Millions of homeowners living in areas at risk of flooding will face long term misery if the government presses ahead with plans to exclude millions of homes and businesses from its new affordable flood insurance scheme, property organisations have warned.
In January press reports revealed that the ‘Flood Re’ proposals, drawn up between government and the insurance industry to provide insurance policies for homeowners at risk from flooding, would exclude all leasehold flats from affordable cover. Small businesses and privately rented properties are also to be excluded under the government’s plans, despite Environment Agency figures revealing that one in six properties in the UK is at risk of flooding.
However, the Department of the Environment, Food and Rural Affairs have now amended previous plans to include small leasehold blocks comprising three flats or less in the Flood Re proposals on the proviso that the freeholder is among the residents. David Cameron has also reversed the government’s decision to exclude properties in council Tax band H from the Flood Re scheme. However, the proposals, as they stand, will still exclude most buildings insurance cover for:
- Leasehold properties;
- The entire private rented sector;
- Small and medium-sized enterprises (SMEs);
- Housing association homes;
- New-build homes constructed after January 2009; and
- Council homes.
This is because the insurance industry categorises cover for these properties as commercial not residential, largely as a result of the assumption that insurance cover is usually sought for these properties by an agent rather than by individual homeowners. However for many flat owners and some small buy-to-let landlords, this is not the case.
The Association of Residential Managing Agents (ARMA) is one of several organisations, including the Federation of Private Resident’s Association (FPRA), the British Property Federation (BPF) and the Leasehold Knowledge Partnership (LKP), which are lobbying to safeguard affordable flood insurance in the Government’s new ‘Flood Re’ proposals. The aim of Flood Re (which is included in the Water Bill) is to ensure that those living in high-risk flood areas can access affordable cover.
If residential leasehold properties are excluded from this protection, flat owners could find themselves facing rocketing insurance costs and may even experience difficulties in obtaining cover, which in turn could have a knock-on effect on mortgages and property values.
Ian Fletcher, Director of Policy at the British Property Federation, commented: “By excluding millions of properties from its new flood insurance scheme, those who are unable to punch their weight in the insurance market – individual homeowners in leasehold flats, small independent businesses and buy to let landlords – the government is exposing people’s homes and livelihoods to risk, greater financial burden and insecurity”.
As a result the BPF is urging the government and the insurance industry to reconsider what it describes as “unnecessary exclusions”. Excluding individual home-owning leaseholders “purely on the basis that insurers’ IT systems can’t cope” is a poor excuse, says the BPF which commented that “flood insurance is not a luxury for some to afford – it is a necessity.”
The insurance industry has argued that there is a lack of evidence to show properties excluded by Flood Re would be at a disadvantage. But leaseholders are still protected by the “Statement of Principles” (the forerunner to Flood Re) so they will not yet have experienced the effects of the open market.
