The current regime as set out in the Flood Insurance Statement
of Principle - which ensures that flood insurance is available for
most homes, even those lying in an area of significant flood risk -
is to be withdrawn from June 2013 when the current agreement ends.
Insurers will no longer be obliged to offer flood cover to those
whose homes are at risk of flooding.
It comes as Britain struggles to cope with a washout summer
which so far has been marked by torrential rain and heavy flooding.
Flood alerts have been common across the country and July was the
wettest in 100 years. Additionally, the ground is saturated after
months of rain and prone to surface flooding because local drainage
systems cannot cope with the amount of rainfall. Many homeowners
are already dealing with substantial flood damage.
Claire Winson, associate in Strutt & Parker's Shrewsbury office, said: "One in four homes
in England and Wales, equating to at least five million properties,
are considered 'at risk' of flooding. (Environment Agency
"However, from June 2013, the current regime of insurance as set
out in a Statement of Principles is to be withdrawn. This statement
was agreed between the government and the Association of British
Insurers (ABI) and ensured that flood insurance was available for
most homes, even properties lying in an area of significant flood
"Due to the lack of investment into flood prevention schemes by
successive governments, the ABI will not renew this agreement and
insurers, property owners, occupiers and lenders must be aware that
the regime will be changing.
"Without government intervention, it is likely that insurance
will be priced purely on risk and driven by competition. As a
result, those who need cover the most could struggle to find
affordable insurance and be left with a home they can neither
insure nor sell. Likewise, where flood insurance is not
available or is prohibitively expensive, a property owner could
find themselves in breach of their mortgage. Additionally, this
will have a negative impact on the property market."
Mrs Winson added that environment and rural affairs secretary
Caroline Spelman said the government was still in discussions with
the ABI but confirmed that 'risk-based insurance pricing' provided
an incentive for households, businesses and communities to reduce
their flood risk.
Mrs Winson said: "This would suggest homeowners will face some
very high premiums next year. However, it was also said that
risk-reflective insurance pricing needed to be introduced
gradually, allowing markets to adjust steadily while supporting
those unable to bear the true cost of flood risk to their homes,
which may at least help a little.
"What happens over the forthcoming 12 months is still uncertain
but it is obviously important for all parties with an interest in
property to be mindful of these issues."
For further advice and information please contact Strutt & Parker's
Shrewsbury office on 01743 284204.