The cost of insuring homes in Scotland could climb sharply over the coming years as the increased risk of flooding drives up premiums, insurers have warned.
Home insurance premiums have risen over the past three months, according to new figures from the AA. It said premiums are likely to continue going up, adding that some homes are at risk of becoming uninsurable unless insurers and the UK Government reach agreement soon on cover for flood-risk properties.
The average cost of buildings cover increased 2.4 per cent to £181 in the three months to September, leaving it 5.2 per cent higher now than a year ago, said the AA (based on it’s “shoparound” summary, an average of the five cheapest quotes). Contents cover rose 1 per cent to £242 a year, and 7.2 per cent over 12 months.
The increases follow the heavy rain and flooding that hit many areas of the UK over the summer.
More flooding has occurred since then, with the Borders, Fife and Tayside among the Scottish areas recently hit.
Environmental experts believe flooding issues are likely to become far more prevalent in the UK
over the coming decades. A recent report on the effects of global warming – the Climate Vulnerability Monitor – predicted a threefold rise by 2030 in the cost of flood damage in the UK.
The uncertainty for homeowners is made greater by a dispute between the UK Government and the insurance industry over measures to provide cover for properties at risk of flooding.
The current agreement is that insurers will cover flood-risk homes as long as the Government invests in flood defences. This means cover has to be offered to those who have made a previous claim for flooding, albeit usually with higher premiums and excess levels.
However, that agreement is set to expire next summer and no agreement has been reached on an extension.
Such a state of affairs could leave some 5,000 Scottish homes without affordable insurance, based on figures from the Association of British Insurers (ABI).
It has called for a cap on annual home insurance premiums, with properties with a risk priced higher than the cap getting insurance support from a fund that would be raise by a levy on all home insurance policies.
But while the solution would ensure all homes are still covered, the Government is unhappy with a measure that would cause premiums to rise.
Simon Douglas, director of AA Insurance, warned that failure to reach agreement by next summer could result in the homes most vulnerable to flooding becoming “uninsurable”.
“To put this into context, insurers measure flood risk in terms of events likely to happen over a period of years,” said Douglas.
“Even if a home is at risk of flooding once in a century, given that the average cost of repairing a flood-damaged property is £20,000 that is the equivalent of £200 per year, on top of the cost of covering other risks.”
Failure to reach agreement could even hit the mortgage market. The Council of Mortgage Lenders has warned that homeowners unable to secure flood insurance would be breaching the terms of their home loan.
Home insurance premiums are likely to rise even if the ABI and the Government can seal a deal, especially for households considered high risk.
While those already hit by flooding can expect the biggest premium hikes, future increases will be borne by anyone taking out home insurance, said Kevin Pratt, insurance expert at MoneySupermarket.
“The nature of the UK home insurance market means insurers have to recoup losses from claims paid out. This in turn can affect all home insurance customers, especially those near or around areas at high risk of flooding,” he explained.
Home insurance prices are currently competitive, with nothing like the price spikes seen in the car insurance market.
With claims for the floods of recent months still being processed it’s too early to tell how the payouts will affect premiums.
But homeowners may notice a hardened attitude towards pricing when they next renew their policies as insurers seek to balance their books. That means it’s increasingly important to shop around for better deals rather than allowing insurance to be renewed automatically, he argued.It’s not just about price though.
Check exactly what your home insurance policies cover, including the claim limits, the level of excess and any exclusions. If you’re buying building and contents insurance from the same insurer it’s worth seeing if you can get a discount.
There are other ways you can try to keep your premiums down and enhance your chances of getting affordable cover.
For example, a large proportion of home insurance claims are for damage where water has escaped. Therefore insurers are now looking more closely at how customers are tackling those problems.
Burst pipes are typically the biggest cause of claim over the winter months. Among the steps to take to minimise the chances of this or other problems happening are ensuring there’s sufficient insulation on the water pipes and lagging on the cold water tank; keeping the heating on (at a minimum of 12c) when you’re away to prevent the water from freezing; getting someone to check your property for damage if you’re away for a lengthy period; and mending any leaky taps or radiators. If you’ve put in place bigger measures to protect your home from flooding make sure you either tell your insurer or shop around when your cover expires, as your risk level may now be lower.
“Some insurers will still be keen to capture new business and offer competitive premiums to achieve this,” said Pratt. “It really is worth running a quote to see if you can get a better price than your renewal to take advantage of the offers available.”