Floods of tears
Changes to government and insurers agreements could impact seriously on home sales and lets, says James Sherwood-Rogers.
W
ith one in four homes considered to be ‘at risk’ of flooding, it is becoming an increasing concern for homeowners and purchasers across the UK. Unpredictable weather patterns, bringing
unprecedented levels of rainfall, are just one of the reasons why we are seeing a rise in flood risk levels. You only have to cast your mind back to events at Boscastle in 2004, Carlisle in 2005, Hull and Gloucester in 2007 or the Cumbrian floods in 2009 to recall the devastation that flood waters can cause in residential communities. The effects are far reaching; not only personal upheaval, but also
creating huge repair bills for the insurance industry. In the 2007 floods, the Environment Agency (EA) reported that the average cost to affected households was between £23,000 and £30,000 per flooded home. The Association of British Insurers’ (ABI) Quarterly Consumer Survey in June 2011 reported that the average value of flood insurance claims in 2010 was over £12,000 per claim, far outweighing those for fire, subsidence, theft, storms or burst pipes. And, while traditionally the insurance industry has covered the cost of repairs and replacement when flooding occurs, changes are
Insurance Banding for Flood Risk
As outlined in the latest RICS Flooding Guide for property owners, insurance companies grade fl ood risk to properties in three bands based on the likelihood of fl ooding to occur in any given year: Band 1 = classifi es the risk at up to 200 to 1 chance of a fl ood, annually
Band 2 = classifi es the risk to be between 200-1 and 75-1 chance, annually
Band 3 = classifi es as the most serious risk, with a greater than 75-1 chance of fl ood, annually
afoot in the insurance world that may not only impact consumers but have the potential to create some unease amongst property professionals too.
AN IMPORTANT DEADLINE In the first half of the last century, the ABI and the Government formed an agreement called the Statement of Principles (SoP), which in very broad terms, commits insurers to continue providing flood insurance to flood affected properties, provided the government invests in flood defences. The challenge for this agreement is the spiralling cost of insuring
flood prone property. The slight change in weather patterns – the UK is now more susceptible to shorter heavier downfalls rather then the traditional drizzle – combined with significant development of the built environment – has put more properties at risk from flooding. Over 60 per cent of claims from the 2007 floods in Hull for example, were as a result of pluvial flooding and most of those properties had never before flooded, which means the insurance industry have taken a bath on payouts. As a result, the industry, which must answer to its shareholders,
cannot afford to continue with the agreement. On the other hand, Government cannot afford to flood-proof the UK with a massive building project, nor can they afford, at the moment, to be the insurer of last resort. So the SoP is scheduled to be withdrawn in June 2013 leaving an
uncertain future for home and small business owners who may be exposed by future flood risk. And of course, because insurance policies run for 12 months, it will begin to affect the market from June 2012 – less than a year away. When looking in closer detail at the SoP, it states that until
30 June 2013, ABI members are committed to continuing to make flood insurance for domestic properties and small businesses
36 NOVEMBER 2011 PROPERTYdrum
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