With thousands of homes devastated by freak flooding during what has been the wettest quarter on record, many homeowners face increased insurance costs in the future.
But the people now clearing up may not be the only ones finding it hard to get cover by next year.
The Association of British Insurers (ABI) told Channel 4 News that the current flooding represents an “individual [insurer’s] event”, with the effect on premiums varying from company to company. This means that although premiums for houses in the flooded areas are likely to rise, there should be no national impact.
However, thousands more people remain at risk of being priced out of insurance in twelve months’ time.
The ABI and the Government are still locked in negotiations over the insurance industry’s “statement of principles” put in place in 2008 and set to expire next year. The ABI have refused to renew this temporary stop-gap agreement – which currently ensures some insurance even for those in high risk areas – in favour of a more binding long-term solution.
Without a new approach, the ABI estimates that up to 200,000 property owners will struggle to get affordable flood insurance when the current agreement with the Government ends in June 2013.
One of the sticking points of the agreement is the idea of “continuing cover”: the ABI wants to scrap the provision for customers being tied-in to their existing insurers because they say it doesn’t address affordability and locks people in to a specific company.
It’s true that new insurers are prevented from making a better offer at a better price, but the alternative is an open market for insurers to drop cover for high risk customers. Most insurers define “high risk” as up to a 1 in 75 year flood probability, and under the current system some low-risk customers end up paying more to subsidise the existing cover tied to the higher-risk ones.
Since 2000, insurers have paid out £4.5 billion to customers whose homes or businesses have been hit by flooding. The 2007 summer floods were responsible for £3 billion of payments alone. The Environment Agency estimates that 2.8 million properties are at risk of flooding from surface water and the ABI say that the total value of assets under flood risk is more than £200 billion.
Insurance price is based on a variety of factors, including the likelihood of an area to be flooded, previous claims and government and personal flood defences.
The government says it is working hard to improve flood protection. A Defra spokesman told Channel 4 News: “We are on course to exceed our goal to better protect 145,000 homes by March 2015. Environment Secretary Caroline Spelman claims the Government is spending “£2.1 billion” on the country’’s flood protection measures, a figure which has been widely disputed – Labour has accused the government of cutting flood spending by 30 per cent.
And on the question of insurance premiums, Defra says: “We’re mindful of those on lower incomes living with the risk of flooding. That’s why we’re considering ways to keep flood insurance affordable for those who might struggle most with premium increases.” It is not yet clear what this might entail.
Uncertainty about the availability and cost of flooding insurance after 2013 will certainly lead to further problems downstream for lenders and borrowers.
The Council of Mortgage Lenders warned that the “big and significant issue” surrounding the potential lack of flood insurance will further squeeze the housing market. Soaring premiums or excesses “could compromise the affordability of the mortgages” and place a greater squeeze on the housing market.
So does the beleaguered homeowner remain at the mercy of government decisions on where flood defences are built? Not entirely, as insurers will take into account additional defences that a property owner chooses to install at their own cost, although this will be of little comfort to anyone already struggling to pay for insurance at the current rates.