Senin, 30 April 2012

Homeowners caught in an insurance trap as floods rise

Homeowners caught in an insurance trap as floods rise

By Stephen Womack and Simon Lambert

PUBLISHED: 08:58 EST, 30 April 2012 | UPDATED: 10:24 EST, 30 April 2012

Flooding has hit Britain just weeks after drought warnings were issued.

While most homeowners hit this time round should find themselves protected by insurance, the rising waters have served as a reminder that the clock is ticking on a new flood insurance trap.

An estimated 200,000 homeowners who live in the highest risk properties could lose their insurance, or see premiums and excesses run into tens of thousands of pounds in just over a year's time, when a voluntary agreement runs out.

We explain the situation and provide a quick guide on what you should do if you are hit by floods.

Swollen: Homeowners have been warned of a fresh flood risk after heavy rain. The extent of the downpours can be seen at the swollen River Dee in Llangollen in north Wales

Swollen: Homeowners have been warned of a fresh flood risk after heavy rain. The extent of the downpours can be seen at the swollen River Dee in Llangollen in north Wales

What is this flood insurance trap?

A voluntary agreement by insurers to continue offering flood cover will expire in June 2013 and there is huge uncertainty about what, if anything, will replace it.

Flood cover is provided under the voluntary ‘Statement of Principles’ first signed by insurers in 2000. Under this, insurers will provide cover provided the Government continues to invest in flood defences to protect communities from a one-in-75 years flood.

But the deal is far from perfect. Insurers and customers are stuck with each other and there is no incentive for competition in the market.

There are no guarantees on how much cover will cost or what will happen to insurance excesses. Properties built since January 2009 are already exempt from the deal.

Insurers fear that thanks to the effects of climate change, extreme weather will become more common, and they are reluctant to carry on offering to cover future flood damage.

The Association of British Insurers says the agreement was always intended to be nothing more than ‘a sticking plaster’ and is negotiating with the Government over what happens from June 2013.

Paul Cobbing, chief executive of the National Flood Forum, a charity that works with communities affected or threatened by flooding, says: ‘Without insurance you cannot recover or reinstate after a flood and may struggle to get a mortgage. People can be stuck with a property they can’t sell.’

What is being done to fix the problem?

One recent idea is ‘Project Noah’, a scheme that would see insurers pool the potential flood costs for all the homes they insure. They would then ‘lay off’ this risk through buying ‘catastrophe reinsurance’ in international markets.

But the ABI is not keen on Noah, mainly because it relies on global markets to provide the capacity to absorb losses. It argues that neither the price of this reinsurance nor its availability can be guaranteed. Instead, it suggests Government backing for those most at risk of flooding.

That would involve a cap on the maximum premium a homeowner would pay. If a property was deemed more risky than this cap, its insurance would transfer into a central fund.

Here, the premium paid by the owner would be topped up through a small annual levy on all British property insurance policies. If there were no big floods in the first two or three years, these ann ual levies would probably be enough to cover any future losses.

However, if there was a flood before the scheme had built up reserves, or there was exceptionally large-scale flooding later on, the Government would stand ready to cover losses.

It would effectively grant the flood scheme a loan that could be repaid from future premiums and levies.

Discussions continue with the Department for Environment, Food and Rural Affairs, which has promised an announcement before the summer.

What is happening to people's insurance?

Unfortunately for those hit by floods, especially in the latest round of rising waters, insurers are already getting even tougher on flood risk homes.

Paul Cobbing  says: ‘We’re already seeing changes in the insurance market with premiums and excesses rising. We need action soon to give homeowners direction and security about what might happen next.’

While they must provi de flood cover to those homes built before January 2009, insurers are not bound to keep premiums below a certain level and some householders are finding themselves being quoted huge prices for policies or massive excesses.

Even where an insurer is willing to offer some cover, they can still insist on a high flood excess â€" the portion of a claim the homeowner pays. This can more than £10,000 for the highest risk homes.


How can you protect against floods?

Action: Loddon Valley Residents Association helps to make use of the local knowledge of residents

Action: Loddon Valley Residents Association helps to make use of the local knowledge of residents

Homeowners can take action  to reduce the risk of a flood ruining their property.

There are two parts to making a home more resilient to flooding.  The first is to slow or stop water entering. This might include fitting flood guards to doors and covers over air bricks.

Chris Jordan of Bureau Insurance Services says protecting a typical semi-detached home might cost between £2,000 and £3,000.

There is a range of flood defence products that homeowners can use to protect their property.

The British Standards Institution has introduced a kitemark giving consumers reassurance that barriers and flood skirts â€" giant rubber sheets that can be lifted up around a house â€" are up to scratch. Go to kitemark.com for details.

The second aspect is to reduce the damage and the costs if water does come into your home. This can include moving electrical sockets and wiring higher up walls and replacing wooden floors with c oncrete and tiles.

The Association of British Insurers publishes a free guide  to resilient repair, available at abi.org.uk.

But consumers must be cautious before investing thousands of pounds in personal flood defences.

Jordan says: ‘Most properties can be defended, but each building must be individually assessed before you start spending money.’

Homeowners can also protect themselves, by reducing the risk of flooding happening in the first place.

Those living in  flood risk areas can meet with local authorities, the Environment Agency and water companies, and try to focus on practical measures to ensure that existing drains and flood defences are working properly. 

This is what the members of Loddon Valley Residents Association, a community group based near Reading, Berkshire have done. The group was formed in 2009 specifically to combat the threat of flooding.

These ‘flood partnership’ meetings are backed up by river walks to check on the state of affairs. It is often as simple as ensuring ditches are clear so they can do their job and drain land efficiently. 

For more on beefing up defences, visit floodforum.org.uk.

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The situation is worse than stated. Many hundreds of thousands of homes are increasingly entering at risk zones for the reason that the Environment Agency moves the at risk area on its maps to include additional land area. The reason? The EA covers its backside hence we all suffer from maps that have been created using no historical data whatsoever. The EA is unaccountable in its creation of at risk areas.

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The situation is worse than stated. Many hundreds of thousands of homes are increasingly entering at risk zones for the reason that the Environment Agency moves the at risk area on its maps to include additional land area. The reason? The EA covers its backside hence we all suffer from maps that have been created using no historical data whatsoever. The EA is unaccountable in its creation of at risk areas.

Report abuse

The situation is worse than stated. Many hundreds of thousands of homes are increasingly entering at risk zones for the reason that the Environment Agency moves the at risk area on its maps to include additional land area. The reason? The EA covers its backside hence we all suffer from maps that have been created using no historical data whatsoever. The EA is unaccountable in its creation of at risk areas.

Report abuse

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