Warning over flood cover for new homes

Published 23rd Dec 2008

From next month new-build homes on flood plains will not be automatically covered by insurers

New-build homeowners with property on a flood plain will no longer be guaranteed flood-insurance renewals from next month.

The Association of British Insurance’s (ABI) “statement of principles” guarantees homes at high risk of floods will continue to be covered if the owner already has insurance and the government invests in adequate flood defences.

The agreement is in place until 2013 for most high-risk homes, but owners of properties built after January 1, 2009 may be left without cover by 2010 when their policies are up for renewal. It could leave them unable to switch mortgages and could hit the value of their property.

Malcom Tarling of the ABI said: “Where new properties are insured against flood after January 1, 2009 then, as the statement of principles does not apply, the insurer will not be under any obligation to renew cover as they are with existing policies under the statement.”

The government plans to build 3m new homes by 2020, but around 1m of these are earmarked for flood plains, according to the ABI.

Homeowners have also been warned that the cost of flood insurance is likely to jump following an Environment Agency prediction of a big rise in the number of people at risk. The agency found that the total number at risk was likely to more than double from 1.5m to 3.5m by 2080, with the cost of damage soaring from £1 billion to £25 billion a year.

The predictions are based on the government’s Foresight Flooding report, which models what will happen over a lifetime due to climate change and population growth. While the rise may seem a long way off, insurers constantly update premiums to take account of changing risk.

The rise in the number of homes affected comes despite a government initiative to boost flood-defence spending after last summer’s floods, which killed 13 people and hit 44,600 homes.

Premiums have already increased in some flood-prone areas, and in some cases the excess — the amount of a claim you must pay yourself — is as much as £30,000. The average cost of flood cover has increased by 6.7% from last year.

A spokesman for the Environment Agency said: “Properties built on flood plains against the Environment Agency advice are, in our view, placing people and property at unnecessary risk, and may jeopardise their ability to get insurance cover.”

Tarling denied that homeowners would be automatically blacklisted. “While the statement of principles will not apply to new developments, they will still be insurable. Insurers will assess the flood risk in the normal way — including taking into account existing or planned flood defences, any flood resilience or resistance measures incorporated into the development as a whole, and individual properties within it — in order to decide if property is insurable and on what terms and conditions.” However, he added that ABI members would no longer be obliged to offer cover.

Environment Agency chief executive Paul Leinster said: “People should be taking responsibility to prepare for flooding, but the insurance industry should consider giving customers financial incentives: reducing premiums and excesses if they sign up for free flood warnings, for example.”

Source: ' times '

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