Will your home be insured against flooding?

Published:
28 November 2012
Topic:
News,Insurance,Home

Floods have hit thousands of homes as storms and heavy rainfall have battered much of the country, including the south west of England, the Midlands,north Wales, northeast England and Scotland.

The cost of the damage will largely be shouldered by the insurance industry - at least for those who have home insurance in place.

Worryingly, hundreds of thousands of flood victims face the prospect of losing the protection currently provided by their home cover because the Government and the insurance industry cannot agree on a joint approach to the flooding problem blighting so many homes and businesses.

In 2008, insurers agreed a five-year 'statement of principles' with the Government. It stated that the industry would continue to offer cover for flood victims at renewal - for both households and small businesses - even if they had made a claim for flooding.

The likelihood, for anyone who had made a flooding-related claim, would be a steep increase in premium and a higher excess. But at least cover would be available.

Previously, someone with a poor claims history might have found that they could not obtain cover. Insurers made this concession in return for Government promises to improve flood defences.

This agreement runs out on June 30 next year, which means that people renewing after that date who live in flood-prone areas face being refused cover unless the Government and the industry agree on new terms.

The National Flood Forum (NFF) has slammed the rumoured collapse of talks as "outrageous". The Government has denied the suggestion by insurers that an "impasse" has been reached by saying the talks are continuing.

Charles Tucker, NFF chairman, said: "These negotiations have been going on for over two years. For them to break down at this stage is outrageous.

"Being hit with a four-figure insurance premium adds insult to injury, and being refused insurance could spell financial ruin for thousands.

"Every household and community hit by flooding is relying on the Government and the insurers to ensure that flood risk insurance is available to all, is affordable, and is based on social justice."

Here, we answer your questions about the discussions and what they mean for the millions of people who live in areas at risk of flooding - and everyone who takes out home insurance.

What does the current agreement say?

Under the Statement of Principles on the provision of flood insurance agreed five years ago between the Association of British Insurers (ABI) and the government, insurers have to continue offering cover to the huge majority of homes and small businesses at risk of floods.

Even those with a very high risk of flooding continue to be protected on the condition that further flood defences are planned - unless the properties were built after January 2009.

This agreement runs out on June 30, 2013.

Why is a new agreement necessary?

Environment Agency figures showing that more than five million people in the UK live in areas that are at risk of flooding.

Every year, thousands of small businesses are also devastated by floods.

For many of those affected, no new agreement would mean, at best, much more expensive home insurance premiums and the imposition of an excess possibly running into five figures.

At worst, they could face the future with no cover at all in place - meaning that the entire cost of the necessary repairs and clean up would fall on their shoulders.

What about mortgage borrowers?

Homeowners need buildings insurance to qualify for and maintain a mortgage.

Those with properties that cannot be insured as a result of flooding could therefore run into trouble with their lender and risk breaking the terms of their loan. In some circumstances, therefore, they could lose their homes.

Homeowners could also find it virtually impossible to sell their homes for anything approaching realistic previous market values.

Why have talks about a new agreement reached this apparent 'impasse'?

The ABI wants the government to commit to a joint solution to ensure long-term affordable flood insurance for high-risk households.

It recently proposed a scheme that meant any house that would normally incur a much higher premium because of flood risk would have the extra paid out of a levy on every home policy in the UK.

This would mean slightly higher premiums for everyone, but would avoid making the cost of cover prohibitively high for those in flood risk areas.

However, the plans required the government to provide a temporary overdraft facility to a special, not-for-profit insurance fund.

This overdraft would then be used to pay claims - but only if there were huge floods before the fund had time to build up its reserves.

Any drawdowns on the overdraft would be repaid over time.

The Government's refusal to consider this proposal has resulted in what the ABI calls an "impasse".

Nick Starling, director of general insurance at the ABI said: "The Government has indicated it will not provide any temporary overdraft facility for the insurance industry's not-for-profit scheme, which makes it very difficult for it to go ahead.

"As a result, negotiations have hit an impasse. It is vital that insurers and Government tackle this issue together."

So what is going to happen?

While the ABI is disappointed about the Government refusing its overdraft proposal, the good news for flood victims is that talks have not broken down completely.

Nick Starling said: "Insurers know their customers are increasingly worried about flood cover and we will therefore continue talks."

The Government too argues that it recognises the importance of moving forward with talks on flood insurance.

David Cameron's official spokesman said: "We put a proposal to the ABI and it is considering that proposal. We want to ensure people are able to get insurance at an affordable price."

Mr Cameron's spokesman added that meetings are taking place twice daily within the Department for Environment, Food and Rural Affairs to monitor the flooding situation in affected areas.

If you need to make a flood claim, read Mark Hooson's article, which also contains tips on how to minimize damage.

You can get the latest information on flood warnings from sepa.org.uk in Scotland and here for England & Wales. Northern Ireland is free from flood warnings at the moment.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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Jessica Bown

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Financial journalist

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