After the deluge, the huge insurance bill
It is not yet clear how much it will cost to repair homes damaged by floods in the west country and Thames Valley, but the bill will be substantial – and insurance premiums may rise.
The insurance industry was already bracing itself for claims of £426m after the storms and flooding over the Christmas and new year period. It is loath to put a figure on the likely cost of the damage to homes hit by floods this time around, but others are less reticent.
James Rakow, insurance partner at professional services firm Deloitte, had been assuming a figure of £500m – in line with the costs of the 2010 “big freeze”. But with the continuing devastation in Somerset and the south east, he believes this is now an under-estimate.
‘Significantly above £500m’
He told Channel 4 News: “The £500m bill is likely to be exceeded. If the weather continues to be as extreme, we could see costs significantly above £500m. We have to have several more weeks of weather like this for it to approach £1bn.”
But it could be worse. So far, far fewer homes have been hit this time than in the summer of 2007, when tens of thousands of properties were flooded.
It costs an average of £30-40,000 to fix a flooded home, and many of the houses under water at the moment are in expensive parts of the country.
A spokesman for the Association of British Insurers (ABI) said it was too early to say if insurance premiums would rise. “It will take weeks or months for some of these badly flooded properties to fully dry out and repairs to commence, so we won’t know the full cost for a little while yet,” he said.
Mr Rakow told Channel 4 News he expected premiums would rise in 2014 as they had done in 2010 – by about 5 per cent, more than twice the rate of inflation.
“We are likely to be in a similar situation in terms of increases in premiums in the current year, but I don’t see the need for substantial increases,” he said.
All change
Insurance cover for people living in high-risk areas is set to change in 2015, when a scheme called Flood Re comes into effect. The objective is to ensure that everyone is able to access relatively affordable cover.
The scheme is funded by the insurance industry, to the tune of £180m a year (equivalent to the first £10.50 of a typical homeowner’s building and contents insurance), and people living in properties that are difficult to insure.
These people will pay between £210 and £540 a year for their flood cover, on top of what they are charged for their building and contents insurance.
Flood insurance costs are capped for the vast majority, but those living in the most expensive homes (council tax band H properties) are excluded.
Many of the homes in the Thames Valley will fit into that category. This does not mean owners will be unable to buy flood insurance from 2015, but they could see a rise in their bills.
And there is another nasty sting in the tail for all of us: the flooding could have a negative effect on growth, just as Britain recovers from the “great recession”.
For David Cameron, as he looks ahead to the 2015 election, it is a case of “events, dear boy, events”.