HOUSEHOLDS in areas at risk of flooding could face a sharp hike in the cost of insuring their homes as a deal guaranteeing affordable cover comes close to expiring.
Scots hit by the recent winter floods or who live in flood risk properties have been told to brace for a shock when they next renew their home insurance, with crucial negotiations between the government and the insurance industry locked in stalemate.
The agreement under which insurers must offer cover to homes that have made claims for flooding damage or that are in areas considered at high risk of flooding comes to an end in June.
Months of talks over extending or replacing it have come to nothing and the chance of any deal being done in time are receding rapidly.
The Statement of Principles requires the government to invest in flood defences in return for the insurance industry’s guarantee of cover for flood-hit homes.
Talks began last year over an Association of British Insurers (ABI) plan that would have seen home insurance premiums capped and high-risk properties covered partly with a levy on all home insurance policies.
But no conclusion has yet been reached, raising the prospect of flood-risk homes being left uninsured. An estimated 5,000 homes in Scotland would be affected, with the implications including potentially huge damage repair bills and a block on new mortgage finance.
Clare Francis of MoneySupermarket.com, said: “Thousands of homeowners across the country will be worried about what this will mean for their home insurance, particularly with some still trying to get their lives back to normal after all the flooding over the past year.”
The impasse may also mean that people who have made recent flood claims will be quoted far higher premiums when they come to renew their home insurance. That would include Scots who suffered damage in the floods of last December, when Aberdeenshire was particularly badly hit.
“As yet there is no evidence that the lack of a new agreement is affecting the cost of home insurance,” said Francis. “However, there will undoubtedly be people who have made flood claim recently who will see a big jump in cost when their renewal quote comes through.”
It’s now virtually certain that flood-risk homes face higher premiums, with many unable to get new cover in a “free market” where insurers aren’t obliged to offer insurance.
Not only could home insurance premiums become all but unaffordable in a “free market”, but those without insurance would also struggle to secure mortgage finance.
Lenders don’t offer mortgages to homeowners who don’t have buildings insurance in place, while homes that are expensive to cover are also very difficult to sell, especially where there are flooding risks.
Simon Douglas, director of AA Insurance, said insurers are already charging more for properties at risk of flooding, regardless of the Statement of Principles. “If we end up with a free market, cover will become either impossible to obtain or unaffordable. Or, more likely, it would be offered with an unaffordable excess for a flood claim,” he said.
“Already we are seeing some homes that might have been flooded more than once, with an excess (the amount contributed by a homeowner towards a claim) of more than £10,000.”
Douglas hit out at the failure of government and the insurance industry to do more to help people who, through no fault of their own, are living in places that are becoming more prone to flooding.
“It’s not as if there hasn’t been plenty of time to come up with an answer,” he said.
“After all, the decision to end the Statement of Principles was taken way back in 2008, since when there has been a change of government and a lot of mud-slinging and blame being cast, rather than concentrating on what is needed.”
The inability of the main parties to reach agreement means it could be another year before any solution is in place, as it would almost certainly need primary legislation.
Owen Paterson, secretary of state for the Department for Environment, Food and Rural Affairs, last month suggested the Statement could still be extended. But while that should mean flood-risk homes can continue to get insurance, it doesn’t guarantee that it’ll be affordable, Douglas claimed.
“That won’t happen unless and until a more robust system, which all homeowners are likely to have to contribute to, is in place,” he said.
The proposal put forward by the ABI would have featured an additional levy on all households’ insurance of up to £15 each, to help cover the cost of guaranteeing insurance for flood risk homes.
However, it’s understood that the UK government has rejected the plan because it would have to plug gaps in the funding pool to meet any claims arising from floods that occur in the near future.
But the returns on investment in flood defences cannot be overestimated, said Douglas.
“For instance, £35m spent on flood defences completed a year ago at Carlisle, this year protected over 1,500 homes. That will have more than paid for that investment in terms of the damage that would once again have been inflicted on the city.”
As it stands, the main hope that flood risk homeowners have is that insurers and the government thrash out an extension to the present agreement.
“Otherwise flood-prone homeowners will be at the mercy of market forces with the obvious consequences for lack of insurability, value and mortgageability,” said Douglas.
“There’s no time to waste.”
• Move costly possessions - Shift valuable and electrical goods off the floor, ideally upstairs.
• Protect soft furnishings - Rugs can be moved upstairs if flooding looks likely and you can throw curtains over their rails to protect them.
• Stock up on sandbags - Buy in flood boards and sandbags to block doorways with, as these will help you fight the flooding and protect your home.
• Protect irreplaceable items - Objects with sentimental value, such as photos, should be packed in waterproof bags and put somewhere safe, ideally upstairs. No amount of insurance money can bring these back, so put them out of harm’s way.
• Check outside drains are clear and aren’t blocked - Sounds so obvious, but often, particularly after cold weather, most of us pay little attention to the state of drains and gutters. A block drainpipe can cause a gutter to spill water under the eaves with disastrous consequences.
• List useful contacts - Write down important numbers such as your home insurance provider and policy number, and Floodline (0845 988 1188). Keep this information to hand.
• Pack a flood kit - Put together an emergency kit containing personal IDs, any required medication and a change of clothing in case you do need to evacuate your home.
• Keep informed - Watch the weather forecast and check with the Met Office to make sure you’re aware of any threats.