Cutting the cost of household insurance

After suffering the worst flooding in modern history, sadly resulting in loss of life, heartache and extensive damage to thousands of homes and businesses, the Association of British Insurers ABI estimates that the insurance cost is likely to be more than £2 billion for June and July.

The first concern for those swamped by flood waters is to get their homes and lives back in order but many will be wondering whether they will they will be able to get household insurance again and if the cost of their household insurance premiums is likely to rocket.

June was bad enough with 275,000 homes and 7,000 businesses damaged by flooding but the deluge in mid July caused devastation in central England with around one million people thought to be affected. The army was called in to help emergency services and in Gloucester 350,000 homes were left with no water or electricity.

Ratings agency Fitch reckons that the floods will result in £3 billion of claims, against the norm of £1 billion weather-related claims a year. Brace yourself because there could be more rain on the way - weather experts believe that the extreme rain could continue throughout August causing more flooding and more damage.

Will housing insurance premiums rise?

Ian Crowder, spokesperson for AA Insurance, explained that what has happened in the past is that premiums go up shortly after the severe weather event but that competition in the marketplace between providers knocks prices back down fairly quickly.

Building and contents insurance have hardly risen since 1994, according to the AA Index, so a rise wouldn't be too much of a surprise although still a financial shock. Some insurance brokers are talking about a 10% rise across the country but most of us are on annual polices so won't see the increase until later on when our policy comes up for renewal.

However, Rebecca Holmes of Norwich Union said that, "It's too early to say if household premiums will go up and much depends on the government's spend on flood defences." The government has already said it will increase spending on flood defences to £800 million by 2010 / 11 from around £600 million at the moment.

Living in a high risk area?

For many people who have or are about to make a claim because of the recent floods, it's likely to be the first time they suffered from floods and they may never been affected again. Making a claim shouldn't stop you getting insurance in the future.

But some living a high risk flood areas may find it difficult to get insurance. The ABI and the Environment Agency classify high risk areas for flooding as having less than a 1 in 75 chance of flooding. The Environment agency said that around 5 million people in 2 million homes 10% of the population live in areas likely to flood. You can find out if you are in a high probability area from the Environment Agency.