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HMT publishes result of independent review of flood insurance

Nov 5, 2020 | HMT

Link(s): https://www.gov.uk/government/publications/flood-insurance-review-2020-blanc-review
BIBA Response: https://www.biba.org.uk/press-releases/biba-response-flood-report/
ABI Response: https://www.abi.org.uk/news/news-articles/2020/11/abi-responds-to-the-independent-review-of-flood-insurance-in-doncaster/

Context

In November 2019, Doncaster in South Yorkshire experienced its wettest November on record, with over 760 households and businesses flooded. As a result, in December 2019, an independent review was commissioned to look at the reasons why some residents in Doncaster did not have sufficient insurance cover and what action might improve protection against future events.

The outcome of the review, which was carried out by Amanda Blanc, has been published and its 12 recommendations will now be considered in full by ministers.

Key points to note

  • The review was asked to consider three questions:
    • What does the evidence tell us about the level of insurance cover held by those most recently affected by floods and the barriers they faced?
    • Does this evidence point to any systemic issues in the provision of flood insurance?
    • Does this evidence suggest any other issues regarding availability, affordability, barriers, or dissatisfaction with insurance coverage?
  • The review found that:
    • The vast majority of owner-occupiers had buildings and contents insurance, but the majority of tenants were poorly protected;
    • A worrying proportion of insurance policies held by Doncaster residents did not cover floods; and
    • There were signs of a lack of confidence in insurance as the best way to protect residents or businesses
  • The 12 recommendations made in the report were:
    1. Re-survey policies without flood cover – Defra should repeat its 2018 survey into the affordability and availability of insurance by 2022. As part of this survey it should assess the proportion of buildings and contents insurance policies that do not cover the risk of flooding.
    2. Intermediaries unable to secure flood cover – Intermediaries who are unable to secure, or renew, insurance with flood cover for customers who are eligible for Flood Re should always explain to the customer:
      • that they have a high flood risk;
      • how they could secure a Flood Re supported policy; and
      • the consequences of buying insurance with a flood exclusion or very high excess.
    3. Insurers excluding flood cover – Insurers should not offer, or renew, Flood Re eligible customers’ buildings or contents insurance with a flood exclusion unless:
      • specifically requested by the customer and
      • they can be assured that the customer understands their risk of flooding and that they will not be insured in the event they do flood. If there is a high flood risk that the insurer does not want to accept, the insurer should either cede the policy to Flood Re or signpost the customer to alternative ways to secure adequate insurance.
    4. ABI/BIBA Code of Practice – The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) should develop a joint Code of Practice for insurers and brokers covering the above measures to ensure that their members comply.
    5. Signposting service Flood Re – BIBA and the ABI should establish a new signposting service to ensure that any household that is eligible for Flood Re but denied cover because of flood risk, or offered insurance only with a flood exclusion, can be referred to a specialist broker who can help them secure affordable, exemption-free cover.
    6. Further Defra review – Defra should review progress by 2022, using their repeat survey (as per recommendation 1) to assess the extent to which buildings and contents insurance excludes flood risk. If Defra considers that the proportion of policies containing flood exclusions remains unacceptably high at that point, they should ask the FCA to consider:
      • a mandatory signposting service (along the lines of the FCA’s mandatory signposting service for customers with medical conditions looking for travel insurance); and
      • setting out the responsibilities of insurers and brokers with respect to flood exclusions in guidelines and/or regulations.
    7. Landlord notification – Landlords of properties in high flood risk areas should provide their tenants with details of the buildings insurance cover in place, including the support that would be provided by the insurer to the tenant in the event of a flood. Government should explore how to use its existing powers to ensure social sector landlords do so and consider the case for legislating to compel private sector landlords to comply.
    8. Landlord buildings insurance – Government should consider the broader case for legislating to require landlords to have buildings insurance that protects tenants in the event that the property is uninhabitable for an extended period.
    9. Local Authority tenant awareness – Local Authorities should ensure that tenants in high flood risk areas are given guidance on:
      • the range of risks they face in the event of a flood and
      • ways in which they can protect themselves with adequate insurance cover.
    10. Flood Re low income affordability – Government should consider more direct ways to increase the take-up of contents cover for tenants in high flood risk areas. As well as promoting awareness, this should include reviewing the impact of the Flood Re premium for contents-only cover on the affordability of contents insurance for low income households. At £52 for flood cover for Council Tax Band A and B properties, even the lowest Flood Re premium would be a very big uplift on a contents premium (the FCA estimates that the average cost for a new contents policy is £569) and could create a cost barrier for low income households who are already making difficult choices about how to ration their spending.
    11. Targeted flood risk communications – Flood Re, the Environment Agency and the ABI should promote awareness of flood risk to high exposure households and businesses through targeted engagement, which should cover the risk of floods in their area, a simple explanation of flood insurance, a guide to accessing affordable insurance (including through specialist brokers if necessary) and a guide to what to expect from your insurer in the event of a claim.
    12. Response based on demographics – Immediately after a flood event, local authorities should review the demographics and tenancy rates of the affected area to ensure an appropriate response mechanism is put in place.

Other relevant information