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Flood Insurance – Statement of Principals expires in June 2013

There has been much debate recently about whether the agreement between the Government and insurers would continue, and it has now been confirmed that the agreement will cease in June 2013. This means that up to 200,000 British homes could soon become insurable.

Twelve years ago, in 2000, the government and the insurance industry joined forces to produce a document called the Flood Insurance Statement of Principles. This governed insurers' treatment of policyholders in flood-prone areas and was renewed for five more years in 2008 – and the latest version does not cover houses built since January 2009.

The Association of British Insurers (ABI) has warned that the deal will not be renewed next year as it 'grossly distorts' the market for home insurance. The ABI's members no longer support this agreement, because policyholders in low-risk areas are paying higher premiums to subsidise those living on flood plains. The major insurers who signed this agreement are somewhat aggrieved that they remain 'on the hook' for large numbers of high-risk homes. In other words – they are reluctant to continue to bear such a high proportion of flood claims.

At present, the agreement means that even people in the highest-risk areas can buy home insurance and therefore enjoy some protection against flood damage to their buildings and contents. Politicians and civil servants in the Local Government Association fear that the end of their 13 year deal will leave some households unable to buy cover for damage to their home and contents.

The staggering fact is that up to 200,000 of the UK's 26 million homes could be uninsurable. This comes to one in 130 homes of 0.77% of the UK's total housing stock. Whilst 0.77% is a tiny proportion, the 200,000 households at risk could suffer terribly. They will be unable to buy buildings or contents insurance and could be exposed to massive bills from the next round of floods.

Imagine having £20,000-40,000 worth of damage occur to your home and property – perhaps the house is not habitable and you need to stay elsewhere: if you have no insurance, who will pick up the tab? Also, homes in high-risk areas could become almost unsellable – would you buy a property which you cannot insure?

Another aspect to consider is that without insurance, no mortgage lender will be willing to lend against these properties – leaving only cash-rich buyers in the frame. However, taking such a massive risk on investment would be nothing short of madness – forcing cash-rich buyers and buy-to-let landlords to reject these properties. According to the LGA, if the Flood Insurance Statement of Principals is not replaced next year, it could leave homeowners nursing an £11 billion liability. Divided by the 200,000 homes in question, that works out to £55,000 per household.

Those at risk of being priced out of the market for home insurance mostly inhabit Devon, Kent, Huddersfield, Nottinghamshire and Worcestershire. Those affected by the massive floods in Cockermouth, Cumbria in 2009 – or the devastating deluge that hit the Midlands and Yorkshire in 2007 should be most worried as their history is not that encouraging when it comes to flood insurance.

You can find out for yourself if your home is in a high-risk flood Warning Area. Check the flood maps shown on the Environment Agency's website or call Floodline on 0845 988 1188. These flood maps detail the areas of the UK most at risk of flooding from rivers or the sea and also indicate areas of significant, moderate or low risks of flooding. You can also get help and advice from the National Flood forum, a registered charity set up to help individuals and communities at risk of flooding. The ABI also publish a useful guide.

Insuring properties in flood plains has always been tricky, but some companies are more sympathetic than others. In order to gain a true picture of whether your property is at risk and to learn if cover will be available, you need to speak to a professional insurance company (and we strongly recommend you do NOT use one of the comparison sites: you are seeking specialist, individual advice here and it is most unlikely a comparison site can offer the expertise you require). Westhill Insurance Services provide sensible advice and have experience of dealing with properties on flood plains. Their friendly team will be able to offer pragmatic advice regarding your home and contents insurance and, if the property can indeed be insured, will shop around to find the best possible deal to suit your needs.

Don't sink without trace. Check the facts for yourself – call the Floodline as above and make sure of the level of risk your property faces. A professional insurance company – such as Westhill Insurance Services – will double check this information for you and make sure any cover you have is at the right level, and they can advise as to how to proceed with your insurance cover.

Contact Westhill Insurance Services, today.

Posted on 19th April, 2012