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Rising Waters for Insurance Premiums
P
roperties in areas affected by flooding in the past, or at risk of flooding in the future, are now finding that buildings insurance premiums are extremely and often prohibitively expensive. An agreement between the Government and the insurance industry to provide reasonable cost insurance in such cases ended on 31 July 2013. Negotiations on a replacement agreement have continued for some time. Comments in the press suggested the insurers were unhappy that the Government’s commitment to fund flood management works had faltered in the downturn. So insurers went ahead and charged open market prices for insurance to flood-affected properties. Far from a dry subject, in any sense of the word, the
Fortunately the Government and insurers appear to have reached an agreement availability of insurance covering flood risk is crucial. In an open market, insurers would have the option of refusing to cover properties at high or indeed any risk or increasing premiums to the point of being unaffordable. Most, if not all, mortgage lenders will decline to provide a mortgage unless adequate property buildings insurance can be obtained. If that is impossible and a property is unmortgageable, then it can only be sold to a limited market and will suffer a dramatic drop in value. Increased availability of information threatens to make the problem worse. Large flood payouts by insurers in recent years have been accompanied by increased countrywide flood assessments for surface, river and seawater flooding. When you next buy or remortgage a house, your solicitor is almost certain to carry out an environmental search which will contain a flood risk. Fortunately, the Government and insurers appear to
have reached an agreement. They will provide an industry fund to support the highest risk properties. The fund will be raised by a levy on all household premiums, currently suggested at £10.50 per household. It will cap the amount an owner pays for flood insurance and the level of the policy excess, increasing it over a period to allow households to adjust to an increase. The Government may step in to cover any losses in the fund although this is yet to be agreed. Homes built in 2009 and afterwards will not be covered, nor are they under the existing agreement to promote avoiding risky areas, and nor are homes in the highest Council Tax Band. The Government has set out long-term funding for flood defenses until 2020. The fund, known as Flood Re, is intended to be in force by summer 2015. In the meantime insurers will voluntarily abide by the statement of principle. The issue seems likely only to grow in importance. New flood searches seem to suggest that more properties are at risk of flooding than was previously thought, often by surface water where there is no nearby water source. Serious flooding in recent times also suggests the actual risk is increasing as well. Insurers are certainly looking to reflect this in their insurance premiums.
David Morgan Wynne Solicitor
@wmlegal Wollenmichelmore
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