More than 500,000 face flood premium disaster

Tim Swift
Tim Swift
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MORE than half a million people will see their annual home insurance bills soar by hundreds of pounds if a crucial deal over flood risk expires next month, new figures show as the human cost of Government’s “failure to act” becomes clear.

Statistics compiled by the insurance industry reveal the number of people paying more than £500 for the “flood protection” portion of their insurance premium will rocket nine-fold, from 75,000 to 650,000, if Ministers fail to agree a new deal before the end of July.

Many more will be hit harder still, with the number of households paying more than £1,000 for flood protection rising 640 per cent, from 21,000 to 135,000. A hardcore of 4,000 households will pay £2,500 or more.

The Association of British Insurers (ABI) says the soaring prices would be the inevitable result of the expiry of the “Statement of Principles”, a long-standing deal between Whitehall and the industry which means people in flood-risk areas can still insure their homes and businesses.

The fixed-length deal, agreed by the previous Labour government in 2000 and since extended several times, saw industry pledge to provide insurance to all properties at risk of flooding in return for a Government commitment to invest in flood defences.

Coalition Ministers have been negotiating with the ABI over a replacement deal for the past two years, without any agreement. The Statement of Principles was due to expire this month, but has been extended until the end of July by the ABI in the hope a last-minute deal can be reached.

However, the Yorkshire Post today reveals how the failure to provide certainty beyond this summer is already having a massive impact on property owners across the region.

This week marks the anniversary of the beginning of a devastating series of floods which struck West and North Yorkshire last year.

The deluge, which caused £3m of damage in Calderdale alone, followed disastrous flooding in previous years in almost every corner of the region, from Sheffield to Richmondshire and from Hull to the Calder Valley.

Calderdale Council said one firm in the district has seen the excess it must pay on any flood claim soar from £500 to £250,000 following last summer’s floods. Another saw its excess rise from £2,500 to £25,000.

Council leader Tim Swift said: “It’s becoming very serious.

“We are hearing from growing numbers of businesses who either cannot get insurance, or whose excess is so high that effectively they are not insured anyway.

“These firms are carrying on, but lots of the smaller ones know that another flood this summer will put them out of business.”

For homeowners in the areas deemed most at threat, the implications are equally severe. Analysts have estimated 200,000 properties across the UK may not be able to obtain flood insurance at all if the deal runs out – meaning they would have to foot the bill for any future damage themselves.

The Building Societies Association (BSA) warns house prices would be hit hard, with tens of thousands of people left with unsellable properties.

“These consumers would be likely to experience difficulty in selling their home, as potential buyers would find it difficult or impossible to get a mortgage, 
with a possible negative impact on value,” said a BSA briefing note, obtained by the Yorkshire Post.

The BSA is also warning of a “knock-on effect” for the entire property market, as lenders who are faced with the “sudden and unanticipated drop in the value of their mortgage book” hike up the size of required deposits to compensate. Paul Broadhead , head of mortgage policy at the BSA, said: “It is essential the Government and insurers reach a workable conclusion that will not see home-owners put at risk.”

Labour’s Shadow Environment Secretary Mary Creagh, the MP for Wakefield, said Ministers have “failed to get to grips” with the need to renew a deal they always knew was due to expire this summer.

“People in flood hit communities are being hit with higher insurance premiums and excesses because weak, incompetent Government Ministers have failed to get a new deal on flood insurance,” she said.

“Labour has been warning the Government for three years that they need to get a grip to ensure that the 200,000 people in high-risk properties can insure their homes.”

The issue has been raised repeatedly in the Commons by Opposition MPs and Government backbenchers representing flood-hit communities.

David Cameron said at Prime Minister’s Questions last week that he was “confident” a new deal will be reached.

However, Ministers from the Department for the Environment, Food and Rural Affairs (Defra) have been making similar assurances for the past 12 months without a breakthrough.

In July 2012, then-Environment Secretary Caroline Spelman told the Commons a deal was “very close” and said she would “shortly inform the House of more details”.

In January 2013, the Floods Minister, Richard Benyon, said the Government was “at an advanced stage in negotiations”.

The ABI wants a new deal to include the creation of a special fund from which cover for the most at-risk properties would be provided, paid for by a small levy on all household bills.