Flooding Insurance Scheme Reaches Stalemate

3rd December 2012

Thousands of properties across the UK face blight after talks broke down between the Government and the Association of British Insurers over flood protection.

Without a resolution to the stalemate, some 200,000 home owners would find their properties uninsurable, unmortgageable and unsaleable.

With towns and villages across the country affected by severe flooding, yesterday David Cameron said it was up to the insurance industry to resolve the matter and ‘do what insurers do’.

Meanwhile, the ABI hit out at ministers for rejecting what they described as the only workable solution – one that requires interim state funding. Bizarrely, the Government criticised insurers for even raising the issue at such a time.

The Association of British Insurers wants the Government to commit to a joint solution so that households which have a high risk of flooding can afford insurance in the long term.

The ABI says the Government has refused to consider providing a temporary overdraft facility for a proposed not-for-profit special insurance fund for the high-risk households.

The fund would be used to pay out on claims if there were major floods before the scheme has had a chance to build up its reserves.

Nick Starling, director of general insurance at the ABI, said: “The Government has indicated it will not provide any temporary overdraft facility for the insurance industry’s not for profit scheme, which makes it very difficult for it to go ahead. As a result, negotiations have hit an impasse.

“Insurers know their customers are increasingly worried about flood cover and we will therefore continue talks with Government to try and find a way forward.”

The Government criticised the ABI for raising the issue at a time when parts of the UK are being hit by floods.

Environment minister Richard Benyon said: “It’s actually rather demeaning at this particular moment to be talking about this.

“It’s really important for people who live at flood risk to know that the Government is determined to find something that’s better than the current arrangement.”

Benyon said that the Government is trying to protect taxpayers. He said: “We don’t want to see a huge burden going on insurance premiums across the country.

“We want to make sure there’s not some bottomless pot of Government funding that highly profitable financial organisations can tap into. We want to make sure we’re looking after the taxpayer.”

However, Starling hit back saying: “The severe floods experienced by many areas of the UK this year are a reminder of the rising flood risk facing the UK. It is therefore vital that insurers and Government tackle this issue together – this is not just a problem for insurers.

“No country in the world has a free market for flood insurance with high levels of affordable cover without some form of Government involvement”.

“It’s a very simple and elegant solution and we’re struggling to find out why it’s presenting such a difficulty for the Government, given that it will be able to make sure there’s availability and affordability for people in these situations.”

The British Property Federation expressed its deep disappointment over the Government’s stance.

The BPF urged the Government to commit to the scheme suggested by the ABI, saying that property without insurance is essentially worthless.

Liz Peace, chief executive of the BPF, said: “The Government needs to act quickly on its word to provide greater assurances over flood protection for developers to ensure that homes and regeneration sites are insurable and protected.

“We believe the ABI’s proposal could have provided the desperately needed long-term solution, but instead the clock is ticking.”

So, how does this affect you?

Currently it doesn’t, however the need for vigilance and due diligence checks prior to purchase is paramount. This together with the Consumer Protection Regulations hotting up mean that at the point of sale known issues including those with flooding have to be disclosed to the potentially interested party. That said we as agents can always draw attention to recent defences that have been installed by way of mitigating the impact.

On the plus side, high risk of flood areas can also have a great number of appealing features that come with a river side location, for example stunning outlook or boat moorings to name but a few.

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