Today’s news that homeowners whose properties are at greatest risk of flooding may struggle to obtain insurance when an agreement between the Government and insurers comes to an end in 2013 has been greeted with concern across the property industry.
The Association of British Insurers believes that up to 200,000 homes may be affected, and highlighted Boston and Skegness, in Lincolnshire, and the Vale of Clwyd, in Wales, as the areas most at risk.
Known as the Statement of Principles, the agreement between the Department for Environment, Food and Rural Affairs (DEFRA) and the insurance industry guarantees cover to businesses and households at risk of flooding. DEFRA has announced that it wants more funding to come from local residents and businesses.
At the same time, members of the influential House of Commons Public Accounts Committee (PAC) have warned that funding to maintain and improve flood defences may not be adequate in years to come. The committee was sceptical that households and businesses would be able to make up the shortfall caused by government spending cuts, and warned that the proposed system would not provide sufficient certainty to property investors – and insurers – that the risk of flooding was being managed.
While the British Property Federation (BPF) said that it broadly supported proposals to increase the amount of investment in flood defences beyond that supplied by the state, it did not believe the sums the Government is seeking from private contributions were realistic, and feared the affect of the proposals on the economy.
Ian Fletcher, director of policy at the BPF, said, “DEFRA needs to work to secure a new agreement as quickly as possible. Given the state of the economy, there is severe doubt private investment can reach the levels it is expecting.
“It is right that those who benefit from flood defences help to fund them, but we struggle to see how. The demands of flood protection, when added to other planning obligations, all have an impact on development viability, which government must recognise.
“A lot of focus is on householders, but the impact of flooding on businesses can have significant consequences, which spread into the wider economy and cause damage beyond the immediately flooded area. The UK has a great tradition of universal insurance cover, which is predicated on sufficient investment going into flood defences. We shall rue the day if that is lost.”
Property analysts from FindaProperty.com estimate that, if the proposals are implemented, £6.5 billion may be wiped from the value of the 200,000 homes affected.
Says Samantha Baden, property analyst at FindaProperty.com, “Prices of properties located in flood-risk areas are already suppressed, and, with widespread criticism of aging flood defences and cuts in capital flood defence spend, this could well be the final straw for homeowners in these areas.
“If 200,000 properties are left uninsured when the government agreement comes to a close next year, this could wipe up to 15%, or an average £32,600, from the value of properties in affected areas. This equates to roughly £6.5 billion.
“Homeowners can take steps themselves to help protect their homes from flooding, but, in order to preserve the value of these homes, action at a government level is what's really needed.”
Richard Hinton, business development director of property search experts SearchFlow, said, “The Public Accounts Committee is right to point out the danger in the Government’s policy on flood defences. Currently, the environment agency spends only £300 million on flood defences in the UK, which it admits has left 43% of flood defences in fair, poor, or very poor condition.
“While £300 million may sound like a large sum, when one considers that over a quarter of properties in the UK – worth over £214 billion – are at risk of flooding, and that the floods in the summer of 2007 gave rise to claims worth more than £3 billion, it’s clear the current level of investment is not proportionate to the danger flooding poses.
“The current agreement between the Government and the insurance industry to ensure flood insurance is available to all properties is based on the assumption that, by its expiry in June 2013, public investment in flood defences will make it possible to insure all properties on the open market. We are in danger of this vision being proved wildly optimistic, creating a new blight that will further suppress activity in the near-dormant property market.
“Nature has no regard for the state of public finances. Failing to invest adequately in flood defence will ultimately prove imprudent on a grand scale.”
