The government is under increasing pressure to help households that fall into high risk flood areas when an agreement with insurers to protect them ends next June. At present, the current situation with flood insurance means that households in high risk areas are subsidised by higher premiums in the lower risk areas. This deal is called ‘The Statement of Principles’ and basically ensures that people who are unfortunate enough to live in areas that suffer frequent flooding, are not unduly penalised with higher flood insurance premiums. The problem is that this deal ends June 2013 and so far, no new agreement has been reached.
So far there are around 5.5 million homes that are at risk and if you applied the market value flood insurance rates to these properties then it is estimated that around 200,000 people would have to fork out thousands for ongoing cover in order to comply with their mortgage agreements. Either that or they would be forced to sell at a greatly reduced price. Labour’s Minister for Water, Gavin Shuker, warned, “We need to know what the Government’s alternative solution to the Statement of Principles will be because a crisis is looming on flood insurance. From July 1 next year, households at risk from flooding may find themselves uninsurable, unmortgageable and unsellable. This out of touch government needs to end the delays and uncertainty for hard working families and businesses and tell us what their solution will be. If they decide to wash their hands of this problem and put the wrong people first, we know it will be the most vulnerable that will suffer. If this problem is left to the free market without the Government accepting their responsibility, I fear premiums will sky rocket.”
The present situation means that if you apply for flood insurance you will be given a 12 month policy, however, if by end the of the year no agreement is in place to replace the Statement of Principles, then anyone living in flood areas will face sharp rises in their flood insurance premiums. This could mean that house prices fall in flood areas and people will have problems selling their properties in high risk areas that frequently flood. As the Council of Mortgage Lenders concurred, “Without a clear lead from the Government it may be difficult to ensure that flooding insurance is widely available at a reasonable cost. Uncertainty could begin to affect lenders and borrowers in the coming weeks.” Although Defra (Department for Environmental Food and Rural Affairs) who are responsible for regulating flood management say they want ‘flood insurance to be affordable and remain widely available’, the statement on their website seems to suggest that they want the private sector to govern themselves on this issue and will not step in from July 1 2013. They state that ‘there is no requirement within the Statement of Principles or otherwise for insurers to offer insurance at a discount in high flood risk areas. However, insurers have historically not chosen to commonly apply risk-based pricing because of a range of factors, including simplicity as well as for commercial reasons. As a result, customers at low or no flood risk have historically subsidised the costs of insurance in high flood risk areas.’ The problem they see with this is that some insurers are placed at risk of losing business by being undercut in non-flood risk areas. The Government’s strategy appears to be to invest in reducing the risk of people and properties being flooded in the first place. They believe this will be more cost-effective than re-directing large amounts of taxpayers’ money into subsidising insurance premiums for those at high flood risk. As well as value for money concerns, taxpayers’ money spent subsiding insurance costs would do nothing to protect communities against the wider, non-monetary, health and wellbeing impacts of flooding.
So what does this mean if you are living in a high risk area of flooding? We suggest checking your flood insurance policy to see how late you can get flood insurance and if you can get a 12 month policy from June 2013 then do so. In the meantime you may wish to lobby your local MP.