06:35 27 June 2013
Finding a lasting solution to the thorny problem of providing affordable insurance to homeowners at risk of flooding has taken 13 years - and it's still not resolved.
The current round of talks between the government and the Association of British Insurers (ABI) has reached an urgent stage as the deadline for the current agreement looms at the end of July - this is already a month later than the original deadline.
The stakes are high. If those living in high risk areas can't insure (or can't afford to insure) their homes they won't be able to keep their mortgage as lenders insist on buildings insurance. They won't be able to sell them on or move to a better mortgage deal.
Repairs to a home damaged by flood waters can cost many thousands of pounds.
So, without an agreement between the insurance industry and the government covering the availability of insurance on one hand and the undertaking of work to reduce the risk and impact of flooding on the other, the cost of home insurance could soar to several thousands of pounds a year per policy.
Almost £2 billion was paid out in claims after last year's floods and the worst flood damage on record in 2007 cost the industry £3 billion. Three-quarters of these claims were for residential homes.
With one in six homes in England and Wales at risk of flooding, it's an issue which can't be ignored.
What are the proposals?
Since 2000, the insurance industry's Statement of Principles has provided for homeowners to be able to buy household insurance which includes flood cover. The premiums are not subsidised, but without the agreement someone in a high risk area might not be able to get cover at any price.
The ABI wants to replace the Statement with a new agreement that will introduce a levy on all insurers to create a fund which would help pay claims in the event of a major flood. This would enable insurers to offer cover at a set price to insure homes in riskier areas, known as the Flood Re premium.
The size of the levy is still under discussion and would inevitably be passed on to the customer but it is likely to push up everyone's premiums by £10 a year. This would be expected to raise a fund of £150 million a year.
Although the industry isn't looking for a government subsidy, the question remains how the balance would be paid if there were a major disaster in the early years when the fund was still relatively small in relation to the billions likely to be claimed. In this case the industry hopes the government would agree to step in and fund the shortfall but the government has as yet refused to agree to any underwriting of the scheme.
"There is no other country in the world where flood insurance is solely left to the open market," says Malcolm Tarling of the ABI. "Creating a fund through a levy is the only model that addresses affordability and availability. Discussions are at an advanced and crucial stage. We hope to reach a conclusion very soon."
What happens in the meantime?
Even if a deal is struck in the next few weeks, legislation would have to be passed before a levy could be introduced. Parliamentary time would have to be set aside to pass it and the summer recess is round the corner.
Interim measures to cover the months before new legislation is created are also forming a key part of the discussions.
Those who have been flooded before or who live in flood risk areas can still renew their home insurance up to the end of July but only with their existing insurer. The National Flood Forum (NFF) charity has seen calls to its helpline treble this year.
The main areas of concern are:
If an agreement can't be reached there is a danger that there will be an 'open market', meaning insurers don't have to offer you cover and those that do can charge whatever they like based on the risk your home presents.
At the moment 75,000 homes pay £500 a year or more for home insurance. In a free market this would increase to 650,000 homes says the ABI with around 4,000 homes costing more than £2,500 to insure.
How can I find out if my home is at risk?
The Environment Agency has a flood map which shows how prone your home is to flooding from coastal and river waters. All you have to do is type in your postcode and the map will show whether your area is at low, moderate or significant risk of flooding.
However, the map doesn't show the risk of flooding from surface water where flash floods overwhelm the capacity of drains and gutters to cope with a severe downpour. Flash floods put an estimated 10 million homes at risk with one in four of them in London. This is a major concern with wetter summers predicted in the long term.
What can I do?
You can try to protect your home by installing a number of flood defence measures such as flood boards, one-way valves in drainage pumps, sealing floors and making sure electrical points are above previous flood levels.
The NFF has information on building your own flood defences on its website and your insurer may have recommendations.
You might be offered a discount on your home insurance premiums if you take steps to protect your property.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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