The flood that have hit the UK in the past decade have caused billions of pounds worth of damage and unmeasurable disruption. As a result, many insurance companies now refuse to insure homeowners in high-risk areas, leaving many unprotected against potential future flooding.
Flood victims have seen house prices plummet in flood affected areas and they have consequentially found it very difficult to find affordable home insurance? the insurance companies base their premiums on risk. Unfortunately, it?s very difficult to blame the insurance companies, when insuring high-risk homeowners is simply not worthwhile, unless they pay exorbitant premiums.
Although homeowners based in areas where a high-risk of flooding exists have struggled to find affordable home insurance or flood insurance, they have been given a lifeline by a new scheme dubbed ?Project Noah?. Two insurance brokers have devised a plan, whereby the risk will be spread between low and high-risk zones, in order to make domestic home insurance available at a competitive rate.
Donald Macdonald, head of UK property at Guy Carpenter said:
The more units that are shared, the more predictable the risk and the lower the price to policyholders. This has far-reaching benefits, from ensuring that flood insurance remains widely available to higher-risk properties without the need for government intervention, to protecting property values for homeowners in at-risk areas.
After the annoucement, Pensioner Insurance Chief, Darren Murphy, commented on the proposal from Guy Carpenter:
Flood victims have suffered and everyone in the country feels bad about the predicament of these homeowners. However, insurance is a risk-based industry and I think it is a disappointing move if insurance companies start increasing premiums for the many, to protect the homes of the few. It is the job of the government to provide adequate defences to ensure homes are protected against floods, or provide subsidised flood insurance if they can?t
Fortunately, many of the recent flood victims have been protected under a statement of principles that was set out in 2000. The principles committed insurance companies to offer policies to existing customers in flood-prone areas, if their property was built before 1st January 2000. The scheme intended to ensure that high-risk homes didn?t go unprotected, as the risk of flooding in the UK increased. However, that commitment expires in June 2013 and the Association of British Insurers have warned that without that provision, around 200,000 homes could become uninsurable.
Relevant parties including the National Flood Forum have endorsed the latest proposals for flood insurance, but they know that time is running out to ensure that a replacement scheme is in place before the current scheme ends.
All the companies in the home insurance market will be fully aware that the UK has continued to see sharp increases in flooding since the 2000 commitment, so they unlikely to simply sign-off on a similar deal for flood insurance. In areas of high-risk, the extent and level of damage that is likely, simply doesn?t make insuring homeowners economic viable on an individual basis.
The British Insurance Brokers? Association has backed the plans, but CEO Eric Galbraith has taken a pragmatic view of the situation: ?The government can focus its spending on improving flood defences while homeowners should be paying a more equitable premium.? Government ministers have promised to issue a statement on home insurance, in relation to flooding, in the spring.
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