After the storms, the rate rises...

The 3,000 homes hit by flooding during this autumn's severe weather represent a tiny proportion of the number of properties threatened by flooding in the coming decades, according to a report from the Association of British Insurers. The ABI says climate change and building developments will put up to 1.2 million properties in danger of inland flooding in the years ahead.

However, while the ABI concedes that in the long term, home insurance premiums are likely to rise in affected areas, it says this autumn's storms will not automatically lead to immediate price hikes across the country. 'Insurers do not raise their premiums at the first sign of a drop of rain - they expect bad weather two or three times a year and factor that into their premiums,' says spokesperson Malcolm Tarling.

Jennifer Weller, a spokesperson for the British Insurance Brokers Association (Biba), also says recent concerns about premium increases are overblown. 'There has been a lot of scaremongering,' she says. 'We reckon the cost to the industry of this autumn's weather will be around ?400 million - if you compare that to the cost of the great storm of 1987, which was around ?1 billion, the losses do not seem so large.'

Weller does not expect insurance companies to refuse to insure homes in high-risk areas, or the cost of house insurance to rise across the whole of the UK. But she admits: 'If you're hit three times then obviously your premiums are going to rise because you live in a high-risk area.' Biba predicts that the cost of home insurance in areas prone to flooding will rise by about 10 per cent next year.

In the short term, these rises should be confined to those who have had to file more than one flood-related insurance claim in the space of a short period. A spokesperson for Norwich Union, for example, one of the UK's largest property insurers, says it is likely only to penalise those who have made multiple claims.

In future, however, the ABI expects insurers to pass increased claims costs on to policyholders. 'Last year alone, weather damage cost the industry ?861 million,' says director-general Mary Francis. 'The risk of increased flooding and subsidence, and the general wear and tear on buildings as a result of climate change, could push these costs up further.'

The worst-case scenario is that insurers simply refuse to insure homeowners against flood damage, though less than 1 per cent of policies currently carry such an exclusion. Jon Sellors, a spokesperson for insurer Royal & Sun Alliance, says: 'We're not going to remove flood cover for existing customers but we might decline to offer it to new customers if they have had a couple of large flood claims in recent years.'

However, Tarling warns: 'If you live in a high-risk area, you will already be paying more, and if the risk becomes higher, so will your premiums.' Alternatively, claims excesses - the amount of a claim for which policyholders, rather than their insurers, are responsible - may rise sharply. The ABI wants the government to improve inland flood defences and consider flooding risks when it plans housing developments. It has also asked the Environment Agency* to provide better early warnings of flooding. In the meantime, those at risk of flooding should check the smallprint of their policies carefully, Biba warns. The ABI expects the average claim for flood damage to be worth between ?10,000 and ?15,000, considerably more than the level of cover that many policyholders have in place. Some people have no insurance at all, and Biba also points out that most policies do not cover damage to gardens.

*The Environment Agency's website (at www.environment-agency.gov.uk) carries detailed advice on which areas are most at risk of flooding and what people affected can do to mitigate the risks


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