January 3, 2013 9:32 pm

Flood homes hit by big insurance excesses

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Thousands more homeowners whose properties are at high risk of flooding face having to pay at least £10,000 worth of damages themselves before insurers cover them, brokers have warned.

Homes in areas that are flood prone and have inadequate defences are facing flood damage excess levels more than 40 times higher than low-risk properties, as well as sharply higher premiums.

The National Flood Forum charity said it believed insurers were making policy terms more onerous for such properties, even before the looming expiry of an industry commitment with ministers to provide universal cover.

While negotiations continue to renew the agreement, which runs out at the end of June, insurers have warned that without a fresh deal about 200,000 homes will struggle to get affordable household insurance.

The industry is keen on introducing a scheme under which householders would have to pay an extra £10 on top of their annual premiums to fund a flood insurance scheme, which would be underwritten by the government. But Defra, the environment department; the Treasury and insurers have failed to reach agreement.

Oliver Letwin, the government’s intellectual troubleshooter, has been deployed to forge a deal and met Otto Thoresen, director-general of the Association of British Insurers, to discuss a way out of the impasse.

Mary Creagh, shadow environment secretary, said she already had heard terrible examples of households facing excesses that were “completely unaffordable”.

She called on the government to stop “stalling” and provide answers to worried people in flood-prone areas all over Britain. “We could see whole areas of the country blighted,” she added.

“If the excess is thousands of pounds, people won’t be able to get a mortgage, or sell their home.”

Even under the existing agreement there is no particular requirement for insurers to provide affordable cover.

Some households are already enduring excess levels of as much as £20,000 compared with £250 for low-risk peers, according to AA Insurance. It added: “Thousands could be facing excesses on their flood damage significantly in excess of £10,000.”

Mohammad Kahn, partner at PwC, the consultants, said: “If you’re in a flood plain then generally you have high excess levels already.

“But there’s quite a few households who could see their excess levels rise quite significantly – those that are on the edge of flood plains or who suffer surface water flooding repeatedly.”

Households across the UK are facing premium increases of between 3-5 per cent next year, according to Deloitte, as underwriters try to pass on the costs of claims from a year of floods that are estimated to reach at least £1bn.

But brokers said homes in at-risk areas could endure rises of as much as 10 times these levels.

A government source dismissed insurers’ recent claims that the talks with the industry had been stalling, saying progress was still possible. “We are now waiting for the ABI to come back to us with a proposal,” he said.

Owen Paterson, communities secretary, said this week that he wanted to get in place a system that protected homes in flood areas but which did not impose too high a burden on taxpayers.

The ABI said it remained “committed to working with the government”.

“We have put forward a flood insurance fund proposal which we believe is the only solution to ensure affordable flood insurance in the future,” it added.

“In no other country is flood insurance for those at high flood risk available on the open market without some form of government involvement.”

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