Flood insurance: ‘How has my premium leapt 550pc when I’m nowhere near water?
7:12AM GMT 10 Nov 2015
Homeowners across the country are finding their insurance bills rocketing as providers factor in new “flood risks” – even if they live miles away from the sea or any other water course.
Shock increases of 200pc or more are being reported by consumers and insurance brokers. The likely explanation for the sudden rises, brokers say, is that this winter will be the last in which insurers have to bear the costs of the worst flood-related claims.
This is because from next April the Government’s “Flood Re” scheme becomes available, allowing insurers to pass on flood-related elements of homeowners’ policies.
Lloyd Garbett, underwriting manager at SJL Insurance Services, a broker, said: “Insurers are looking to protect their balance sheets ahead of the introduction of Flood Re. They’re looking for any way to increase premiums or excesses for properties they deem at risk.”
The other factor driving premiums is insurers’ rapid uptake of new flood-mapping technology, supposed to pinpoint areas at risk “down to the individual property”.
Graeme Trudgill, of the British Insurance Brokers’ Association, said: “In the past there was a lot of ‘mutualisation’ – where insurers offered cover within an area and shared risks with other insurers. But now properties are being assessed for risk almost individually.”
But sometimes a slavish adherance to this new data can result in mistakes.
Mr Garbett said: “Many insurers are relying too much on the technology, and failing to apply common sense underwriting.”
He cited a case where a customer lived on top of a large hill, but with a river 300 meters away in the valley.
“The insurer’s flood mapping technology says that the property is at risk of flooding because of the proximity of the river, even though there is no way that the water could ever reach the house.
“Instead of having an underwriter assess the situation, the insurer just follows the information generated by its systems and hikes the premiums or adds an expensive excess. The common-sense element is missing.”
‘My bill jumped 550pc’
Marianne Jones and her husband Nick received their renewal paperwork from HomeProtect in October.
The cost of the buildings and contents policy, underwritten by French insurance giant Axa, was set to jump from £30 a month to £195 – an increase of 550pc.
The letter said the increase was due to a re-assessment of their property’s risk of flooding.
Their home, in Sevenoaks, Kent, is nowhere near a river or other watercourse. Nor has the site ever flooded.
The letter said: “We’ve recently introduced new flood information which predicts the risk of ground water and flash flooding, alongside the more obvious risk of flooding due to proximity to rivers or coastal areas.
“The reason we mention this is because your property is now classified to be at higher risk of flooding. Due to the additional risk, your renewal premium will be £195.21 per month.”
On top of that the insurer said a new £5,000 excess would apply to any flood claim. This is the first part of the claim which the householder must meet themselves before the insurer pays out.
When Telegraph Money asked HomeProtect to justify the huge increase, it said that its modelling system provides flood risk data at an individual property level and this showed that Ms Jones’ property was at a high risk of surface water flooding.
When pushed for an explanation as to why the property was now more exposed to surface water flooding, the insurer refused to answer, claiming this was “commercially sensitive” information.
It later told Ms Jones, who is editor of the Telegraph’s Stella magazine, that there are several large, flat fields nearby which may encourage flood water drainage towards her property.
Ms Jones said: “We have lived in the property for seven years and the landscape hasn’t changed. We haven’t had even the hint of a flood.
“What really annoys me is that I only read the letter in depth because I was off work in the week it arrived. I’m sure there are people who simply let their standing order continue.”
Whatever her insurer maintained about the risk posed to her property, other insurers appeared not to agree.
When she looked online at comparable quotes for her address, numerous mainstream insurers were prepared to offer lower premiums.
She has now moved to a new insurer and is paying just £19.50 a month.
Are flooding incidents really on the rise?
Five of the top six wettest years on record have happened since 2000.
In the summer of 2007, severe flooding affected parts of South and East Yorkshire and Gloucestershire. Around 48,000 homes were flooded with each costing between £20,000 and £30,000 to repair, according to the Environment Agency.
During another spell from December 2013 to February 2014 a succession of 12 major winter storms battered the UK.
Towns along the coastlines in the south and west of England were flooded and the Somerset levels were inundated with floodwaters. Severe flooding also occurred along sections of the River Thames.
Payouts to around 19,000 homeowners averaged £24,000 each, according to insurance industry data.
Climate change is mooted by some as explaining an apparent increase in flood incidients, with rainfall occurring in greater concentration and sea levels rising.
But population growth, and with it the building of new homes and infrastructure, is also to blame for reducing natural land drainage. As a result, more pressure is put on Britain’s stormwater sluices and drains, which are struggling to cope with the increased volume of water.
Data from the Environment Agency shows that 2.4 million properties in England are currently at risk of river or coastal flooding. An additional 3 million properties are at risk of surface water flooding and 600,000 of these properties are at risk of both.
What is Flood Re?
Flood Re has been designed to ensure that those homes in the UK at the highest risk of flooding can receive affordable cover for the flood element of their household property insurance.
It is a not-for-profit flood reinsurance fund, which will be owned and managed by the insurance industry. A reinsurance vehicle works by pooling risk into a fund that pays out to an insurer if it has to meet a claim.
So insurers will sell policies to their customers in the usual way, but may pass the flood risk carried by some of those policies – likely to be around 350,000 homes with the very highest risk of flooding – to Flood Re.
If your policy is affected and you need to make a claim you will deal with your insurer in the usual way. It will remain responsible for paying you, but it will then claim money back from Flood Re.
Very high-risk homes will be able to take out affordable insurance because the cost of the flood element of their insurance policies will be based on council tax bands. Band A homes will pay £210 a year, rising to £540 for Band G properties. This money will be passed from insurers to Flood Re to help fund the pot.
Separately, all home insurance customers will pay a levy into the fund. The ABI estimates this will be around £10.50 a year, but insists this is not an additional payment and “broadly reflects the existing cross-subsidy between lower and higher flood risks”.
Are you at risk?
Official figures suggest one in six homes are at risk of flooding. Home buyers are often unaware of the risk to their new property.
Simon Warsop, chief underwriting officer at insurance firm Aviva, said it is very easy to unknowingly buy a property in the UK that is at a very high risk of flooding.
“Estate agents and sellers don’t highlight this information clearly and surveyor comments on flooding tend to be bland,” he said. “They are not good at flagging up flood risk.”
The ABI this month called for flood risk information to be included on promotional material about properties for sale.
Websites such as Rightmove and Zoopla do not include flood risk information for the properties they list, and there is a lack of flood risk information on brochures for new build properties.
The ABI wants estate agents and property search websites to automatically provide traffic-light style information indicating flood risk for the locations of the homes they list, based on data from the Environment Agency.
It also wants flood risk information to be provided in the marketing material of new build properties. Its research found that in 50 of the highest flood risk areas in England and Wales, none of the new build sales materials included flood risk warnings.
Huw Evans, head of the ABI, said: “We need to make thinking about flood risk as much part of the home buying process as school catchment areas and transport links. At the moment, information on whether a property is at risk of flooding comes too late, often when people have already invested hundreds if not thousands of pounds in the conveyancing process.”
At the moment, accessible flood risk data is available in England and Wales, but not in Scotland or Northern Ireland.
Have you had problems with your insurance that were brought on by flooding? Email [email protected]