The calm AFTER the storm
New flood insurance scheme starts tomorrow – but will it stop the rising cost of premiums and give hope to thousands of victims who want to sell their homes?
RELIEF is on the cards at last for owners of flood-prone homes struggling to find insurance, when an industry scheme launches tomorrow to cap the cost of cover. The scheme, called Flood Re, was set up to make sure insurance is affordable for those whose premiums rocketed following serious floods over the past decade.
Set up by the Department for Environment, Food & Rural Affairs (Defra) and the Association of British Insurers (ABI), Flood Re aims to ensure homeowners in even the highest risk properties are insured.
Flood Re is essentially a pool of money funded by the flood element of household insurance and a levy on the industry, which is paid for by an average £10.50 surcharge on building and contents policies, even for homes that are not prone to flooding.
Although those at risk should notice a drop in premiums by as much as a third – they do not need to change the way they deal with an insurer. Following a flood, homeowners will claim for damage through their insurer as normal, which then asks for a refund from the pool.
Christine and Douglas Human have been looking forward to the changes because it marks the day they can escape their current insurer and the costly premiums they pay each year.
The retired couple, who run archery classes together, pay £800 for buildings and contents cover on their 300-year-old cottage in the picturesque village of Williton, Somerset. This is £300 a year more than in 2012 – the year in which their home was seriously damaged by flood water when a nearby river burst its banks. Their claim for damage and temporary rehousing spiralled to £132,000. Christine, 63, who also writes novels, says what really worries them about their current policy with NFU Mutual is not the premium. It is the excess – the amount the couple must contribute to any claim should they suffer another flood.
She says: ‘The excess shot up from a manageable £500 to a crippling £10,000 for contents and £20,000 for buildings. We can just about tolerate the premium but as a retired couple, we cannot afford that excess.’
Insurers made an agreement in 2009 – called a statement of principles – to continue covering homes of existing customers until Flood Re’s launch. It did not mean premiums and excesses were always affordable. This arrangement ends tomorrow, although policyholders will continue to be insured until the end of their policy term.
Under Flood Re, the couple should be able to compare insurance deals from other insurers and switch to one with a cheaper premium and an excess possibly as low as £250.
It is estimated that up to 350,000 homes will be helped by the scheme, providing hope for those who feared they would never be able to sell their previously flooded properties. This includes the Humans, who want to downsize. They are now optimistic would-be buyers of their cottage will find keenly priced cover.
Flood Re will charge insurers a set price for the flood risk of each policy, based on council tax bands, starting at £210 for home and contents for an A-band property to £1,200 for an H-band house (I-band in Wales). But this is not necessarily what buyers will pay for the flood element as insurers may charge more – although competition is expected to push down prices.
Not all insurers are ready for tomorrow’s changes and lower premiums may take months – or even years – to filter through.
Adam Powell, head of operations at insurer Policy Expert, says: ‘Over time it should mean better value for
policy buyers as more insurers come in to this market.’ Delays are partly due to software issues – with some insurers and brokers saying they are not yet ready to accommodate the changes. Powell adds: ‘It’s a massive shake-up and insurers are a bit nervous.’
But he believes premiums may not fall as sharply as some hope. He says: ‘If someone is paying £3,000 now the price should come down – although the insurer still may not reduce it to the level of the charge made to them by Flood Re. But that’s competition and people can shop elsewhere.’
Homeowners at high risk may be contacted by their insurer directly about the changes but if not they should consider asking if premiums could be reduced.
Insurer Axa will email all high- risk customers who have purchased or renewed an Axa policy direct with the company since January, encouraging them to cancel their existing contract and take a new, Flood Re-backed, policy. There will be no charge for cancellation.
If comparing deals through comparison websites or a broker nets a better premium, homeowners should be wary of acting hastily and switching before the end of a policy’s term.
Graeme Trudgill, of the British Insurance Brokers’ Association, says: ‘Policyholders need to check beyond the flood cover to make sure the new policy suits their needs as flood is just one element of risk to consider. And they also need to watch for any early cancellation charges.’
Owners of properties built since January 2009 are excluded from Flood Re. This is an attempt by the industry and Government to discourage developers building on flood plains. Those with a property in a block of more than three leasehold flats are also excluded. But all these homeowners can still try to find cover using a specialist insurance broker, according to Trudgill.
Insurers using Flood Re will be listed at floodre.co.uk. The British Insurance Brokers’ Association’s find-a-broker service is at biba.org.uk or on 0370 950 1790.