Lenders call for greater clarity on flood insurance proposals
Published: 25 September 2013 | Author: Bernard Clarke
Our response to the Department for Environment, Food and Rural Affairs (DEFRA) on its draft clauses in the Water Bill calls for more information on how proposals to deliver affordable flood insurance will work.
What has been published so far leaves too many details to be provided later by regulations. Lenders and insurers need more information now, to understand the likely effects of what is being proposed and what it will cost. The government should provide fuller details in the clauses of the Bill without delay, and not leave crucial aspects of the arrangements to regulations that have yet to be published.
Although we would not expect all of the details to be in the Bill, we would like to see a lot more information up-front. A further statement from the environment minister, Richard Benyon, would help to clarify the position.
As currently drafted, the Bill does not provide the assurances that lenders, insurers and consumers need to be sure that householders will be able to get affordable insurance – and therefore a mortgage – for their properties.
The government’s proposed solution to the problem is to introduce Flood Re, a scheme funded by a levy on insurers equivalent to around £10 a year per customer. That will create a pool intended to cover properties at a higher risk of flooding.
But the government has yet to provide details on how, for example, excesses on insurance premiums will be monitored and controlled under the Flood Re scheme. Excesses are a key issue for home-owners, and can make all difference on whether insurance is affordable or not.
The government’s aim is that Flood Re will provide a solution for up to 25 years, while the insurance industry works on developing and introducing a form of pricing that will reflect the higher risk of flooding for some homes but still leave premiums and excesses affordable. If that does not happen, the government proposes to introduce a 'flood insurance obligation,' a fall back arrangement under which insurance companies will be compelled to insure a quota of homes with a higher risk of flooding.
Lenders are disappointed that it is still not clear who will make the key decision – and by what criteria – that Flood Re is not working and we therefore need to introduce the flood insurance obligation. We have argued that clauses in the proposed Water Bill should provide more information about how this option would work in practice.
We are also concerned that most of the issues we raised in our earlier response to the consultation by DEFRA are still not addressed by the Bill.
Affordable flood insurance for all homes is crucial for the smooth running of the housing market, and we are ready to continue to work with the government, the insurance industry and consumers to deliver the right kind of solutions.