Flood risks and the impact on insurance. Is help at hand?
As recent events and media coverage have shown, flooding is becoming a major issue in the UK. It seems that, no matter how far you live away from a water source, no property is really immune.
As recent events and media coverage have shown, flooding is becoming a major issue in the UK. It seems that, no matter how far you live away from a water source, no property is really immune.
However, help is at hand as on 27 June 2013 the Association of British Insurers (ABI) announced that it and the government had agreed a Memorandum of Understanding on how to develop a not-for-profit flood fund: Flood Re. This fund is to ensure flood insurance remains widely available and affordable to homeowners who are at high risk of flooding.
The scheme comes into being from summer 2015 but there are some exclusions. The scheme will only be available for homes and will not extend to properties falling within Council Tax band H in England. Homes which are built after 1 January 2009 will also be excluded from the scheme.
The fund will provide a way of offering people in a high flood risk area, who might otherwise struggle, affordable flood insurance at a set price. Where insurers cannot offer high flood risk households flood insurance below the Flood Re thresholds, they will pass the flood risk element of the household policy to the Flood Re pool, together with a premium equal to the relevant threshold.
Customers will not notice a difference as their household insurance policies will still be provided by the one insurance company. If a customer makes a flood claim on the policy affected by the scheme, Flood Re would reimburse the insurer for the value of the flood damage claimed. Of course, if there was any other claim under the insurance policy, the insurer would deal with this in the usual way.
The premium to cover the flood risk element of the household policy will be capped, based on the Council Tax band. These capped premiums are transferred to the Flood Re fund by the insurer and will be used to help pay flood claims. Having capped premiums will help householders to have the certainty to know the cost of their flood insurance, and more importantly, to have comfort in knowing the risk is covered.
To fund the scheme, all home insurance policies will be subject to a levy which, on average, will work out to be around £10.50 per year.
Flood Re will only be available to households and will not be offered to commercial property. Commercial property owners and tenants must ensure that they are aware of the terms within their or their landlord’s insurance policy in terms of flood risk.
Tenants will also need to bear in mind what the provisions of their lease say. Some landlords may specifically exclude flood risk from their insurance obligations, if the risk is difficult to obtain in the insurance market for the property. Also, if you are leasing or purchasing a commercial building it is always advisable to have an environmental search carried out, and in some cases a specific flood search, to ascertain the level of risk associated with the property.
