‘House-hunters’ should be given traffic light-style warnings to show a home’s flood risk, the Association of British Insurers say.
We can understand the motivation of insurers to seek this level of determination. Most people who think of flood damage think of new carpets, sofa’s and replacement TV.
However, flood insurance and your ability to obtain it at a commercial favourable rate is much more impactful than that. Would this system simply create property blight?
Flood insurance and property blight have the potential to go hand in hand. Your ability to obtain buildings insurance is a contractual requirement of every mortgage issued in the UK. It requires you to maintain the ability for you to replace your home at a build cost which is affected by insured perils such as fire, storm and flood.
So simplistically, no buildings insurance cover, no mortgage, it can be a straight forward as that. Homes and businesses therefore that have the potential to flood repeatedly may either be declined insurance and or have commercially unacceptable rates imposed upon them.
This may cause property blight. Until climate change and its impacts the UK would never has considered this an issue and the insurance sector would have borne the costs annually. However climate is and shall change the face of conveyancing in the UK and also insurance.
It said Environment Agency data shows that 2.4 million properties in England are currently at risk of river or coastal flooding, while a further three million properties are at risk of surface water flooding, and 600,000 of these are at risk of both. In addition, it has also been estimated by the British Geological Survey that 122,000 to 290,000 properties in England lie in areas at risk of groundwater flooding. A complex phenomenon, when it does occur, it persists for weeks or even months and can cause greater damage to properties than river flooding.
Following the winter floods of 2013/14, insurers paid out more than £450million in flood claims. Depending on which set of statistics you favour these numbers are only set to increase.
One report suggests that if London floods today in the manner it did back in the 1950’s, then some £200bn is property is at risk. Similarly claims for flood insurance in the next 30 years are predicted to exceed £1bn annually.
The development of FloodRe is a very positive step in the right direction but this scheme is not without its limitations and critiques also. There are very strict parameters for those included in the scheme and lots of scenarios, sectors and business that are excluded from the scheme also. Exclusions are but not limited to the follow:
- Leasehold properties;
- The entire private rented sector;
- Small and medium-sized enterprises (SMEs);
- Housing association homes;
- New-build homes constructed after January 2009;
- Council homes; and
- Properties in council tax band H.
It is anticipated that FloodRe shall commence in 2016 and that some of the exclusions made indeed be re-written. We shall have to wait and see.
So would the implementation and development of a traffic light system in the conveyancing system increase the likelihood of property blight or reduce it. Unda believes that property blight would increase with the implementation of such a system.
In a survey of more than 2,000 people for the ABI, 91 per cent agreed prospective buyers should be notified about the risk in estate agents’ materials, on property websites and in brochures for new-builds.
It is important that everyone has access to the right information, including the flood risk in their area, so they can make fully informed decisions when buying a home, but what of existing properties with current mortgages, how will they fare in terms of the a negative allocation of risk as the ABI are suggesting. This is after all more than simply an insurance claim issue.
That said contractually we are legally required to declare such risks at the time of purchase with litigation following if false declarations are made about persistent and damaging risks.
A recent survey suggested that flood risk was now at number three of the a home-buyers top ten risks when buying a home, anti-social neighbours being the highest risk currently. What number 3 suggests to Unda is the growing awareness of flood risks and its potential impacts being greater than simply having to replace the carpets following an event.