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27 February 2012
Residents and local authorities in towns, cities and villages close to water could be left facing an £11 billion liability because of unfair and unaffordable insurance premiums, council leaders have warned.
The Local Government Association, which speaks on behalf of more than 350 councils in England and Wales, has today written to Government and the insurance industry asking them to urgently address a problem which may leave tens of thousands of homes uninsurable from next year.
A 'safety net' arrangement between the Government and the Association of British Insurers (ABI) to provide cover to flood-risk homes expires next year, and a new agreement has yet to be reached. The ABI warned last month that failure to reach a new deal would mean as many as 200,000 homes could struggle to get insurance.
Councils are concerned that huge swathes of the population in certain parts of the country could be hit with a 'double whammy' of increased risk of flooding, while being priced out of home insurance to cover them for a worst case scenario.
With the current arrangement between Government and the insurance industry coming to an end, some insurance companies are already either refusing cover or adding thousands of pounds on to premiums and excess policies.
People in areas including Nottinghamshire, Worcestershire, Devon, Kent and Huddersfield have been refused or priced out of home insurance because of flood risk. They include residents living in upstairs flats, social housing tenants and households who have spent thousands of pounds on flood defence measures like installing defence barriers and floodgates.
Cllr Clare Whelan, from the LGA's Environment and Housing Board, said:
"Councils are the organisations to which people turn to for help in their hour of need. However, we simply cannot afford to take the risk of being left to foot a multi-billion pound bill if we see more devastating scenes like those in Cockermouth three years ago.
"The insurance industry has a responsibility to help people manage risk and should not be allowed to hand pick low-risk homes while leaving those most in need high and dry.
"We all remember the wave of destruction the 2007 floods caused.
"It is imperative that the insurance industry commits as soon as possible to providing affordable and fair insurance premiums once the current safety net agreement expires next year."
Defra's Climate Change Risk Assessment, published last month, warned that more frequent major floods was likely to be one of the most likely and most damaging consequences of climate change.
In letters to Environment Minister Richard Benyon and ABI Director General Otto Thoreson, councils have called for:
Government and the insurance industry to urgently outline how affordable insurance will be provided once the existing agreement expires on 30 June 2013.
Insurers to use the latest information on flood resilience measures, adopting a shared understanding of flood risks, when setting premiums so that people in areas where the risk of flooding is low do not face disproportionately high premiums.
Insurers to start taking into account flood risk prevention measures on people's homes when setting premiums. Steps like raising plug sockets and anti-flood drainage systems can minimise the potential for damage in the event of a flood, but are not currently recognised by insurers.
Cllr Whelan added: "Some families are already struggling to find cover for their homes, and we run the risk that tens of thousands more could soon face a 'double whammy' of greater risk of flooding while being left unable to get insurance.
"In the event of another major flood, this could multiply the disruption and devastation caused and could cause untold damage to the recovery of flood-hit areas and people's livelihoods.
"It is now imperative that Defra continues to show strong leadership in ensuring both the long-term availability and affordability of flood insurance. The LGA will be bringing together councils to working with Government and the insurance industry to bring together create find new ways of providing affordable flood-risk cover, particularly for low-income households."
1. Sir Michael Pitt's Review of the floods in 2007 revealed that the cost to insurance industry was £3 billion – equivalent to almost £55,000 per flooded property. Based on those figures, if 200,000 flood risk properties were not insured, it would leave householders and local authorities facing a liability of just under £11 billion.
The Pitt Review final report from the Cabinet Office(on the National Archives website) [http://webarchive.nationalarchives.gov.uk/20100807034701/http:/archive.cabinetoffice.gov.uk/pittreview/thepittreview/final_report.html]
2. Last month, the Association of British Insurers warned that 200,000 homes risked facing problems getting flood insurance when the current agreement between the industry and government expired next year:
Association of British Insurers Media release [http://www.abi.org.uk/Media/Releases/2012/01/FROM_ABERCONWY_TO_YORK_BOSTON_TO_WINDSOR__ABI_HIGHLIGHTS_THE_SERIOUS_FLOOD_RISK_FACING_COMMUNITIES_IN_ENGLAND_AND_WALES.aspx]
3. The current Flood Insurance Statement of Principles agreed in 2008 and expires in June 2013. It commits insurers to continue to offer insurance to existing customers where they are at significant risk, if there are plans in place to reduce that risk within five years. It does not apply to homes built since 1 January 2009.