The Cap on Flood Insurance Premiums

Flooding has been the major source of havoc to the properties and lives of people which is not only limited to those living near bodies of water but also to places where a surge of water usually take place.  It happens all across the country in a variety of ways. Flooding comes in many forms. It can be a storm surge, flash flood, mudslides, snow melt and ice jams.

But it’s more than just the mere existence of this calamity alone. It’s also about the geographical disparity in the frequency of flooding events that hit a certain area every year. If a certain city is hit more than once out of 75 floods which crossed the area that specific year, it is a flood-prone area.


Given these conditions, it’s no wonder why insurers are hesitant when it comes to insuring properties near a flood-prone area despite the fact that flooding is a very terrible risk. Since then, the UK government has been pressured to act on this matter. And after years of creating an agreement favorable for insurers, the government had finally convinced them to issue  flood insurance premiums. Because of the state efforts to put up the flood insurance fund, flood-risked homes can now have access to cheaper premiums.

In the sealed deal of partnership between the private and public sphere, the government will take its priority on flood defenses making sure that calamity effects are mitigated at best. These insurance actors in return will provide covers for properties at high risk.

These premiums aim to cover the risk of about 200,000 households and more that are prone to flooding. The announced plan will be building up a fund charged on insurers via the industry-backed levy. With this, householders in high-risk areas will no longer need to live in fear of being uninsured.

This is a cooperative move between the government and the Association of British Insurers (ABI) insurers after the agreement to cap flood insurance premiums, whereby insurers are obliged to cover the risk for high-risk properties while the government fortifies it’s defenses against the flood. With the help of a new industry-backed tax, insurance companies will be able to meet the needs.

The funding for this new-industry backed tax will come from all UK household where everyone is mandated to pay. The amount payable is based on council tax bands so that people will be able to determine the maximum that they are charged to pay. This agreement will be given a legal backing through the creation of the new Water Bill that could last up to 20 years.

Now, critics questioned this agreement stating that there is no assurance that insurers will really be able to cover a flood insurance and that problems may arise since it is expected that insurance premiums could go higher than the current cost.

With the stated question, the government had contracted Defra for a 6-year long-term commitment into fortifying the defenses against the floods so that flood insurance premiums’ affordability is assured for every household. As of now, the costs of it is roughly around £10.50 per household and is already built into the cost of premiums as mentioned by the Association of British Insurers (ABI).

In this regard, ABI director general Otto Thoresen. had stressed that “Getting to this stage has required compromise by both sides and there remain issues that need to be overcome.”

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