Many in flood-hit areas may struggle to renew insurance

Published on 14/07/2012 14:03

PEOPLE in flood-hit areas may find it hard to get 
insurance in future unless the UK Government and the insurance companies can thrash out a new deal.

After a week which saw Stockbridge Colonies in Edinburgh flooded when the Water of Leith broke its banks, insurance experts say time is running out to find a way to protect home 
owners from the effects of unusual weather conditions.

A deal between insurance companies and the Government which ensures people in flood- hit areas are protected runs out in less than a year, and there is no alternative arrangement in place.

Simon Douglas, director of broker AA Insurance, says: “Flood protection is a national priority, yet many people in flood-prone areas may find their homes difficult to insure from later this year.

“Some insurers are telling us that flood-prone homeowners might not be able to renew their cover later this year, because their new policy will extend beyond 1 July, 2013: with all the implications for property value and mortgage availability that this implies.

“People want the government to take decisive action now to ensure that their homes are protected.”

In Scotland, responsibility for flood prevention lies with the Scottish Government. However, the issue of flood insurance,
because it relates to financial services, is a reserved matter – hence a responsibility of the Westminster department for environment food and rural affairs.

Defra is currently in negotiation with the Association of British Insurers to work out a new deal which will ensure people in flood-hit areas can still get insurance. Under the deal, worked out in 2000, insurers have a responsibility to maintain cover – even if properties are at risk.

The ABI believes this arrangement is unfair – saying it means people in flood-hit areas have less choice. However, some experts have warned that if insurers are allowed to break the current treaty it means people in frequently flooded areas may struggle to obtain affordable cover.

UK environment minister Caroline Spelman said: “We want to go further than the statement of principles to reach an agreement that ensures both the availability and the affordability of flood insurance for the rst time.

“The insurance industry and the government, working closely together, have made great progress towards this goal. We are now considering a cross-subsidy mechanism that would ensure high-risk households can get affordable insurance without extra costs being placed on 
policy-holders or taxpayers.

“The best and most sustainable way of keeping insurance affordable in the long-term is to help prevent flooding in the first place. We are spending more than £2.1bn on flood risk management, and are on course to exceed our goal to better protect 145,000 homes by March 2015.”

Nick Starling, the director of general insurance at the ABI, said: “Insurers remain committed to trying to finding a new replacement solution for the current statement of principles agreement that expires in
June 2013 that is better for customers and secures the availability and affordability of flood insurance.

“We are currently at an advanced stage in our discussions with government.

“Insurers continue to cover for flooding as a standard part of UK home and small business insurance.”