A person holds the silhouette of a family house in their hands

Flood risk insurance: are you keeping up with the changes?

The end of the ABI’s current commitment to homes and small businesses

As a result of the 2007 floods and under pressure from the government the ABI’s members agreed to continue to cover flood risk for homes and small businesses at significant risk of flooding if they were existing customers at 2008 and the Environment Agency (EA) had announced plans to reduce the risk below significant within the next 5 years. This agreement known as the Statement of Principles ends next June and the government and ABI remain in talks to try and establish a replacement agreement.

The ABI estimates that when the current Statement of Principles ends up to 200,000 of the most at risk properties will struggle to find affordable flood risk insurance. This is likely to be an underestimate as it serves the ABI’s interests to underplay the significance of the issue to fend off the government’s pressure to renew the agreement.

The ABI appears to remain critical about the government’s investment in flood defences and its use of planning policy to manage flood risk. As a result, even where flood risk cover remains available, we may well see an increase in the conditions attached to such cover, for example requirements to carry out flood defence works. It is worth noting that some flood defence works require the EA’s consent and it remains to be seen whether the EA’s view of what flood defence works need to be done will match what insurers require to be done.

Increased availability of mapping techniques for ground and surface water flooding

The 2007 floods were primarily caused by intense rainfall within a short time, otherwise known as “pluvial” or “surface water” flooding. At that time knowledge about such flooding was limited. Insurers based their flood risk assessments on EA data which only dealt with coastal or fluvial (river) flooding. It was also not site specific, assigning the same level of risk to any property within a given grid square. Since then, advanced techniques for mapping ground and surface water flooding have been developed and the resulting information progressively used by insurers in flood risk assessment. Risk can now be more accurately graded on a site specific basis. This has benefited some properties previously lumped into an “at significant risk of flooding” category simply because they were in the wrong grid square. It is likely however that, by taking account of ground and surface water flooding, more properties now come within the “significantly at risk of flooding” category.

What are the implications for registered providers and what should they do?

The imminent changes in the availability and cost of flood risk insurance clearly carry risk management and cost implications. Many registered providers (RPs) own properties located in medium to high risk flood areas so the issue should not be ignored. These are some things we think RPs should consider to prepare for the changes – both in respect of RPs’ existing stock and prospective developments.

  • Ensure you have a detailed accurate knowledge of your properties’ particular flood risk

    Such knowledge is key to developing appropriate strategies to manage the risk and cost associated with flooding. It will give you the ability to negotiate the best possible terms with insurers and keep insurance costs under control.
  • Use this knowledge to develop a flood risk management strategy if one is not already in place

    Knowing the particular flood risk applicable to your properties will help to develop a flood risk management policy tailored to the specific vulnerabilities of your stock.
  • Ensure that occupiers are aware of preventative and responsive measures in place under your flood risk management strategy

    The importance of knowing what to do in the event of floods and of having adequate preventative measures in place was highlighted in the Pitt Review, the government commissioned report into the lessons to be learned from the 2007 floods. Disseminating this information to occupiers will clearly help to mitigate damage, injury and costs.
  • Talk to your insurers and brokers

    They can help provide data on flood risk. Your current insurer can tell you whether they are likely to be able to continue to provide flood cover for higher risk properties during the medium term at current rates and on the same terms. In particular it is worth checking whether your insurer will seek to impose new conditions on flood risk insurance such as the carrying out of flood defence works.New products for self insurance and flood risk pooling are being developed in the private sector to cater for the possibility of the absence of a government backed scheme being in place when the current Statement of Principles ends. While a funding solution for flood risk insurance in case of this eventuality is required, such products need careful consideration. Their impact on funding should be considered in any assessment of them.
  • Check your current policy termsDoes it allow for cover to continue on the same basis if it falls to be renewed before the agreement?
  • Keep abreast of EA policies and initiatives for your areaApart from informing your own flood defence strategy, it is also important to see how it compares to what your insurers think is required in terms of flood defence works.
  • Keep up to date with negotiations between the ABI and the governmentClearly the outcome of these negotiations will influence how the flood risk insurance market will develop.
  • Undertake suitable flood risk investigations before committing to acquisition or development