Wet, wet, wet

May 2006 was one of the wettest months of May in history - for certain parts of the country, at least - and yet at the same time a hosepipe ban was being imposed in some southern areas of the country. Part of the reason for this state of affairs must be attributed to the effects of global warming and the resultant changing weather patterns.

This has not been helped by the failure of some water authorities to address the problems of leakage from outdated and obsolete water and sewage pipes.

With the privatisation of water authorities some work has been carried out to try and update the pipes. However, this is following years of neglect and under-spending in these areas.

The effect of climate change has impacted in no small degree on the insurance industry and it is a necessity to consider the effect of sustained wet weather on flooding within the personal lines environment.

So what are the major causes of domestic flood? And how can we, as insurers, influence and advise customers how best to minimise their loss and protect their property?

There are three major reasons why floods occur and these can be categorised as follows:

Riverine flood: This is where rainfall increases moisture level of catchments, which results in run-off causing a rise in the river level. Eventually, the river's water level is exceeded and the water spills onto the flood plain. Flooding may also occur several kilometres downstream from the heavy rainfall and several days later. Riverine flood is the principal cause of catastrophic loss in the UK, and many rivers can be affected by one event.

Coastal flood: This can be caused by a number of factors, including high tide levels accompanied by strong winds and stormy seas. Coastal lowlands are especially vulnerable, for example the Wash, Norfolk and Suffolk coasts, areas around Teesside, the South West and coastal Lancashire.

Non-riverine or coastal floods: These are caused by problems with urban, rural and road drainage systems, sewers, overland flow and groundwater.

Following the floods in 2000 it was recognised by the government and the insurance industry via the ABI that something needed to be done regarding flood defences and to stem the increasing cost of the consequences of flooding.

One example of this would be the result of the flood in Lewes in 2000. A total of 613 homes were affected, as well as damage to 504 vehicles, highlighting that a serious flood can have a substantial effect on both motor and household accounts. Lewes was considered a flood 'hot spot' and, along with several other areas of the country, insurers were becoming reluctant to offer cover in this area.

On 1 January 2001 the original ABI flood agreement came into force. This stated that where an insurer was already on cover for a risk they would maintain cover for a minimum of a further two years. This did not however prevent insurers from imposing terms such as high flood excesses on these risks.

A new agreement took effect from 1 January 2003. This was underpinned by Department for Environment, Food & Rural Affairs (DEFRA) data - supplied in August 2003 with subsequent revisions - with each post code categorised by the level of flood defence. High risk areas were identified at full post code level and defined as having a return period of one in every 75 years or worse. Each company would treat these postcodes with caution for buildings and contents in respect of the flood peril.

Following these new regulations insurers were able to take certain stances regarding high-risk areas. In particular the ability to decline new business in these areas remained.

For existing risks, if it's in a high risk area with a return period of one in 75 years, and if defences are planned to be in place by 2007, an insurer will be obliged to consider maintaining cover; this is subject to further investigation of risks to specific property and the difference these planned defences will make to this.

The premium and terms applied should reflect the risk and cover should be offered following a change in ownership.

For existing risks in these areas where there is no improvement in defences planned there is no obligation on the holding insurer to maintain cover. However they can consider each case on an individual basis subject to various investigations with the environment agency and local authority.

In January 2006 further changes to the ABI statement of principles regarding flooding were made that extend an insurer's commitment to stay on cover for areas of significant flood risk to cover a five-year rolling period for completion of government-sponsored improvement schemes for flood defences. In return the statement sets out the top five critical actions for government that insurers expect to be undertaken in order for the statement to remain valid.

In addition to looking to local authorities to improve defences there are some steps a policyholder can take to reduce the effect of a flood claim:

' Ray Crichton is the senior support coordinator for Allianz Cornhill Personal

Discover how water-tight your climate knowledge really is
Q1. What percentage of the earth is either submerged or covered by ice?

a) 30% b) 50% c) 70%

Q2. By what amount is the sea level expected to rise over the next 100 years?

a) 0.1m b) 1m c) 10m

Q3. What percentage increase in rainfall is predicted by the 2080s?

a) 5% b) 10% c) 20%

Q4. What percentage of the English population lives in high flood risk areas?

a) 7% b) 10% c) 15%

Q5. Would property built on stilts be considered to be less of a flood risk than normal?

These questions are taken from the Personal Lines Underwriting Academy Level 2 flood workshop

Check the answers at the bottom of the page to find out whether you'd sink or swim