End of flood insurance agreement could leave property worth £214bn uninsured

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17 January 2012


A quarter of the properties in the UK that are at risk of flooding – worth a total of £214bn – could be left uninsured this year.

According to research by property search firm and Legal Futures Associate SearchFlow, the UK’s property owners could find themselves unable to secure insurance against flooding when the ‘Statement of principles’ agreed between the government and the insurance industry expires on 30 June 2013.

Under this, all household and small business policies will cover flood damage in standard policies and there will be cover for properties at high risk of flooding provided the Environment Agency takes steps to improve flood defences during the course of the agreement.

The agreement coming to an end could mean property owners are unable to insure their properties from summer 2012 as insurers become unwilling to offer policies which expire after the principles agreement.

Uninsured properties could leave owners in breach of their mortgage contract, as well as making properties harder to sell or remortgage and reducing their overall value. According to Know Your Flood Risk UK, many UK insurers are already trying to rid themselves of properties at significant risk of flooding and some property owners have been unable to secure policies with excesses below £20,000.

Richard Hinton, business development director at SearchFlow, said: “The end of the principles agreement between the Association of British Insurers (ABI) and the government could make flooding a hugely contentious issue during the conveyancing process when professional conveyancers have to consider the potential risks a property faces.

“Although buyers will be able to obtain flood insurance for the next few months, the long-term prospects of properties at risk of flooding are potentially bleak.

“Especially for buyers purchasing in high risk flood areas, the possibility of very high premiums, significant reductions in value, less access to mortgage finance – even action taken by the mortgage lender due to breach of the mortgage agreement – is high.

“Conveyancers looking after their clients’ best interests must ensure they are aware of the risk of flooding and ensure their clients appreciate the danger posed by the end of the ABI agreement.”

Widespread flooding is a significant liability for those purchasing property – the ABI estimates the floods of 2007 cost more than £3bn and that the average bill for the repair of a flooded property is over £30,000. The Environment Agency currently spends £300m per year on flood defences, but nonetheless reports that 43% of defences are in fair, poor or very poor condition.

Richard Hinton continued: “The government’s current spending on flood mitigation may seem substantial, but the truth is that much more is needed to address the seriousness of flood risk. Only a tenth of the total cost of the floods of 2007 is spent on flood defences each year. The potential costs of flood damage dwarf the annual spend on defences and this is the main reason why insurers are currently reluctant to expose themselves to flood risk.

“One of the main principles in the ABI’s agreement was that the government improve flood defences in high-risk areas. The fact this has not been done means an extension to the agreement is unlikely. This is worrying news for those buying in areas with high flood risk.

“Given that one in four properties in the UK faces a significant risk of flooding, conveyancers everywhere must take notice of the potentially huge dangers a future dearth of flooding insurance may pose.”

 



One Response to “End of flood insurance agreement could leave property worth £214bn uninsured”

  1. In Australia 2011 was a terrible year for floods and other natural disasters. Insurers are under a lot of pressure to meet claims and at the same time keep new premium rises as low as possible. The Commonwealth Government has set up an inquiry into insurance matters – Terms of Reference http://www.aph.gov.au/house/committee/spla/insurance/tor.htm . A number of interesting submissions have been received already from a range of sources http://www.aph.gov.au/house/committee/spla/insurance/submissions.htm

  2. david mckinnon on January 22nd, 2012 at 2:31 pm

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