Fears for flooding vicitms as insurance deal set to run out

Homes in flood risk areas are currently protected by an agreement between insurers and the UK government, the former covering flood risk homes provided the latter invests in flood defences.

However the “statement of principles” is due to expire next summer and efforts to extend or replace it have so far come to nothing.

Failure to reach a solution could leave around 5,000 Scottish homes without access to affordable insurance, Association of British Insurers (ABI) figures suggest. That number is likely to rise in the wake of the latest floods across Scotland.

Flood alerts remain in place for areas including Dumfries and Galloway, Aberdeenshire, Argyll and Bute, Ayrshire, the Borders, Tayside and central Scotland, according to the Scottish Environmental Protection Agency.

Some areas have already been hit by flooding. More than 100 homes were flooded in Comrie on Monday, prompting Perth and Kinross Council to accelerate plans for a flood management scheme in the village.

Insurers are obliged to make insurance available to households who have made a claim related to flooding, under the existing “statement of principles” (although that cover is likely to come with higher premiums and excess).

The ABI has proposed a solution to the impasse that would include a cap on annual home insurance premiums. Homes with a risk priced higher than the cap would get insurance through support from a fund raised by a levy on all home insurance policies.

The solution, dubbed Flood Re, would mean that all homes are still covered, but the government is so far baulking at accepting a compromise that would drive premiums up. Rumours are circulating that government refusal to budge on  the issue has effectively doomed the  proposal.

A spokesman for the ABI said the talks were ongoing, however. “We are locked in discussions with the government. We put the proposal on the table which is to ensure flood insurance continues to be available to customers. It’s a complex issue so that why we’re still in discussions,” he said.

Homeowners would pay a high price if the two are unable to agree on a solution over the coming months. Properties most vulnerable to flooding would be uninsurable, leaving homeowners being saddled with huge bills for damage and repairs.

Insurers warn that the storms of recent months have affected many homes in areas not previously thought at serious risk of flooding.

Simon Douglas, director of AA Insurance, told The Scotsman: “Insurers are very aware of the change in Britain’s climate that seems to be bringing more frequent severe storms and therefore fear of flooding.”

Some 200,000 UK homes are at serious flood risk and 2.4 million at some risk of flooding from rivers or the sea, Douglas pointed out. “The majority of them have been able to insure their homes thanks to the agreement currently in place, but that ends on 30 June next year and there is no certainty of what will replace it.”

Those whose homes have been flooded face major problems if no agreement is reached, not least because buildings’ insurance is a mortgage requirement, said Clare Francis, consumer finance expert at MoneySupermarket.

“Potentially, thousands of people could find themselves uninsurable – for flooding cover at least,” she said.

Anyone forced by this week’s flooding to claim will see a hike in their premium when they renew. But the good news is as long as the statement of principles is in place, insurers are obliged to offer cover.