Sunday, 23 February 2014

Dyman & Associates Insurance Group of Companies: Flood Re home insurance

Your questions answered

In the summer of 2013 the government and insurance industry came to an agreement about flood-prone homes, to allow owners of such homes to be able to buy affordable insurance. Under a scheme called Flood Re, annual premiums will be capped and payouts for flood damage will come from a central pool of money.

How do I know if my home is affected?

The scheme covers 350,000 households which the Environment Agency says are at high risk of flooding. You can use its interactive map to find out if your home is one of them.

What does this mean for homeowners on flood plains?

Unless your property is in council tax band H then the flood aspect of your buildings insurance will be capped from 2015. The Association of British Insurance says the cap will be £210 a year for properties in bands A and B, rising to £540 a year in band G. The premiums will go in a central fund and be used to pay out claims to any insurer. In theory, some people could see their costs go down once the cap comes.

It is important to remember that the cap is only on the flood element of your insurance – if other risk factors change, your premiums could be pushed up by them.

Insurers will also pay a levy into the fund equivalent to £10.50 a year on every home insurance policy.

Does this mean my premiums will go up?

If you are on a flood plain it could, although you have probably already seen premiums rise to reflect the risk. If you are not on a flood plain insurers say the cost of the levy won't be added to policies as homeowners are already paying some of their premium to subsidise other customers at greater risk of flooding. However, the cost of this year's flooding could mean higher premiums for everyone as insurers attempt to cover their bills.

What happens to band H council tax payers?

They are not covered by the Flood Re scheme so could see premiums rise by a sum above the cap or find that their homes become uninsurable. This could have a knock-on affect on the value of their homes, as mortgage lenders will only offer loans on properties which have buildings insurance.

Is anyone else excluded?

Yes, homes built since 2009 are not covered – the ABI says this is designed "to avoid incentivising unwise building in flood risk areas". Neither are those owned by buy-to-let landlords or holiday lets. Leasehold properties are also excluded. The British Property Federation says there are 840,000 leasehold properties estimated to be at risk of flooding, 70,000 of which are deemed to be at high risk.

What does this mean for tenants?

Tenants should still be able to buy contents insurance for rented homes, but if their landlord is unable to get affordable insurance cover they could face problems if their property is ever flooded. Landlord insurance policies offer help towards rehousing costs, which the landlord might not otherwise be able to meet. The Residential Landlords Association says some of its members may decide to pull out of the sector as result.

Will the excess on my policy be affected?

The excess, which is the amount you have to pay towards the cost of any claim, could be kept down by the scheme. Some householders have reported being forced into taking on large excesses since being flooded. Flood Re should mean that insurers are happier to take on the risk of these properties and won't insist on large excesses when they do.

Will I have to stay with the same insurer?

No. The current agreement between the government and the industry ties insurers into covering existing customers but does not oblige them to cover anyone else, meaning anyone buying an affected property could struggle, as could those who want to shop around. Flood Re is designed to make it less risky for insurers to take on these customers so should mean people can move around.

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