Home insurance costs to rise

The UK is struggling through its wettest winter for 250 years and, as more areas fall foul of the flood waters, flood insurance claims have topped £500million since December alone.

It could be about to get a lot worse. Forecasters are predicting the cost of the clean-up operation could reach the £1billion mark if the current conditions continue and cause damage to even more homes and businesses.

Insurers estimate that typical flooding claims each cost around £30,000 - £40,000 to resolve. This figure will be higher for those who are forced out of their homes into insurer-funded alternative accommodation for any length of time, which is the case for many beleaguered householders during the present crisis.

So if insurers are paying out such significant sums for flood claims – which is what they’re paid to do, of course – will we see them recoup their losses through increased premiums? And will that mean all policyholders will face increased costs when they next renew their contents and buildings cover?

The figures behind the floods

According to figures from the Association of British Insurers, insurers dealt with 174,000 claims for damage to homes, businesses and cars between December 23, 2013 and January 8, 2014, and the bill for the damage caused by the storms over the Christmas and New Year period stood at around £426million.

However, accountancy firms Deloitte and PricewaterhouseCoopers (PwC) have separately put the insurance bill at £500million. And this figure could be set to rise even further as the deluges continued across the south-west and the flood water made its way along the Thames Valley towards the capital.

Recent severe storms across Wales, the midlands, north-west England and Scotland have only added to the difficulties.

James Rakow at Deloitte said: “The flood and storms that we have witnessed since the St Jude storm in October last year threaten to seriously dent the profits made by insurers for the year as a whole, potentially forcing many to recoup costs by raising property insurance premiums.”

Which is bad news for everyone, regardless of whether they’re directly affected by the floods – but why do insurers see fit to increase prices across the board?

Why insurance premiums could rise

Although there’s still been no definite indication that premium prices will rise following the floods, this could easily change when the final repair bill comes in, which means insurers will already be doing their sums to decide what their next course of action will be.

The last time this happened was following the big freeze in 2010 – it seems we’ve a choice betwen Biblical storms and arctic winters these days – when premiums rose by around 5% to cover the cost. If this increase was applied to contents and buildings insurance to cover the cost of the damage caused by the floods, the average premium would increase by £10 - £15.

But why is this?

Kevin Pratt, insurance expert at MoneySuperMarket, explains: “Insurers have been hit with over £500m of flood-related claims in recent weeks – and with no respite from the weather in store, the figure is sure to rise. What’s more, we’re being told we’ll see extremes of weather on a more frequent basis in the years to come.

“All this is putting pressure on insurers to raise premiums, and not just for those in the most flood-prone areas. If claims are increasing both in number and cost, insurers will look to bolster their finances and balance their books, so it’s more important than ever to shop around to get the most competitive price. If your renewal premium comes in higher, it only takes a few minutes to check if there’s a better price available elsewhere.”

In addition to price increases, insurers might look to impose higher excesses – the amount you contribute towards the cost of any claim – on those at increased risk of flooding. Flood excesses of £1,000 or even more are becoming increasingly common.

Shop around for the best priced cover

One of the biggest fears people have if they are hit by flooding is whether they will be able to get insurance in the future. At present, if you have home insurance, your insurer will definitely offer to renew your policy thanks to an agreement between insurers and the government called the Statement of Principles.

The price may go up and you may have to pay a bigger excess, but the offer of cover will be made. And, of course, you retain the option to shop around to see if you can find a better deal – always a worthwhile course of action.

The Statement of Principles (which officially came to an end last year but continues to be honoured) will finally be replaced by a new scheme, called Flood Re, in 2015. This will cap the flood insurance portion of home insurance premiums at between £210 and £540 depending on the Council Tax band of the property – although, controversially, properties in Band H will not be covered. Properties built since 2009 will also be excluded, and Flood Re will not apply to commercial properties.

Financial assistance

Help for flood victims is also coming from some more unlikely sources: HSBC, Lloyds, Nationwide, Santander, and RBS/NatWest have all offered to provide relief to flood victims in the form of temporary overdraft extensions and help with loan and mortgage repayments, including repayment holidays, as people try to get their lives back in order.

However, the risk of rising premium prices still looms large over everyone, meaning it’s more important than ever to shop around for the best deal – and you can quickly compare quotes from around 100 providers by running your details through the MoneySuperMarket home insurance tool.

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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