Insurance Costs Rising with Flood Risks: How Can Brokers Help?
2023 recorded a record home insurance price increase. Consultants, Pearson Ham stated that the cost of building and contents cover went up by 40% from 2022 to 2023.[i] This is quite a blow for already financially stretched homeowners as they try to cope with the cost-of-living crisis.
When people purchase insurance, they want to know that they are getting a product that is protecting them, while also being value for money. Doubtless, they will be questioning why there has been such a swift rise – especially for those individuals who have not made any claims. Insurance brokers are uniquely placed to help policy buyers understand what is happening in terms of their home insurance, while making sure that they have an insurance policy in place that meets their needs.
Why the price rises?
Price rises have been happening across all areas of insurance for a variety of reasons. One of the major causes of the price increase for building and contents insurance is down to the vast expenses associated with a rise in freak weather incidents over recent years. In the United Kingdom, this is often related to storms and flooding.
Sadly, flooding has become a regular issue for homeowners in many parts of the UK. The Environment Agency put the number of homes at risk of flooding at 5.2 million in England alone.[ii]
This number will be rising all the time. Average insurance claims in the aftermath of flooding are £48,551 for houses and £11,489 for contents. Following the storms of October and November 2023, a massive £352 million was paid out by insurers.[iii]
These costs do, of course, have to be passed onto the policyholders to allow insurance to remain viable.
Reassuring clients
Lots of insurance customers are understandably anxious about the rises in home insurance costs, as well as rises in excess charges and worries about under insurance.
What can brokers do to ease the concerns of their clients, while making sure that they are fully insured in the event of the worst happening?
Explaining the rises
Clients want to feel that they are getting the best deal possible so when they see their house insurance rising so rapidly, particularly if they have not made any claims, it may make them worry their insurance company is either making a mistake or trying to swindle them. It is important that brokers understand the numbers that the underwriters are working with when they adjust their policy prices, so they can pass this information onto clients in explanation of what is happening and why.
Find the best deals
If you are working with clients that live in an area with any flood risk, it may be difficult to find any insurance cover at all. Insurance that is available may have very large excesses. A broker is well placed to find and negotiate the best deals for clients. For clients where getting insurance is difficult, they may be eligible for the Flood Re initiative, which has created affordable flood insurance for owners of homes most at risk of flooding. [iv]
Some insurance companies may start offering reduced insurance rates for homeowners that have taken steps to mitigate risks posed by flooding. Therefore brokers can offer advice around flood defences such as covering air bricks, having temporary flood gates ready to install in doorways, and having return valves on drains so that sewage and flood water cannot back up into the property.[v]
Homeowners can also sign up for flood notifications and ensure that valuables, including documents are above the probable flood level. [vi]
Even if these mitigating factors do not enable a broker to negotiate a lower policy cost, any advice that can keep a person’s home safe is sure to be of value to the client.
Risks of underinsurance
Some clients will be tempted to cut costs by giving low estimates of the value of their home or contents. This can result in the client being underinsured, leading to disappointment and distress in the event of needing to make a claim. Brokers should make sure that clients fully understand the questions around costings of the house and contents. In addition, it is vital that they give accurate statements – for example as they estimate how far away the nearest river or stream is – or they could invalidate their insurance. Make sure the client understands the difference between a new-for-old policy; where their contents will be replaced with brand-new items, as opposed to indemnity cover; where the policyholder will only receive the value of the item at the time of the flood [vii]
Indemnity cover may not be enough for them to replace all their items. For example, soft furnishings such as sofas and beds will not be worth much if they are several years old, but they would be expensive to replace.
Important cover
Although the rising cost of home insurance is a real concern for homeowners, having robust building and contents cover remains more important than ever. As flood risks increase and prices continue to rise, homeowners could find themselves in dire straits if their homes are damaged in floods and they don’t have the correct insurance in place to cover those costs. An insurance broker is in a unique position to be able to support clients to get a policy that is value for money and that fits their needs, so that they have everything in place should flooding occur.
[i] Hicky, S. (2024). As extreme weather increases, watertight insurance is a must. [online] The Guardian. Available at: https://www.theguardian.com/money/2024/jan/15/as-extreme-weather-increases-watertight-insurance-is-a-must [Accessed 10 Feb. 2024].
[ii] Sobers, D. (2023). Home Insurance: Flooding. [online] Which? Available at: https://www.which.co.uk/money/insurance/home-and-mobile-insurance/home-insurance-explained/home-insurance-flooding-a1wWq4i7J9dZ [Accessed 10 Feb. 2024].
[iii] Hicky, S. (2024). As extreme weather increases, watertight insurance is a must. [online] The Guardian. Available at: https://www.theguardian.com/money/2024/jan/15/as-extreme-weather-increases-watertight-insurance-is-a-must [Accessed 10 Feb. 2024].
[iv] Flood Re. (2017). Flood Re - A flood re-insurance scheme. [online] Available at: https://www.floodre.co.uk/. [Accessed 10 Feb. 2024].
[v] Hicky, S. (2024). As extreme weather increases, watertight insurance is a must. [online] The Guardian. Available at: https://www.theguardian.com/money/2024/jan/15/as-extreme-weather-increases-watertight-insurance-is-a-must [Accessed 10 Feb. 2024].
[vi] Money Helper. (n.d.). Flood insurance – getting the right cover. [online] Available at: https://www.moneyhelper.org.uk/en/everyday-money/insurance/flood-insurance-getting-the-right-cover [Accessed 10 Feb. 2024].
[vii] Money Helper. (n.d.). Flood insurance – getting the right cover. [online] Available at: https://www.moneyhelper.org.uk/en/everyday-money/insurance/flood-insurance-getting-the-right-cover [Accessed 10 Feb. 2024].