Insuring your property against flooding
Insuring your property against the risk of flooding may become increasingly difficult to do. Dean Bickford, a partner in our commercial property team, explains why.
The Association of British Insurers (ABI) and the Environment Agency provide a wealth of statistics on the growing problem of flooding. We learn, for example, that 1 in 6 homes in England and 185,000 businesses are at risk of flooding and that more than £3b was paid out in the 2007 floods. With the current spending cuts, and less money available for flood defences, this situation is likely to get worse.
It may not be particularly well known but the Government and the ABI have had a long standing agreement to ensure that the vast majority of properties are covered against the risk of flooding. That agreement expires in June 2013 and the ABI has indicated that the agreement will not be renewed.
This is an alarming prospect. Without a new agreement, there is a risk that owners of properties in flood-risk areas may find a substantial increase in their premiums, restrictions on cover or even that their properties are uninsurable. Such a situation will have a knock-on effect on valuations and the ability to secure mortgages, which will impact on the ability to buy or sell.
There is pressure on the Government and the ABI to implement a new long term strategy to reduce flood risk; to ensure that the planning system prevents inappropriate development in flood risk areas or restricts such to flood-resilient development; and to increase awareness of flood risk and the availability of insurance.
In the meantime, the due diligence process in purchasing properties will increasingly focus in on the flood risk, with survey reports and expert consultants providing important advice and guidance. It is inevitable that local planning authorities will impose conditions and restrictions on development to circumvent the flood risk. Such elements will impact on the overall development budgets and timing. Lenders will take a far greater interest in flood risk and what protection is in place, affecting capital values.
The ABI sees the flooding risk as a problem that needs to be tackled jointly by the Government, ABI and consumers. How this will be addressed remains to be seen.