The Water Bill - Dealing with Flood Claims

If we put the extreme January and February aside for the moment, generally it is getting wetter. Long term averages (of 30-year periods) show an increase in annual rainfall of 5 per cent (source: The Met Office). With 5.8 million properties estimated to be at risk coupled with increasing pressure on the housing industry to build on floodplains you begin to understand why insurers are becoming increasingly nervous. With increased nervousness comes increased premiums, increased excesses and decreased levels of cover.

Since 2008, under a ‘Statement of Principles’, insurers have voluntarily agreed to provide flood insurance cover. However the insurance market is changing and events such as those just experienced do not help. As a result there is a clear risk both households and companies could find flood insurance unaffordable or worse, unavailable. This obviously has a potential impact on real estate market values and mortgage agreements.

As a result the Association of British Insurers together with the UK Government are looking at potential solutions. The most likely outcome is Flood Re, an insurance facility where all UK household insurers pay into a fund that would cover flood claims. The cost of this would be passed to every policy holder. Facilities such as this are not new with the most notable being Pool Re, which is designed to cover losses from acts of terrorism to commercial properties. The methodology to Flood Re is that premiums would be proportional to the value of the property and it will be transitional to allow the insurance market to adjust to risk-reflective prices over time.

Insurers have a number of tools in order to establish if a property sits within a flood risk area and underwrite accordingly. For those deemed to be at highest risk, insurers tend to decline cover, however, this position is sometimes reassessed if the at risk property sits within a larger portfolio where the ‘at risk’ properties only make up a small proportion. This, therefore, should be a consideration for both you and your broker when choosing the right insurance provider.

The important factor is to make sure you are fully aware of the risks and are prepared for the potential ramifications. The insurance market is in a state of flux and this is set to continue until at least 2015 when Flood Re may come into effect. Consequently as block property managers you need to protect yourself from a risk mitigation and insurance perspective. Seek the advice of your insurance broker and refer to both the National Flood Forum and the Environment Agency. With increased claims come increased premiums - make sure you are protected.