There is an agreement between the insurance industry and the UK Government called the Statement of Principles, under which insurers are obliged, in virtually all cases, to offer flood cover as part of a standard household policy. It was last renewed in 2008 and is up for renewal again in 2013. Negotiations for that forthcoming renewal are generating considerable debate, both in the national and trade press. The problem for policyholders is that one key development has slipped through unnoticed. It has to do with the transparency of underwriting assumptions about flood risks.
The insurers’ trade body, the Association of British Insurers, has accused the Government of not living up to its side of the agreement, by failing to maintain an adequate level of flood defence spending. Yet has the insurance industry been living up to its side of the agreement? Are ABI members consistently offering flood cover as part of a standard household policy?
The Statement of Principles allows household insurers to charge competitively priced premiums for properties at risk from flood. Insurers like Aviva are putting through 80% rate increases on the policy’s overall premium as a result. This will cause many of the policyholders affected to seek alternative quotes. Many will do so through price comparison websites. Such websites don’t address flood insurance per se, prefering instead to point out towards the end of the quote an assumption that the property being insured is not in a flood area. Flood maps on Government websites allow policyholders to check whether their property is in a flood area.
Price comparison websites then invite the proposer to click through onto the website of a particular insurer to find out more about their quote. I did this recently and then set about trying to find out more about the flood cover being provided. The result was disappointing to say the least. Tucked away on insurer websites were ‘eligibility criteria’ pointing out that the property was assumed not to be in a flood area. And when I say tucked away, I mean that it took me, a qualified insurance professional, several minutes to find them. No option existed to enter further details in order to get a more tailored quote. This is despite the the flood risk for the property in question being clearly set out in information fully in the public domain.
Previous posts have highlighted the dangers inherent in the overuse of such ‘assumptions’. It’s clearly an issue not just for price comparison websites, but for those of some insurers as well. Combined with very significant price increases, those assumptions will lead a great many policyholders to not be offered flood insurance and at the same time, not release that the policy they’ve taken out didn’t include flood insurance. The situation is not one that consumers will feel is over endowed with those cornerstones of financial regulation, honesty and integrity. Some may even see signs in it of a flood de-risking by the sector.
The ABI, and those of its members with a significant involvement in the household market, need to take a number of steps:
- review the use of underwriting assumptions about flood areas in the context of the commitment it has given to the Government and consumers through the Statement of Principles;
- make sure that assumptions about flood areas are displayed in a prominent position on members’ websites so that consumers can make an informed decision;
- stop talking about affordability and flood insurance in the same breath, for not even low income households are being let off enormous price increases for the flood element of their household premium.
- demand higher standards for the advice being given to consumers by their members’ contact staff. The most amusing claim made to me was that the Statement of Principles only applies to the ABI and not to its member companies.
I should point out that I eventually came across a broker’s website that asked intelligent questions about the flood profile of the property I was seeking cover for (it wasn’t my own) and provided me with standard cover at a reasonable and affordable premium.