New guidelines for flood insurance

The industry's new Statement of Principles follows the Government's recent announcement that it will invest in more and better flood defences.

The ABI's new Statement of Principles sets out a basic approach for member companies providing flood insurance. It will ensure that there is a competitive market for insurance based on the actual risks of flooding. It will apply from 1st January 2003 and will replace the current temporary agreement that was created by the industry following the floods of autumn 2000.

The Statement of Principles has five objectives:

• full access to a competitive market for insurance for the vast majority of homeowners and small businesses;

• improved security for those who live and work in high-risk areas;

• new provisions for those who wish to sell their homes or businesses;

• better use of new solutions to make properties insurable, even in high-risk areas where improvements to flood defences are not planned; and

• a clear incentive for Government and local authorities to continue to invest in flood defences.

Around one in ten of the UK's 20 million homes and businesses is situated in the floodplain. The vast majority of these - around three quarters - are protected against the risk of flooding at or above the Government's own minimum standards, and ABI members will continue to make flood cover available for them as a standard feature of household and small business policies. Premiums and other contract terms will reflect the different levels of flood risk, as they do for other factors such as crime.

The new Statement of Principles will also benefit policyholders who face higher risks of flooding (i.e. are not protected to the Government's minimum standards). Where improvements in flood defences sufficient to meet the Government's standards are scheduled for completion by 2007, insurers will maintain flood cover for homes and small businesses which they already insure. Going beyond the terms of the existing two-year agreement, insurers will also make special efforts to maintain cover for properties when they are sold, subject to satisfactory information about the new owners and proposed use of the premises.

Where improvements in flood defences are not planned, insurers will "examine the risks on a case by case basis and use their best efforts to continue to provide cover". The Statement of Principles commits insurers to work with policyholders where necessary to see if action can be taken to make the property insurable. This might include the use of accredited flood protection products and temporary defences.