In the continuing saga of Flood Re and affordable flood insurance, there have been developments on the subject of cover for small businesses and leasehold properties.
At the moment the proposed Flood Re agreement, which is part of the Water Bill and becomes law next year, would guarantee affordable flood insurance for most of us – but it excludes small businesses, leaseholds, properties built after 1st January 2009 and houses in Council Tax Band H. Now the Department for Environment, Food and Rural Affairs (Defra) has announced that it will publish findings in December on whether there are ‘systematic issues’ in excluding SMEs and leasehold properties. This isn’t the first potential U-turn: we wrote back in April about the possibility that Band H properties would be brought in to the Flood Re agreement.
The British Insurance Brokers Association (BIBA) has been reported as saying that, if the cost of flood insurance is increased, some customers would need to make sacrifices which could include not having flood cover at all or having to move their businesses or homes. There are already examples of people who have been refused flood cover for extraordinary reasons, such as a homeowner in Devon who was in an at-risk postcode, or others having excesses of up to £30,000 added to their policies.
This story just goes on and on.
The rumblings around Flood Re – the proposed legislation to ensure affordable flood insurance – continue. This time, it’s the results of an insurance industry survey into current difficulties in taking out flooding insurance.
The British Insurance Broker’s Association (BIBA) has carried out research in response to a government request for information on properties excluded from the current proposals contained in Flood Re (see our previous blog on this). Apparently 64 per cent of brokers have had difficulty in the past year in placing property insurance that included cover for flooding and 85 per cent said it was harder to place these risks.
Over half of consumers surveyed (55 per cent) reported difficulties in purchasing insurance to cover flooding. Even if you can obtain cover, it’s getting more expensive: and 47 per cent of those surveyed said they would restrict their insurance by, for example, removing flood cover from their policy. Of even more concern is the fact that 16 per cent wouldn’t take out insurance at all.
According to BIBA, “there is an issue with affordability and availability of flood insurance for properties not covered by Flood Re, particularly small businesses.” Quoted in Post magazine, the article went on to say that the Department for Environment, Food and Rural Affairs has now commissioned its own research which will include the market for commercial flood insurance, which is not covered by Flood Re. There are also plans for roundtable discussions later this month between the insurance industry, the property sector and the government to look at the issues around commercial flood insurance.
We will report back when there is more news.
We reached a major milestone in the progress of Flood Re last week when the Water Bill was granted Royal Assent. This means that the new agreement between Government and insurers for affordable flood insurance (which we’ve written about before) should be in operation in 2015.
However, there are reports in the press that there may be a ‘Flood Re II’ – specifically to overcome major objections to what is and isn’t covered by this latest agreement. In particular, there is significant opposition to the exclusion of Band H properties, small businesses and leaseholders.
According to a comment piece in Post magazine, “rumours are spreading that there could yet be room to accommodate other castaways on an insurance industry-funded life raft”.
It really has been a rollercoaster ride to get to this stage with Flood Re. But the last 12 months have shown the devastation which is increasingly being caused by floods in this country: our current work with clients in Moorland, Somerset, illustrates this. Let’s hope the industry can find a way to ensure as many people as possible can take out affordable flood insurance.
We wrote recently about a potential re-think on the exclusion of band H properties from the Flood Re scheme, which is designed to ensure affordable flood insurance in high-risk areas. Apparently David Cameron had “privately ordered a U-turn”, and it seems this campaign is gathering pace.
According to a recent article in Post magazine, the Association of British Insurers (ABI) has now also changed its mind: it has written to the Environment Secretary, asking for these higher-value properties to be included. The letter cites the recent floods, which showed flooding affects anyone and everyone, regardless of their council tax band.
The reason band H homes were excluded in the original proposal was that it was feared there would be political opposition to the cross subsidy element of Flood Re: this would mean that the levy on smaller homes – which may nor may not be a flood risk – would be used to cover larger properties. However, this opposition has not materialised and there is now cross-party support for the mechanism.
This is just the latest in a long line of changes and challenges to the proposed scheme. The recent floods have put into sharp relief the need for something to happen, but it seems there is still a long way to go.
In the madness of the last few weeks, with so many homes and businesses flooded, it’s easy to forget that there is still no firm agreement between insurers and government on the future for affordable flood insurance. There is still a long way to go but – if you’ll pardon the puns – the water has been further muddied by the Prime Minister wading in.
One stumbling block in the current Flood Re affordable flood insurance proposal is that properties in Council Tax Band H would be excluded. It’s estimated that nearly 4000 properties in this category are at high risk of flooding. But, according to recent articles, David Cameron has ‘privately ordered a U-turn to ensure thousands of expensive waterside properties are not excluded’ (Financial Times). The arguments seem to be turning political.
Floods don’t discriminate
There are questions being asked about why this particular exclusion has been raised and not others such as new builds and business premises. Some argue that floods don’t discriminate between properties dependent on their value and all properties should be included; others say that there needs to be a limit on what is covered to keep the costs down for everyone else. But there are reports that expensive homes in flood areas would have to pay premiums which are 20 times higher than the national average if they are indeed excluded.
Whatever happens, this all is adding to the fear that no agreement will be reached by the expected date of 2015.
For anyone wanting to find out more about Flood Re, there is an excellent guide on the Guardian website.