The recent appalling weather in the UK has led to some of the highest levels of rainfall ever recorded. Not only is this a nuisance, making everyday tasks such as driving more difficult, but it has also caused havoc for many households up and down the nation.
Many towns have been evacuated and some even cut off after rivers burst their banks and floodwater reached dangerous levels. Many people are covered for flood damage and as it stands insurers are obliged to provide high-risk properties with cover until the deal ends in June 2013.
However, with the spate of homes claiming on their flood insurance, the industry has been in talks with the government over a new deal according to insurance news by Lloyds. Many homes are at risk of being left without insurance as a result but should this be allowed?
Should insurers be allowed to do it?
At the very crude bottom of the matter, insurance companies are businesses and thus need to end up making a profit. The industry has attempted to get the government to agree to let them charge a separate £8-10 on top of their premiums to go into a £100 million pool which would cover them against flood damage. However the government is opposed to this and wants to keep premiums down in general.
The insurance industry rates a low-risk house as having a 0.5% risk of flooding in any given year while a high-risk property has a 1.3% chance. These high risk properties are currently covered by the June 2013 deal but this protection could soon should the two parties not agree to a new deal by then.
It is likely they’ll dramatically increase their premiums but insurers have a right to not agree to any deal they feel will make them lose money in the long run. Repairing houses is costly and flood damage can affect the foundations so insurers want to make sure they can cover these costs adequately.
Why they shouldn’t be allowed
The current API deal covering houses for flood damage should be renewed as the sudden increase in premiums it would cause and the risk to people’s homes will be a huge worry for existing homeowners.
People know when they buy a home in a flood risk area but this does not mean they should be left without insurance. After all, they pay for insurance as it is so allowing insurers to opt out of covering them is more than a little problematic.
Had the government and API acted more quickly to renew the deal before the current poor weather this might not have even been an issue. As it is, insurers have reacted to a potential increase in floods and are holding firm in the debate. Due to the effect it might have on existing policyholders, it is in most people’s interest for a new deal to be struck soon and keeping an eye on the latest industry news is essential for anyone likely to be influenced by the decision.