Scheme may leave homes uninsured for floods

The Council of Mortgage Lenders (CML) has criticised the government for failing to include any detailed provisions of its proposed flood insurance scheme in the recently published Water Bill.

Record levels of flooding in recent years have led to such a high level of claims that the insurance industry had said that insurers might no longer be able to provide flood insurance cover. This would have a major impact on the housing market.

Earlier this year the government announced that it had struck an agreement with the Association of British Insurers to set up a scheme to be known as Flood Re. An industry-backed levy, payable by all UK household insurers, would be used to fund claims made by people in homes at high risk of flooding. Flood insurance premiums would in future be capped based on the council tax band of the property.

While the announcement of the scheme was welcomed by commentators the agreement did not contain any detailed plans of the scheme. Instead it was indicated that these would be contained in the planned Water Bill.

But when this Bill was published it did not contain any detail, but merely a single short clause. This just gives the government power to make regulations “in connection with the provision by insurance companies of insurance cover against the risk of loss of or damage to premises and property within them due to flood where the premises are household premises subject to high flood risk.”

It appears that the government is intending to draw up more detailed plans in conjunction with the insurance industry after the Bill becomes law. But that could take some time - at present the Bill is not even scheduled for a full debate in the House of Commons.

It is also possible that the Flood Re scheme would require state aid approval from the European Commission before it can be introduced, which would cause even further delay.

Flooding can cause extensive damage to homes and be very expensive to repair. So it is vital for both homeowners and mortgage lenders that flood insurance cover can be obtained on all properties at affordable premiums.

The situation is now so serious that it has recently been mandated as part of the conveyancing protocol for solicitors.

Mortgage lenders always require borrowers to insure property against usual risks including flooding.

They would not lend on a property which could not be insured against flood damage or if cover could only be obtained on payment of high premiums a substantial excess was required (i.e. the amount an owner would have to pay themselves before the insurer would pay out for any claim.)

The value of a home which cannot easily be insured is going to fall substantially, and it will be difficult to find buyers for a home which has a history of being flooded.

If a homeowner with a mortgage were to find after making a flood insurance claims that their insurers refused to provide further cover then the lender would find their security in the property badly affected.

So mortgage lenders as well as homeowners have a considerable interest in the future of flood insurance. The CML, which represents most mortgage lenders in the UK, says that the Water Bill as currently drafted does not provide the assurances that lenders, insurers and consumers need to be sure that householders will be able to get affordable insurance - and therefore a mortgage - for their properties.

Details have yet to be provided on how, for example, excesses on insurance premiums will be monitored and controlled under the Flood Re scheme. Excesses are a key issue for home-owners, and can make all difference on whether insurance is affordable or not.

The CML has therefore called upon the environment minister, Richard Benyon, to issue a further statement to clarify the position.

The current uncertainty over the future of flood insurance on residential properties is not helpful to homeowners and buyers, especially for homes in high-risk areas. So it is to be hoped that the government and the insurance industry will not delay in thrashing out details of the proposed scheme without further delay.

In the meantime anyone buying a property is advised to ask their surveyor or solicitor to arrange a full flood survey report. Such a report can be obtained at modest cost and will give buyers more detailed information about the level of flood risk on the property.

If you are worried about how a property you are considering buying may be affected by the risk of flooding, Surveyor Local can arrange a flood report as part of the survey.  These cost in the region of £35.  Please ask for more information when ordering your survey.