The provision to be able to provide policyholders with Flood Insurance is something that has become harder and harder for Brokers and Insurers in the last 10 years as we continue to battle with climate change and the seemingly variable effect that has on our weather.
We are now recording almost monthly driest followed by wettest months and it is unlikely that this pattern will change.
With increased rainfall of course comes an increase in flooding, often in areas that have never seen this before.
Not surprisingly then we are beginning to wonder how much longer we will be able to obtain cover for policyholders at an affordable level.
Why do Insurers have to give cover now?
At present, well until June 2013, the provision of cover is pretty much guaranteed under the Flood Insurance Statement of Principles.
This is an agreement between the Government and Insurers that states that Flood insurance should be available to the vast majority of households and small businesses where ;
• The flood risk is not significant and is generally defined as no worse than 1.3% or a 1 in 75 annual probability of flooding
• Higher risk areas should also be eligible for cover providing the Environment Agency has announced plans and notified the ABI of its intention to reduce risk for those customers to below significant within the next 5 years.
It should be remembered that this does not apply to new property built after January 2009 where the ABI encourages developers and customers to ensure that it is in an area where Flood insurance is available.
So that’s where we are now – what will happen after this?
At the moment this seems very unclear with industry wanting to see more commitment from the Government in terms of spending on flood defences before it commits itself.
In January 2012 the ABI looked at 124000 properties which fell within the significant risk category. This revealed that 78% of these properties were currently paying what was considered to be an under priced premium bearing in mind the risk of flooding.
One in six properties are now considered to be at risk of flooding and over 500,000 of these to be at significant risk. By 2035 this figure is expected to reach 835,000.
These are worrying figures indeed against a background of uncertain provision of insurance in the future.
How could this effect the economy?
The effect that an inability to obtain Flood insurance for policyholders should not be underestimated.
The value of properties could be massively influenced by this, some could almost become un sellable and then there is the question of whether mortgages can even be obtained in areas where cover is not available.
The overall effect on the housing market and economy is hard to quantify but it will certainly have a bearing on any recovery from recession.
The Commons Select Committee for Environment Food and Rural Affairs are now pushing for a fresh agreement to be put into place.
In the meantime best advice to policyholders has got to be to carry out a full Flood search when purchasing new properties and be fully aware of the possible effects of this Flood rating.
Reference : ABI research paper (www.abi.org.uk/Publications/54261.pdf)