Adequate flood insurance cover for any property can help reduce the traumatic effects in the event of a flooding event. There is an agreement between the Government and the insurance industry, called the Statement of Principles, and this obliges insurance companies to offer flood cover as part of standard policies in almost all cases. The current Statement of Principles (PDF 70 KB) was agreed on 11 July 2008 and renewed previous similar agreements.

Roadmap to 2013

The Parliamentary Under-Secretary for Natural Environment and Fisheries, Richard Benyon, met with insurers and other partners at a Flood Summit (PDF 130 KB) in September 2010 to discuss flood risk management and the challenges involved in flood insurance.

Following that, three working groups were established to continue the dialogue on flood insurance and risk reduction. An interim report of the flood insurance working groups was published in May 2011 and they reported back on progress at a follow-up meeting in July 2011.

Since then Government has continued to develop and analyse the options explored by the working groups, working closely with the insurance industry.

On 19 December, Ministers gave a progress update (PDF), and in tandem the final report of the flood insurance working groups was published.

The progress update states that Government and the insurance industry remain committed to making sure flood insurance remains widely available. Together we are working towards an announcement in the spring of a new shared understanding which sets out more clearly what customers can expect from insurers and from Government.

Over the next few months we will continue to work with insurance companies to consider what additional measures might help safeguard the affordability of flood insurance for households. As part of this ongoing work we will be considering the feasibility, value for money and deliverability of targeting funds to help those most in need, building on the analysis undertaken by the working groups established after last year’s flood summit. This may include models where communities might work together to secure affordable insurance.

These options will be considered over the winter months in order to make further announcements in spring 2012.

Working group two have produced a factsheet (PDF) setting out the sources of information on flood risk including from water and sewerage companies.

Statement of Principles

The Statement of Principles is an agreement between the Government and the Association of British Insurers (ABI) that 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. The current agreement is due to expire in 2013 and Defra is working closely with the insurance industry to ensure that insurance remains widely available in England after this point. The current agreement includes the principle that premiums and other policy terms, such as excesses, will reflect the degree of risk that insurers take on when cover is offered to each customer.

The 2008 agreement also states the conditions should be in place to enable the insurance market to be able to provide flood insurance to the vast majority of households and small businesses efficiently and without a specific agreement after 1 July 2013.

The Statement of Principles does not apply to homes built since 1 January 2009. Therefore there is no obligation for insurers to offer cover against flood risk for newly-built property. Developers and customers purchasing a property in a new development are encouraged to make sure it is insurable for flooding.

Availability of flood insurance

Insurance against flooding is widely available, and action taken by the Government, communities, individuals and businesses to reduce levels of local flood risk is the best way of keeping insurance available and cover affordable over the long-term. One of the best ways to do this is for property owners and residents to reduce the chance of their own home being flooded and to minimise the size of any claim should flooding take place. Signing up to the Environment Agency’s flood warning service means valued possessions can be safeguarded if flooding is predicted.

Resistance and resilience

Making homes and businesses flood resilient can prevent or reduce damage caused by flooding. This could mean better terms for flood insurance as well as reducing the time that people need to be out of their properties in the event of a flood.

• Information on how to prepare for flooding and how to protect homes from flood damage, including best practice tips can be found on Directgov.

• In addition the ABI published a guide to resistance and resilient repair in January 2010

Insurance premiums and excesses

The cost of insurance may vary across the country, and even within individual streets and areas.

There could be a number of reasons for this, different insurers take different approaches, and houses may have different characteristics that affect their likelihood of being flooded (eg height above ground, presence of basements and cellars, flood protection measures, history of flood claims).

In some cases specialist brokers may be able to provide better terms than mainstream insurers.

• Specialist brokers can be found through the British Insurance Brokers’ Association consumer helpline on 0870 950 1790 or via the online their ‘find a broker service’.
• Consumers can also contact the ABI if they feel they have been unfairly treated by an insurer. They can be reached on 020 7600 3333 or via the ABI website.

There is no requirement within the Statement of Principles or otherwise for insurers to offer insurance at a discount in high flood risk areas. However, insurers have historically not chosen to commonly apply risk-based pricing because of a range of factors, including simplicity as well as for commercial reasons. As a result, customers at low or no flood risk have historically subsidised the costs of insurance in high flood risk areas. Doing so places some insurers at risk of losing business by being undercut in non-flood risk areas. This combined with increasingly sophisticated tools used by insurers to price policies in flood risk areas means that there has been a trend in recent years towards insurers unwinding cross-subsidies and applying risk-based pricing.

In accordance with the Government’s determination to deliver solutions which offer taxpayers greatest value for money and which will endure over the long-term, the priority will continue to be to invest in reducing the risk of people and properties being flooded in the first place. This will be more cost-effective than re-directing large amounts of taxpayers’ money into subsidising insurance premiums for those at high flood risk. As well as value for money concerns, taxpayers’ money spent subsiding insurance costs would do nothing to protect communities against the wider, non-monetary, health and wellbeing impacts of flooding. However, Ministers have committed to consider whether there might be scope for limited, targeted support for those most in need.

One positive side effect of the trend towards risk-based pricing is that we are likely to see growth in a specialist flood insurance market that will be able to tailor products to better suit individual customer’s needs. This may be in combination with appropriate household flood resistance and resilience measures being installed. The trend will also create stronger incentives for cost-effective flood alleviation works to be done, for whole communities as well as for individual properties. Such works are likely to save householders money in the long-run through allowing access to better insurance terms.