By Stephen Womack, This is money.co.uk
Householders in areas where there is a high risk of floods could be left without insurance, along with properties they cannot sell.
They have been caught in the crossfire as the Government and insurance industry fall out over the best way to ensure flood cover is available in future. The two sides are wrangling over what happens when the current agreement on flood insurance expires in June next year. Insurers may then decline cover or impose terms so onerous that up to 300,000 homeowners in the properties most at risk cannot afford it.
Mary Dhonau, a flood prevention campaigner and former chief executive of the National Flood Forum, says: ‘My concern is that we end up with some sort of free market in flood cover, which means that those at highest risk of flooding end up with premiums that are so high they become uninsurable. ‘This would have knock-on effects with people unable to get a mortgage or sell their property and the danger is entire communities end up blighted.’
At present, the homeowner and the insurer are effectively stuck with each other. The agreement, first struck in 2000 and renewed twice since, commits insurers to providing cover where flood defences that can safeguard against a flood once in 75 years exist or are planned within five years. Homes that are built after January 2009 are excluded. Even under this deal, premiums have risen and insurers have imposed flood excesses, the portion of a loss paid by the customer, reaching £5,000 or £10,000.
But insurers agree to offer some cover. In future they may refuse to quote at all. Otto Thoresen, director general of the Association of British Insurers, says: ‘We have told governments since 2008 that the Statement of Principles deal will not be renewed in 2013. It is long past its sell-by date, with a stealth subsidy from some low-risk customers to those in high flood risk areas.’
Not all insurance companies are bound by the deal, with new entrants to the market free to ignore homes at high-risk of flooding, giving them a competitive advantage over established firms. This is one reason why the ABI says the entire approach must be rethought.
The Department for Environment Food and Rural Affairs published an update on its flood prevention planning just before Christmas. It wants to continue to improve flood warnings and says more than £2 billion will be spent on defences against flooding and coastal erosion over the next few years. But Defra ruled out State involvement in helping to pay for private sector losses from flooding. Richard Benyon, Parliamentary Under Secretary for Natural Environment, said: ‘The priority will continue to be to invest in reducing the risk of people and properties being flooded in the first place, rather than redirecting funds into subsidising insurance premiums.’
Malcolm Tarling, spokesman for the ABI, says: ‘The Government has ruled out the one thing that we want to explore, which is the possibility of some sort of risk-pooling for those properties that are in highest danger of flooding.’
There is a precedent. The Government acts as an insurer of last resort for terrorism risks under the Pool Re scheme set up in 1992. Insurers say a similar model might help maintain flood cover. Dhonau says: ‘I fear there is a disconnect between insurers and the Government. We need someone in Whitehall to pick this up and pull things together.’
In the meantime, the wrangle has left homeowners such as David and Romaine Cape nervous about whether they will be able to get cover in future. The couple were forced out of their bungalow in Cockermouth, Cumbria, during the severe floods of November 2009 when water from the River Derwent poured into the void under the house, causing floors in all the rooms to buckle.
Putting the damage right cost more than £30,000. While the couple remain insured by Lloyds Bank through broker AA Insurance, they are concerned about what will happen in 2013.
David, 61, who works part time as a will researcher for a firm of solicitors, says: ‘I suspect the problems for us could start in 2013. I’d hope that the insurers and the Government can find a way of extending their “gentlemen’s agreement” on flood insurance.’ He says it cannot be beyond the resources of the State to do more to support communities at risk.
David says: ‘The Government can find money to support development and aid projects around the world, so why not help closer to home?’