Canvey Islanders, being resident within a flood risk zone3 area, will be interested to read of progress of an agreement between Government and the Insurance Industry to maintaina viable level of premiums for home insurance incorporating flood cover. As has been reported previously on this blog, at least one large Insurer does not offer home insurance cover for Canvey Island. Whilst an agreement will hopefully be reached it will not compel Insurers to offer flood cover. A case of buyer beware on house purchase on new developments I fear.
Tim Ross of the Telegraph writes:
All homeowners will be forced to pay more for their house insurance to repair flood damage to properties in high-risk areas under government plans.
Britain has endured the wettest start to a summer for more than a century with up to 17 inches of rain falling in some places and forecasts that the miserable conditions will continue into next month.
Thousands of properties have been flooded with insurers estimating the cost of repairs at hundreds of millions of pounds.
Now the Environment Secretary, Caroline Spelman, has disclosed she is in talks with the insurance industry about a scheme which could add 10 per cent to an average family’s bill.
She is proposing a levy, which could be in place within months, that would apply to all home insurance policies in an attempt to raise enough money to cover damage in the aftermath of severe flooding, which can reach billions of pounds in insurance claims.
Critics claimed the proposal represented a “stealth tax” and said it was unfair that those “sensible enough” to live outside areas which flood should pay more.
Hundreds of flood alerts and warnings have been issued in recent weeks after torrential rain swept the country, causing extensive damage to property.
Record breaking rainfall in June led the Environment Agency to urge householders to take action to protect their properties and avoid walking or driving through flood waters.
Financial experts have warned that thousands of homeowners in areas affected by this summer’s floods face higher premiums when they renew their annual home insurance schemes.
Some victims of the recent flooding have seen premiums rise by up to five times, while others have been told they must pay the first £5,000 of any future claim.
After an estimated £1 billion worth of damage was caused by extensive flooding in 2000, a deal was struck between the Labour government and insurance industry.
Should all homeowners be forced to pick up the bill for those who live in high-risk areas?
Insurers agreed to continue to cover the majority of customers living in areas prone to flooding in exchange for government promises to strengthen flood defences. However, this deal is due to expire next year and no replacement scheme has yet been finalised.
The Council of Mortgage Lenders has warned that the uncertainty over the future arrangements for insuring homes in flood prone areas was likely to push up premiums.
In a statement to MPs yesterday, Mrs Spelman said she was close to reaching a new deal with the insurance industry.
Ministers are concerned that some insurance firms are able to “cherry pick” customers in low-risk areas and refuse to offer cover to home owners in flood-prone neighbourhoods.
At the same time, customers in high risk parts of the country cannot “shop around” for cheaper policies because they are tied in to their current providers under the existing agreement.
The Department for Environment, Food and Rural Affairs said most insurance companies already raise “a small sum” from policy holders to cover the cost of insuring homes at high risk of flooding.
Mrs Spelman said she was proposing nothing more than “formalising” the existing “cross-subsidy” and that talks with insurance firms have made “significant progress”.
“The Government is considering with the industry’s support a way of formalising existing pricing arrangements and maintaining the current cross-subsidy in place between policyholders,” she told MPs.
“This would be by means of an internal industry levy, as proposed by insurers themselves.”
She insisted that the new levy would “avoid increasing costs for those not at risk” while helping families in danger areas to afford insurance.
“The Government and insurers are determined to see insurance premiums remain affordable and widely available, particularly in light of the pressure household budgets are currently under and the pattern of flood events we have seen over recent years,” she said.
The government is also spending more than £2.1 billion on flood risk measures and will is ensuring that 145,000 more homes are better protected from flooding.
Mary Creagh, Labour’s Shadow Environment Secretary, said Mrs Spelman should have acted sooner.
“The statement does not do anything for home owners and businesses who are struggling to find flood insurance,” she said.
Defra is refusing to say how much the new levy could cost policy holders but insurance industry sources suggested the plan could see premiums rise by 10 per cent.
Ashwin Mistry, the chairman of Brokerbility, a network of independent insurance brokers, accused the Government of introducing a “stealth tax” instead of dealing with the underlying issue of poor flood defences.
He said topping up the insurance of flood-hit households is simply “papering over the cracks”.
“Should we be subsidising all those in flood zones continuously rather than dealing with the long-term problem?” he said. “The extra cost would range from anything from £10 to £20 more per policy on top of everything else.
“It’s another tax by stealth, rather than addressing the critical issue of climate change and better infrastructure.”
Rivers burst their banks in Sidmouth, Devon, last week as residents in the South West were warned to protect their homes. Last month was the wettest June since records began, with double the average rain falling during the month.
In Hebden Bridge, West Yorkshire, rising flood waters have overwhelmed the streets, causing extensive damage for a second time in two weeks. Police told residents to stay at home upstairs if possible.
Ian Crowder, from AA Insurance, said it was inevitable that people would have to pay more for their home insurance because flooding is getting more unpredictable.
“Nobody likes paying more money and you could argue those sensible enough to choose houses away from flood plains will say why should I have to pay?” he said. “On the other hand, this is how it works in almost every other country.
“The UK is unique around the world in that home insurance includes flood cover as standard.”
He said insurance companies are already preparing to withdraw cover from houses in the worst-affected areas from the middle of next year.
Unless the government can strike a deal with insurers, they will be left without insurance.
According to the AA, the average household pays £176 in building insurance every year. It rose 7 per cent over the last year and by 12 per cent the year before.
Nick Starling, Director of General Insurance at the Association of British Insurers, said: “Insurers continue to provide cover for flooding as a standard part of UK home and small business insurance and we remain committed to doing our very best to help those that suffer the devastation flooding brings.”