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Flooding and the effect on landlord insurance

Posted on 2014-01-30

The storms that battered the UK recently had a devastating effect on many homes and businesses, and as a result have seen the topic of flood insurance being discussed by many experts across the field.

The new scheme, Flood Re, is an agreement in principle between the UK government and the insurance industry. This new flood insurance deal aims to ensure homeowners and residents living in high flood risk areas of Britain can continue to find affordable flood insurance by placing a cap on the total cost.

Flood Re will see households across the UK pay into a collective fund through their home insurance premiums, which will be used to offset the costs of flood damage and fund the flood insurance cap.

When will Flood Re begin?

According to the Association of British Insurers (ABI), Flood Re should be ready for launch in the summer of 2015. Until then, flood insurers will continue to follow the Statement of Principles – a pact between the DEFRA and the insurance industry, which guarantees cover to businesses and households at risk of flooding.

Industry concerns

The British Property Federation (BPF) has concerns about Flood Re. The Federation, along with the Council of Mortgage Lenders (CML), are concerned that exclusions identified in the types of property to be covered by the Flood Re proposals will leave a significant numbers of homes without the access to affordable flood insurance that had been expected.

The BPF and CML believe urgent amendments are needed to the Water Bill to reduce the number of properties excluded from Flood Re. With almost five million leasehold properties thought to be in England and Wales, and over four million homes in the private rented sector, the BPF and CML predict the real number of properties excluded is likely to be millions, rather than the widely-cited estimates of 9,000 homes.

Ian Fletcher, Director of Policy at the BPF, said: “Every property that is occupied is somebody’s home and investment. Flood doesn’t discriminate between freehold and leasehold, owner-occupation and renting, and it is of small comfort having contents cover if the building itself is left uninhabitable. If a property is at risk, regardless of its status, it needs to be able to insure itself affordably against disaster, not least because that is a condition of most mortgages.”

"Restricting the ability of landlords, particularly smaller ones, to insure their properties against flood risk will also impact on the speed at which communities recover from major flood events, if some properties are insured, but others are not because access to Flood Re excludes them. Tenants re-habitation process may be significantly drawn out and as a result local authorities will face the strain of providing lengthier temporary housing arrangements.”

Response from the Association of British Insurers (ABI)

The ABI responded to the BPF’s concerns by confirming Flood Re will cover domestic properties regardless of whether they are freehold or leasehold.

ABI property head Aiden Kerr, responded: "Flood Re will cover domestic properties, regardless of whether leasehold or freehold, as long as they are insured by individuals rather than companies. Homes built after 2009 were not covered by the previous flood insurance agreement so this is not a new exclusion. We are not aware of any evidence that commercial property owners, including commercial landlords or managing agents, face significant problems in accessing flood insurance. In both cases flood insurance can usually be obtained through a broker."

"The government agrees it would be unfair for domestic customers to have to cross subsidise commercial risks, which is why Flood Re is focused on where the issue of flood insurance affordability and availability is most acute."

More about Flood Re

What flood insurance costs will be capped?

The flood insurance element of home insurance policies will be capped at an annual maximum.
Existing council tax bands will be used to determine the maximum cost of flood insurance so it's more important than ever to make sure you are paying the right amount of council tax.

You can find out the Council Tax band for your home by looking up your property online here

Are all homes included in the Flood Re cap?

Unfortunately not, some at risk homes are being excluded. If you live in a property built after 2009 or if your home falls into council tax Band H you will not be protected by Flood Re. This means you could face unlimited flood insurance costs or be refused cover altogether.

Business properties are also excluded from Flood Re, while “borderline” cases such as B&Bs will have to wait and see if they will be protected.

How much will Flood Re cost?

Flood Re will be funded by a levy added to all home insurance premiums, it will be around £10.50 a year - again the exact amount will depend on your council tax band. These extra funds will be put to one side to offset the cost of repairing flood damage when it occurs and ensure that the flood insurance cap is affordable for the insurance industry.

What is the difference between Flood Re and the Statement of Principles?

The current Statement of Principles is an agreement between the government and the insurance industry where insures are obliged to provide cover to flood risk homes in exchange for government investment in flood defences.

However, unlike Flood Re, the Statement of Principles doesn't include a cap on insurance premiums meaning flood risk homes have seen their insurance costs climbing year on year.

Advice and tips on flood insurance and how to prevent flood damage in your property

  • Assess your property’s flood risk by checking the flood maps on the Environment Agency website here
  • Read more about Flood Re by visiting the Association of British Insurers website here
  • Consider taking flood prevention measures such as:
    • Installing non-return valves on drain pipes
    • Fitting flood barriers to doors and windows
    • Installing self sealing covers on air bricks and vents
    • Coating brickwork with a waterproof membrane
    • Raising electrical sockets
    • Tiling the floors in downstairs rooms
    • Fitting stainless steel or plastic kitchens
    • Making sure your tenants are alerted about flood warnings in their area by encouraging them to sign up for Environment Agency updates via telephone, text or email
  • Making a flood plan for tenants to help them protect their possessions and your property

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