Insurers extend willingness to cover flood risk in home insurance policies…for the moment
There exists an agreement between the Government and the Association of British Insurers (ABI), since 2000, called the Statement of Principles, that obliges insurance companies to offer flood cover as part of standard insurance policies where they are at significant risk of flooding, if there are plans in place to reduce that risk within five years. However, in 2008, it was agreed that this current Statement of Principles would not be renewed at the end of June 2013.
However, it has just been announced that insurers will continue to offer flood insurance to existing customers whose policies are up for renewal in July – pending ongoing discussions with the government over how to address the huge costs of the insurance industry of providing such cover.
(Worryingly, the Statement of Principles does not apply to homes built since 1 January 2009. Therefore there is no obligation for insurers to offer cover against flood risk for newly-built property. Developers and customers purchasing a property in a new development are encouraged to make sure that the risk of flooding is at a bare minimum.)
Many suggestions to cure the high cost for the insurance industry, and so make the cost low enough to continue insurance, revolve around providing people with information about flood risk before buying a home, encouragement to fit flood prevention measures, better data sharing between the various bodies that are involved in assessing flood risk (including local authorities, the highways agency, water companies, commercial data providers and the insurance industry).
As a result, conveyancing solicitors have been bombarded with search companies selling ‘Flood Searches’ (or more accurately flood 'data' searches) which give the impression of some miracle solution but as stated on the Defra website, “the flood data currently published gives information on risk for the general location of a property, rather than for an individual building. It does not usually take account of specific features of your home or business premises, for example, the elevation of the ground floor or whether it has a basement or cellar. You may be able to show that your property is at a much lower risk of flooding than the general area in which it is situated.” Defra go on to state that “Action taken by the Government, communities, individuals and businesses to reduce levels of local flood risk is the best way of keeping insurance available and cover affordable over the long-term. One of the best ways to do this is for property owners and residents to reduce the chance of their own home being flooded and to minimise the size of any claim should flooding take place….. In some cases specialist brokers may be able to provide better terms than mainstream insurers. Specialist brokers can be found through the British Insurance Brokers’ Association consumer helpline on 0870 950 1790 or via the online their ‘find a broker service’. Consumers can also contact the ABI if they feel they have been unfairly treated by an insurer. They can be reached on 020 7600 3333 or via the ABI website.”
Indeed, the Law Society's recently published Flood Risk practice note, warns that conveyancing solicitors "are not qualified to give advice on flood risk" and should simply "mention" the issue of food risk to their clients. Conveyancing solicitors are not to be relied on in this area. However, the Law Society's practice note does contain some useful information – a copy of which is here.
The Government still remain in negotiations however, and one option remains a levy of 6% tax on buildings and contents insurance to be used to protect vulnerable properties until a replacement for the Statement of Principles is in place.