What's the future for home insurance in flood areas?

A flooded road with hazard signs
An agreement between the insurance industry and the government on floods looks off the cards -for now
"We need to see exactly what is being proposed by both sides and knock heads together – and fast" Charles Tucker, National Flood Forum
  • | by Kristian Dando

It would be an understatement to say that the weekend was been a grim one weather-wise, particularly for those in the south west of England.

With more than 800 homes flooded and hundreds of businesses affected, it’s been a miserable few days – and with the storms moving north, there doesn’t appear to be much sign of let-up.

It’s thrown the real danger posed to homes and businesses in high-risk flood areas into sharp focus once more, with the Association of British Insurers calling on the government to back a proposed scheme which it says would maintain affordable insurance for at-risk homes next year and beyond.

What’s the problem?

A major problem for homeowners in high-risk areas – despite the obvious constant threat of flood damage, of course – is getting home insurance at all, let alone at a price they can afford.

This has a serious knock-on effect on mortgages, too. After all, without home insurance in place, you simply can’t get one.

The background

An agreement between the insurance industry and the government was struck in 2008, which ensured that insurance companies would keep providing flood cover for high-risk properties while the government invested in flood defences. This is due to end in 2013.

The discussions between the government and the insurance industry to resolve the future of affordable home insurance for properties in flood risk areas are said to have reached an impasse – with the people who happen to live in high-risk areas being the ones who will suffer. It’s reckoned that about 200,000 homes are at risk of losing their home insurance if a deal isn’t struck.

The insurance industry's plan - what is it?

The ABI’s self-proclaimed ‘simple, elegant’ proposal to make home insurance for those in high-risk areas involves a levy on home insurance for all customers – not just those in high-risk areas.
However, it requires the backing of the government, in the form of a temporary overdraft facility which would be used to pay claims for flood damage in the years while the reserves of cash which are to be made from the levy are built up.

Why the disagreement?

Environment minister Richard Beynon has said that he he does not want to see a huge burden being placed on those who pay insurance premiums across the country or on the taxpayer. Perhaps with the banking bail-out fresh in the memory, he said: “We want to make sure there’s not some bottomless pot of Government funding that highly profitable financial organisations can tap into.”

What now?

The government claims that it is still working with the insurance industry to come up with a solution to the problem, and that there is no impasse.

The ABI is also said to be ‘reviewing’ proposals which were made by the government last week.

The National Flood Forum (NFF) has had stern words with both parties – stopping short of giving them both a clip round the ear and telling themselves to jolly well pull themselves together. NFF Charles Tucker said: "This is kicking people when they are down. These negotiations have been going on for over two years; for them to break down at this stage is outrageous. It's now time for action. We need to see exactly what is being proposed by both sides and knock heads together – and fast."

"Being hit with a four-figure insurance premium adds insult to injury, and being refused insurance could spell financial ruin for thousands,” he continued. “Every household and community hit by flooding is relying on them to ensure that flood risk insurance is available to all, is affordable, and is based on social justice."