooding.  There are Landlord policies available on the market which can offer help towards rehousing costs but it seems likely that these issues will shake up the whole sector with some private residential landlords pulling out.

An alliance of property industry leaders including the British Property Federation and the Council of Mortgage Lenders yesterday warned that exclusions will leave many millions of homes without any access to affordable flood insurance. The BPF and CML are calling for an amendment to the Water Bill.