BLOG: Flood insurance proposals will leave some underwater
The bill has two objectives. The first is to reform the water industry to make it more innovative and responsive to customers and to increase the resilience of water supplies to natural hazards such as drought and floods.
The second, which interests us, brings forward measures to address the availability and affordability of insurance for those households at high flood risk and ensure a smooth transition to the free market over the longer term.
The current flood insurance guarantee – the Statement of Principles – is soon to expire and is set to be replaced by the Flood Re proposal, an agreement between UK insurers and the government to develop a not-for-profit flood fund to ensure that flood insurance remains affordable and available to homeowners at high flood risk.
This is a significant step forward as the previous rules were only ever intended to be a temporary measure, and have restricted customer choice as insurers only have commitments to their existing customers, and new insurers can decide to whom they offer flood insurance. The Statement also does not guarantee affordable flood premiums or manageable excesses, and despite it, an increasing number of people are beginning to struggle to afford flood insurance.
The surveying industry through RICS (Royal Institution of Chartered Surveyors), rightly supports the Flood Re proposal as it is currently the only real solution on the table that has the support of both the insurance industry and government, which means it will be put into place. However, there is no doubt that the properties to be excluded from the Flood Re proposals will leave some parts of the property sector unable to access affordable flood insurance and potentially create a two-tier market.
The current proposals in the Water Bill need to be expanded to bring in a broader category of residential property than are currently identified.
Flood Re offers some promising, innovative approaches for dealing with affordability and availability, but it misses an opportunity that recent flood events have underlined: it does not take into account the problem of rising flood risk levels caused by sustained periods of change in our climate.
There is a real opportunity to inject some longer term thinking into the proposed legislation that reduces the risk of flooding by providing incentives to address it. Reforming flood insurance without building in mechanisms for risk reduction is a missed opportunity and could jeopardise the future affordability and availability of the insurance and ultimately the property itself.
Robin Johnson is managing director at KFH Chartered Surveyors