This page contains a Flash digital edition of a book.

FloodINg: is yourhome atRISK?

FromJune 2013UKhomeowners could find themselves without cover for flood damage under their household insurance policy. Bill gloynexplains

The risk of flood damage to homesand theinsurance coverassociatedwithithas beenasubject of concerntothe government and the insurance industry in theUKfor decades. Thefirst agreementonflooding, designedtohelphomeownersand give them theright levelofinsurance coverwasmade betweengovernmentand theAssociation of BritishInsurers(ABI) anddates back to at least theearly 1960s. Theagreement wasbased on two important assumptions: nInsurers wouldprovide flood insurance covertoall residentialproperty, unless the flood risk wasregular andunavoidable;and nGovernment wouldprovide sufficient flood protectiontoBritish homes. Theresultwas that flood insurancebecame

incorporated as astandardelement of householdpoliciesregardless–inthemajority of cases -ofthe levelofrisk. Homeowners whoconsideredthemselvestobeatlow risk were unable to opt-outofsuchcoverageas this wouldhavereduced thetotal premium incomeavailabletooffset againstclaimsof those in higher risk areas. This ‘gentlemen’s agreement’ between

government andtheABIevolved into aformal “Statement of Principles”(SoP) in 2002.The SoPwas prompted by theserious rise in flood claimswhen homeowners across the country suffered record-breaking losses of around £700 millionin1998andmore than £1 billionin 2000.Atthattime, theestimatedworst case scenario forinsurerswasaUK-wide loss of £2 billion. In fact,thisfigurewasfar exceeded in thefloodsof2007which,accordingtotheABI, resulted in morethan£3billion in insurance claims. Since the SoP cameinto force government

spending on flood defences,whileincreasing slowly,has notmet theinsurance markets expectationsfor evenmaintaining existing

levels of defence, let alone improving them. Whenthe former Labour government’s ComprehensiveSpendingReviewin2007did notinclude an increase of spending on flood defences,the Director Generalofthe ABI declaredittimethatthe government “put its moneywhere itsmouth is”. Shortlyafterwards, theABI set June 2013 as

afinite date forthe existing agreementwith government on flooding to end and stated that the SoP would not extend to properties built after January 2009. A harsh decision but one that was prompted by continuing concerns that house building was being allowed in high flood risk areasdespite tighterplanning regulations.

whileincreasingslowly, hasnotmetinsurance market expectations...

In 2004, some185,000 residential properties

were designatedbythe Environment Agency as beingatrisk–primarilyfrom riveror coastal flooding. By 2010, that figure had risento5.2 million, ofwhichsome3.8 million were exposedtosurface waterflooding–an issue not really appreciated until themajor incidentsin2007. Of that total, some500,000 were classified as being at ‘significant’ risk. Sowhere does all this leave homeowners?

At themomentitisnot clearwhatthe government and the ABI will do to ensure that cover is available after June 2013. The government is due tomake a statement on itsintentionsthisspringand theABI is not

governmentspending on flooddefences,

prepared to proposeany solutionuntil they knowwhat thegovernmentwilldo. Forthe timebeingweare allfaced with aCatch 22 situation-withhouseholderslikelytobe seriously affectedwhichever waythingsturn out.

As youwillsee fromthestatisticsshown

earlierthe cost of flood damage is increasing andwithcontinuingirregular weather patterns andthe seemingscant regard paid by somedevelopers to flood risk,thiscould continue to rise. Flat owners,whether they live in a

ground floor flatorthe penthouse,mayfind themselves without cover as insurers’ rating andacceptance is likelytobebased purely on thepostcode.Floodingisanissuefor all homeowners –livingonthe upperfloors of ablock does notmeanthatifyourbuilding is flooded youwillremain unscathed. Flood damage canbedevastating to both communal areasand thephysicalstructure of buildings andwithout insurancecover,all leaseholders wouldbeobliged to help foot therepairbill –not just thosewhose individual flats are underwater.Withinsurersrefusingtomake anyproposals untiltheyhaveseenwhat the government intends to do, the future availability of insurancecover againstflood damage after June 2013 is unclear. What is certain is that privateindividuals

in high risk areas are going to find difficulty in obtaining cover by themselves. The market muscle andunderwriter relationshipsthat abrokercan provideare goingtobemore important than ever.●

Bill gloyn Partner, European Real Estate andConstruction, JLT Specialty Limited


Flat Living Spring2012


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68