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Assetsure News 12th October 2007
Should Insurers Deny
Home Insurance Cover in High Risk Flood Areas?
The UK Insurance industry recently announced that
the amount of money the government has allocated in the coming years for flood
defences is not enough and it may consider not providing
building and contents insurance for people in
high risk flood areas. The insurance industry also announced bills for insurance
would rise for homeowners generally to spread the overall cost of flooding as
the future risk of flooding rises.
The announcement in this year's Government spending round in the
Pre-Budget Report, of over £2.15billion pounds
for flood defences by 2011 was not warmly welcomed.... The association of
British insurers said: "We really want to carry on being able to provide this
service. [flood insurance] But obviously we can't keep providing it at
significant loss." The trade association said that the chancellor of the
exchequers recent statement showed the government had "completely failed to
grasp the importance" of improving the country's flood defences in the wake of
this summer's floods. Lenders are currently having to deal with significantly
more claims (around £3 billion pounds in 2007 alone) due to the record flooding
in the Summer. Most worryingly the ABI stated that insurers may not wish
to provide cover for people living in flood plains. This may impact over 550,000
people who would not be able to protect their homes using building home
insurance (regardless of how much money they have to buy a policy).
So is there a moral obligation by the Government to
fund the insurance industry's flood related losses due to claims from policy
holders? The UK government is already spending huge amounts of taxpayers money
on flood defences to protect high risk areas. Other western countries are not
matching these investments. Should new homes be built on floodplains in the
first place?... Should the construction industry foot the bill for adequate new
local drainage systems where run off from new developments only makes the
potential flooding impact worse?...
There is currently an informal compromise agreement
between the UK's leading insurance organisations, the private sector and the
Environment Department of the Government, (known as the
Statement of Principles) which sets out to
jointly define shared responsibilities for paying for the UK's flood defence
infrastructure. The agreements states that insurers will renew flood cover for
existing customers, provided 'adequate' flood defences are in place.
What 'adequate' flood defences actually means is a matter of debate.... The
antiquated drainage systems of the United Kingdom need to be upgraded to cope
with the additional run off from heavy rainfall as climate change creates more
and more freak weather conditions. The announcement that insurance companies may
not provide cover for potentially millions of people in affected areas has been
attacked as an extreme action to take.... David Blunkett, the former home
secretary: "It will lead people to conclude that the industry wishes to remove
any commercial risk to their own profits and place that risk instead on current
and future
home insurance policy holders." The essential
political negotiation between the government and the insurance industry
continues behind the scenes as well as in the media.
The loss of electricity to almost a million people in the area of Tewksbury (due
to the fact a key sub power station almost had to close due to rising flood
waters) highlighted the fact that some government installations were at high
risk of severe flooding. The incident also highlighted the there is confusion
amongst the local authorities and the Department of the Environment with regards
to crisis management and prevention strategy. There is no legal obligation for
all Government installations to be protected form flooding.
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Copyright Assetsure Limited 2007
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