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Who Should Subsidise The Costs of Flood Insurance?

Once again the news headlines highlight the on-going squabbles regarding who should pay for the underlying costs associated with providing home insurance for policyholders who live in a floodplain...

What has been dubbed 'flood insurance' is a highly divisive and emotive issue for people who live in floodplains. Likewise, homeowners are seeing their premiums rise due to a range of factors, including the increased Global and National claims costs associated with flooding (even though a policyholder may not live in a flood plain).

So should the insurance companies be forced to provide home insurance cover by law? (especially if their underwriting statistics identify that claims costs will leave them out of pocket in flood zones).

Many people argue that people on lower incomes simply can't afford to put aside reserves, to pay for the costs of flood damage, if they cannot obtain adequate insurance cover. It's a complicated issue for both the UK insurance industry and Government ministers alike.

We recently received the following email from a worried homeowner, which we believe is absolutely typical of the types of genuine concerns, confusion and dilemmas many ordinary householders now face. How you answer many of the questions outlined by this homeowner, really depends on whether you are on the Governments side or the Insurance industry...

"I am worried that my insurance premiums are too high because my house is effectively on a flood plain, even though the house (and to the best of my knowledge the other houses in the area) have never actually experienced flooding.

When we bought the house, several years ago, I remember the survey pointing out that the houses on this estate in Crawley, Sussex, were on a flood plain, but at the time of building I believe many housing developments were built on what are effectively flood plains. I am not even sure what river the land actually is a flood plain for, I would not have imagined that when we came to get house insurance there could be the risk of us being penalised because of this.

Our house is on a built up area, on a large housing development of 3,000 homes, and to my knowledge there is only one small dry stream that runs through the entire development, but that is at least a quarter of a mile from our property. Because the surveyor advised that our property is effectively on a flood plain, are we paying too much in house insurance, because the insurance company think that the house might flood?

How do insurance companies calculate the risk of flooding? Do they go only on past experience or do they actually look at maps and the distance from large rivers? If we wanted to exclude flood cover from our house insurance, to bring the cost down or to calculate if we are being charged a large proportion for the flood cover, would we be able to do this or indeed are there other insurance companies that would cover us excluding flood cover entirely? We would then put some money into savings just in case we ever were flooded and we would have to pay for the damage ourselves if our property did ever flood. Are housing companies having to pay out for any flood damage if they have knowingly built properties on flood plains or too close to rivers.

If we did exclude flood cover, would we be excluding any other type of cover related to water damage ? for example, a friend of ours who lives in the West country, claimed for damage to her home when the bad storms and rains happened a few years ago, however, they were told that it was not flood damage, but storm damage, and whilst their insurance company was very good with handling the claim and everything, it made me think about how insurance companies can call damage caused by water, flood damage or storm damage."

At Assetsure we are happy to discuss each individual situation on a case-by-case basis. Yet, ultimately the answer to many of the questions raised by this concerned home owners lies in the home insurance policy wording. So don't glaze over when you get yours (even if it is 30 pages thick!). Actually check the wording, covers and exclusions!

We would argue that all insurance companies need to make a reasonable profit in order to offer insurance. Yet many insurance companies are lobbying hard to avoid subsidising the costs of flood damage, by insisting the taxpayer should continue to pick up the tab. Yet as we all know in these times of austerity, the taxpayer is already squeezed and additional monies seem unlikely to be forthcoming.

We feel it really falls to the largest of insurance companies who have a nationwide geographic coverage of clients, both in and out of floodplain areas, to justify what is a reasonable profit. Similarly, the Government has a moral duty to help those in our society who cannot help themselves. Flooding destroys peoples homes and businesses. It seems implausible that homeowners will be left high and dry by the insurance industry (pardon the pun). Yet any sensible person should think twice about buying a house on a floodplain, or assuming the taxpayer can afford to continue to keep bailing out special interest groups.

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