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Who Should Pay for Flood Insurance

As it becomes more widely accepted that the risk of flooding is set to increase across the whole of the country, the question of who should pay for flood insurance is once again coming to the forefront of debate.... .

In a time of public spending cuts, spending on flood defences is also under pressure. Therefore, leaving the people that live in those areas that are at most risk of flooding exposed to that risk, (with the possibility that they will have to find the money to repair the damage done by flooding); or be faced with having to leave their homes or face financial hardship or possibly ruin.

Next year, the agreement between the Government and the building insurance industry is due to end. In essence, the agreement stated that the Government would provide sufficient money resource to spend on flood defences and that the home insurance industry would continue to provide flood insurance.

Insurance is all about the pooling of premiums in order that the risks and claims of the few, are paid out of the premiums that have been pooled by the many. Additionally, insurance companies are entitled in a free market, to charge premiums that accurately reflect the risk.

In known flood areas, however, it is not just a case of there being a possibility of flooding, but increasingly it is becoming a given that a home or a business premises will flood. How does a home insurance company calculate the premium for such a property? Flood can be catastrophic. At what point does it stop being an insurance issue and start being an issue that society and Government should address?

There are many knock on implications of flood and the inability to obtain adequate flood insurance at a sensible and affordable premium. When people living in these homes on flood plains or in well-known flood risk areas, come to need to move and sell their homes, who would want to purchase a home with no protection from the one force of nature that is expected to happen?

It might be argued that homeowners and business owners knew of the risk they were taking on when they first bought the premises or rented the premises, (as it is not just bricks and mortar that are affected by flood, but business incomes and the ability to stay in business through a flood is a major consequence too). Therefore, surely as the principle of insurance goes, they should pay for the risk in which they are situated, in the same way that a business or homeowner will pay more for theft insurance in built up inner cities than perhaps in the suburbs.

However, to take this analogy of the risk of theft, there are actions that these individuals themselves can take to mitigate the risk of theft, namely, security devices and in fact often these measures will be conditions of the home and contents insurance policy for the insurance to be valid. Additionally, it is not a given that theft will occur, it is simply more likely that theft will occur in built up areas. However, with flooding what is being argued by many Environmental agencies is that flooding will happen - the when might not be known precisely but the risk is increasing.

What are the mitigating actions that homeowners and businesses can take to protect themselves from flood? These are not designed to inhibit a flood entirely, for that, proper and adequate flood defences are required. These can only really be financed through Government, for which taxpayers are the ultimate financers, or a collective agreement between the Government and the Insurance industry.

I might add too, that building developers should be expected to pay a contribution towards flood defences. Building so many properties on known flood areas, inhibits the ability of rivers to flood naturally and come to a natural level without thousands of buildings and flat roads being in the way, where water is given free passage to run further that it might otherwise have. And subsequently, not only is the risk of flood increasing due to climatic changes, but also the severity is increasing as more homes and businesses stand in the path. Stop building on flood plains.

In the Netherlands, where building has to occur in flood areas, flood insurance is generally not included in private insurance policies, and the State picks up the costs when flood occurs.

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