Insurers decided not to red-line flood-prone areas for two years, in return for the development of a UK-wide flood defence strategy by the government. But has the government done enough or will uninsurable houseowners become the new underclass? Yvette Essen reports.

The insurance industry has been hit hard by floods in recent years, with the total cost of claims for climatic damage since 1990 now reaching £4bn.

But enough is enough and, despite the Environment Agency's (EA) new flood warning campaign, insurers say the government is not doing enough.

This view was endorsed recently by the Liberal Democratic Party, which has called for a national task force to improve the UK's flood strategy.

Speaking at the party's conference in Bournemouth, MP Malcolm Bruce said last year's floods were "a devastating wake-up call to the laughable nature of the UK's flood defence strategy".

More investment in flood defences was vital, he said, but it needed to be overseen by a single body. "The hotch-potch of administrative arrangements surrounding flood defence is diabolical, he said.

"It is unbelievable that the Environment Agency doesn't have the overall responsibility for flood defence management and planning".

The total payout for floods between October and December 2000 was £760m and the number of incidents and cost of flooding is expected to increase, according to expert predictions. However, insurers say the growing problem is not reflected in the planning and funding of flood defences in the UK.

In the past 12 months, residential building insurance has risen 1.6% and contents insurance is up 1.4%. Predictions are that overall rises of 5% across the board will take place this year. But this is not enough to be profitable.

Going up
Euclidian syndicate 1243 active underwriter John Collyear says: "Rates have been going up since January this year and we have every intention of increasing them again later this year.

"Rates need to go up and have had to do so, as margins are getting too thin to pay for the flood and windstorm losses we get every year.

"These storm losses have exacerbated the situation. Rates are not going up by as much as I would like. They should be going up by 15%, really."

Head of household insurance at Norwich Union (NU) Nick Pierson adds: "We've seen a hardening of rates recently, with Datamonitor reporting a 10% increase in the market.

"Norwich Union believes this is a market adjustment to restore underlying profitability. Insurers are now taking on a more realistic view of long-term weather patterns, which is being reflected in market prices. However, it is too early to say whether rates have reached a plateau.

"That is why we have changed our approach to the way we assess flood risk, taking a more individual look at properties. As a result, we have increased the number of areas where we asked brokers to refer new cases to us. This is to allow us to take into account both the risk of flooding and information about the adequacy of flood defences in the area. The number of areas affected remains small, with fewer than 5% of post codes affected by the change."

Pierson says this will offer great opportunities for brokers who will benefit from a hardening market. "It will be tough for them as they are going to have to try and maintain their books of business and sell rate increases. But, if rates go up, their brokerage just follows in line and they will benefit from a hardening market," he said.

The different regions
Regional brokers, particularly in the West of England and the South-East, are going to face the largest challenges. Worcester and Lewes in Sussex were two of the worst-hit towns in last year's floods and some fraught policyholders have been told their houses are uninsurable, or at least the insurance premium is unaffordable.

"It is a sad fact that some people living in dangerously volatile areas have been flooded for three years in a row and are becoming uninsurable. But we have not made massive targets in excluding areas. But there will be some that we won't insure - like the Severn Valley," says Collyear.

Last year, UK household insurers said they would withdraw insurance from homes on flood plains within two years if the government failed to toughen planning rules and fund new flood defences.

It remains to be seen whether government bodies will get it together in time before Britain's temperamental weather patterns creates an insurance underclass.

Is house price inflation bolstering mortgage protection?
At the end of the 1980s, mortgage indemnity insurance was a booming market. Inflated house prices led to massive loans and insurers relied on this cover to protect themselves from homeowners who defaulted on repayments.

Now, many mortgage lenders such as Britannic Money, Direct Line, Egg, HSBC, Intelligent Finance, Nationwide Building Society, Northern Rock, Standard Life Bank and Virgin no longer charge a mortgage indemnity premium.

But others still insist on taking out the cover when they lend more than 75% of the property value.

According to Nationwide, mortgage indemnity insurance costs the consumer around £200m a year. Editor of Your Mortgage magazine, Paula John, says this is not because people are borrowing more, but in percentage terms they have smaller deposits to put down.

"Inevitably, in today's environment where property prices have been rising rapidly, more and more borrowers - particularly first-time buyers - fall into the higher mortgage borrowing category," she says.

"So the £200m annual cost of mortgage indemnity insurance is likely to increase.

"But this is arguably the most unfair type of insurance - the homebuyer can pay through the nose for this cover and yet it affords them no protection whatsoever, only protecting the lender.

"If mortgage lenders feel the need to insure themselves against borrower default on mortgages, that's fine. But the lender should pick up the tab."

Avoid the worst
Last year's floods were terrible, but the underlying trend is worse. Global warming means more regular, severe floods for years to come. Thus the Environment

Agency is urging people to turn to risk management.

"There are 1.3 million properties at risk of flooding in England and Wales," says a spokesman. "One of them could be yours, so the better prepared you are, the better you'll cope with the effects of flooding."

The Environment Agency has released these guidelines to help people reduce the risk of being caught out this winter:

  • Keep a list of useful numbers some-where you'll remember - your local council, the emergency services and your insurance company could come in handy
  • Check with the Environment Agency's Floodline (0845 988 1188) whether there are specific flood warnings for your area and if the area has been flooded before
  • Get some sandbags to block doors, but remember to ensure there is adequate ventilation. Check in the Yellow Pages for local suppliers or ask your local authority for advice
  • Make a flood kit. Keep a torch, battery or wind-up radio and necessary medication, rubber gloves and your insurance policy in a safe place, preferably upstairs
  • Find out where to turn off your gas and electricity supplies.
  • Contact your insurance company to check you have adequate cover.

    For more information go to

    Getting the pest-busters in
    The onset of global warming has led to increased flooding, but it has also prompted other other household problems.

    Rat infestations are rising 50% year on year, insect populations are significantly increasing due to milder winters and food poisoning incidences have shot up 100% over the past five years.

    Terminix offers policies underwritten by Iron Trades to combat some of these problems. Its PestMaster protection plan has attracted almost 10,000 policyholders in the past year, offering cover starting from £50 against 30 of the most common pests, including fleas, rats, cockroaches and lice.

    Terminix insurance product manager Adrian Windsor says: "All animals suffer from fleas which, from time to time, lay eggs in the carpets and furnishings. If an animal is not present, the fleas will bite you instead.

    "No one is immune to the problems - ants are problems all over the country and you are always three metres away from a rat."

    The company promises to deal with unwelcome visitors until they are eradicated. Its policy is usually taken out by females and people over the age of 55 who do not want to deal with the problem themselves.

    Terminix also works with Residents-line, a specialist insurance broker for residence associations and multi-accommodation flats to cover rising damp which damages plaster and woodwork, woodworm, fungal decay and wet and dry rot.

    "Larger block of flats are more liable to pests, as plumbing cables and ventilation systems allow easy travel," says Windsor. "Standard houses are not so susceptible unless they are converted Edwardian flats."

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