FLOODS


available as a feature of standard insurance policies. This is based on the flood risk being classed as ‘not significant’, which in general is defined as no worse than a 1.3 per cent or 1 in 75 annual probability of flooding. With the end of the SoP drawing ever closer, the future for


insuring against flood is uncertain and therefore has the potential to leave home and small business owners exposed. Whilst there is still a chance that the Government and insurance industry can find a solution, it is worth considering now how property professionals, and homeowners, deal with the possible obstacle of obtaining affordable cover, which could subsequently mean difficulties when it comes to selling, letting or remortgaging their properties. With the changes likely to start taking effect from June next year,


what do homeowners and property professionals need to consider in the run-up to the impending deadlines?


SOME INITIAL CONSIDERATIONS The Impact on Property Values With approximately 200,000 homes falling into the serious ‘at risk’ bracket (which equates to a greater than 75-1 chance of flooding), the forthcoming changes in the insurance industry could have an impact on the value of these properties. For homeowners, this creates a double-edged sword: do they continue to live in a property deemed to be at significant risk of flooding, have difficulty in sourcing insurance products that meet their lender’s criteria and are affordable (premiums and excesses), or, do they face the difficulty in selling an ‘at risk’ home, with the possibility that any offers are far lower than anticipated – potentially creating a negative equity scenario?


This also creates a predicament for


surveyors in applying an accurate valuation to present to its instructing lender. Lenders could face an issue in its security being worth less than when the property was originally valued. And as


affordable insurance becomes harder to come by, lenders will need to be proactive at policing the policies that customers have. There are however a number of practical steps that homeowners


can take to make a property resistant to flood, or at least offer a level of resilience should flood water enter a property, to help protect the property and its value. This can include installing door and window barriers, or replacing wooden or carpeted flooring with a concrete base and decorative tiles and repositioning electrical sockets higher up a wall above potential flood levels.


THE VICTIM’S VIEW


Mary Dhonau OBE, Chief Executive, Know Your Flood Risk, says, “I attended the ABI Biannual Conference and the DEFRA/ABI Flood Insurance Summit, with the Secretary of State for the Environment, Caroline Spellman, who like me has suffered the appalling consequences of fl ood. On both occasions the


Insurance Industry signalled that there will be no renewal of the Statement of Principles in 2013. With the Government making cuts in fl ood defence spending and there will be a return to risk based pricing of fl ood insurance. The ABI insist that the Statement of Principles distorts the market and the industry is subsiding the cost of


fl ood insurance, this will stop. I have very real concerns


that whilst insurance cover for fl ooding will remain available for those deemed at risk, the price will make it unaffordable for a huge number of people. What on earth will happen to those people when the next big fl ood happens? When fl ood affected people get their insurance renewal after 2013 they will be in for a huge shock! Everyone attending the


DEFRA/ABI Flood Insurance Summit agreed that potential home buyers need to know their fl ood risk before they buy their homes and I hope insurers will take into account the full fl ood protection measures that a homeowner has put in place.”


However, whilst these will mitigate the cost of cleaning up a flooded property, the measures may have an impact on price, or may put some people off.


However, experience in other countries suggests that eventually these will be seen as positive


enhancements where a well-known risk exists. For agents and surveyors operating in high risk areas, it will become more common to have properties coming to the market that incorporate such flood


resistance measures, so the way such properties are valued and marketed for sale will need to be taken into consideration.


HOW CAN YOU IDENTIFY A PROPERTY ‘AT RISK’? Currently, a flood risk assessment is not automatically included in the pre-sales, mortgage application, valuation or conveyancing process as standard. From a sales perspective, advertising the fact a home has a higher than average risk of flooding isn’t exactly a key selling point, but it may be alerted if the prospective buyer opts to have additional searches carried out by their solicitor, or if any information is included in the Seller’s Property Information Form, however both of these options come later in the sales process and could mean delays just before completion of a sale. Assumptions on whether a property is at risk cannot though,


be made simply by looking at postcodes or whether it’s near the sea or a river, because the larger problem is from Pluvial or rainfall flooding which can occur away from obvious water sources. The challenge then falls at sourcing data in a usable way and from reliable sources to understand the risk to the property. To date, no nationally-agreed, centralised flood map has been developed for the UK, however, both the Environment Agency and private companies have been developing more detailed risk maps that cover pluvial risk, and increasingly sophisticated flood risk models will find their way into the market, over time, enabling a better understanding of flood risk for homeowners and potential buyers. The question is, where should this come in the process? It is


The muddy flooded streets in Carlisle, 2005.


unlikely that estate agents will want to highlight the fact. So should it fall to lenders to look at the point of a provisional offer?


PROPERTYdrum NOVEMBER 2011 37


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