Buildings Insurance and the Threat of Flood
What is the impact of increased flooding risk in the UK? What happens if your home becomes effected by flood?
In the last three years, there have been several instances of flooding in large residential areas. Buildings insurance companies are concerned about the rising risk of flood. Claims to settle flooded properties are usually very expensive. Flood also tends to be a recurring threat at properties which means that once effected a home could suffer more than one flood in a short period of time.
This makes accepting flood risk properties difficult for insurance companies as it is likely that the property will be flooded again at some point in the future and that the losses will far outweigh the premiums paid. Consider for a moment that a flood claim could cost an insurer £50,000 to settle. How many insurance policies must that insurer then sell and have no claim on, in order to make up that loss?
It is a natural rule of insurance that insurance companies try to avoid taking on risks that are likely to lead to a claim. Any company that chooses to do so will quickly find many customers but of course if many claims follow the insurance company will lose money. It will have to charge higher premiums and so find it harder to attract the lower risk cases.
The worst case scenario is that the insurance company could refuse to renew the insurance policy and no other company would offer terms. This is possible but fortunatly the UK insurance companies have agreed a solution.
The general rule amongst house insurance companies is that if a building suffers flood, the present insurer will continue to cover it at renewal of the policy. If the flooding is likely to recure, It is likely that no other insurer will offer terms . Whilst this may mean you have no choice, at least you are offered protection.
You should think vary carefully before you risk buying a property that has sufferred persistant flooding or is built on a flood plain. Whilst you might obtain insurance cover initially, what will happen if the policy of the insurance companies change in the future?
Remember that an uninsurable property is also an unmortgageable property. For this reason a property not suitable for mortgage will be worth very little. If you buy a property and it then becomes uninsureable or unmortgageable, you will lose money.
If flooding continues or even increases, it is possible that certain insurance companies will withdraw from the market altogether. Ironically this may leave their previous customers high and dry.
If you have considered the risks and have made up your mind to move into a property that is liable to flooding, you should investigate who previously insured the home. this might be your only chance of getting proper buildings cover for the property.
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