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Floods set to cause insurance price rise

Insurers are still weighing up the impact of this winter’s awful weather. But a surge in flood-related claims is likely to raise everyone’s premiums.

Sandbags outside flooded house in York 

Thousands of families are now dealing with the fallout from the heavy floods that have hit many parts of the UK in recent weeks.

But even if you haven't been directly affected by the storms and heavy rainfall that have battered Britain since December, the chances are that you won't escape their impact entirely.

Flood damage bill £500 million

The insurance industry says that the cost of the damage caused by bad weather over the Christmas and New Year period has already passed £400 million.

But this does not take into account claims such as those related to flooding in the Thames Valley and Somerset Levels, as well as storm damage in Wales and the north-west of England.

So if insurers are forced to pay out hundreds of millions of pounds to settle claims on buildings and contents policies, is this likely to push up everyone’s premiums in the coming months?

Gareth Lane, head of home insurance at, says homeowners should prepare to see a rise in the price of buildings insurance, Lane says.

Cost of buildings insurance set to rise

"Buildings premiums are far more prone to sharp upward movements," he explains.

"The key reason for this is the unpredictable nature of weather-related claims, where costs can escalate dramatically in a short period of time.

"For example, severe flooding in 2007 led to a 22% increase in the average quote for a buildings insurance policy.

"I would normally expect some increases to follow in 2014, at least in the short to medium term."

However, Andy Thornley at the British Insurance Brokers' Association says that the impact on premiums may not be as dramatic as many people fear.

"The current cost of the flooding is considerably less than the £3.2 billion of 2007," he says.

Insurers' contingency plans

"The insurance industry has reserves precisely for this sort of event, as well as reinsurance - insurance for insurance companies."

Malcolm Tarling at the Association of British Insurers says it is currently too early to predict the overall impact of this winter's weather on premiums.

"The current spell of flooding is not over yet so insurers will be expecting more flood and storm damage claims," he explains.

"Flood water is restricting access to inspect damaged properties.

"So in many cases it will be weeks or several months after the flood waters recede till properties are fully dried out and the full cost of the repairs can be assessed."

Costs of new flood agreement

Lane says that a new agreement between insurers and government to help flood-prone homes get insurance will also add extra costs to buildings premiums in future.

A flood warning sign"This is expected to bump up premiums by an average of £10.50 per policy," he says.

There are concerns, however, that flaws in the deal, known as "Flood Re", will leave many homes without insurance against flooding.

Flood Re, which comes into force in 2015, is designed to ensure that owners of properties in areas where the risk of flooding is high can still find affordable cover.

Insurance for flood-prone properties

Essentially, this group of customers will get a subsidy to ensure they are offered buildings insurance at a reasonable rate – hence the expected £10.50 increase for all policyholders.

But some analysts say that too many people are likely to be excluded from Flood Re.

Lane says: "The main criticisms of the agreement are that it will only protect 500,000 homes.

"However, some people estimate the actual number of at-risk homes to be anywhere between 500,000 and 3 million."

Flood insurance won't cover all

He explains that business premises are not eligible for help under Flood Re, while the scheme only applies to homes built before 2009.

Another loophole is that the home must be occupied by the owner, so buy-to-let properties will not be entitled to affordable flood insurance.

Lane adds that these issues urgently need to be addressed.

"Both the industry and the government must stay focused on their overriding goal: to protect the homes and businesses at risk and allow them to obtain affordable insurance."

How to make a home insurance claim

Lane says: 

  • "Report a claim as soon as possible as a lot of insurers expect a claim to be reported within 48 hours. This will result in it being dealt with, and ultimately settled, a lot more efficiently."
  • "Check with your home insurance policy provider before arranging any repair work. Insurers will allow alternative companies to carry out any repair work, but may need to agree costs with them. If claims costs are kept to a minimum this will be reflected in future premiums."

Read Flooding: How to make a home insurance claim for more information.

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Chris Torney

Chris Torney

Chris is the former personal finance editor at the Daily Express. He's been a journalist for more than 10 years and contributes to a wide range of finance and business titles.Read more from Chris