The swelling cost of home insurance

APRÉS LE deluge . . . it's going to be difficult to get home insurance. While homeowners have already been hit hard by soaring house insurance premiums, those living in flooded areas may soon not even have the option of paying more for their cover, writes FIONA REDDAN

As insurance companies update their systems and redraw their flood maps, they may step back from providing cover in certain areas. This means people who previously had no problem getting flood cover may find it almost impossible to get their policies renewed.

And it won’t be just an issue for those who have been flooded. With insurers set to make up the cost of claims arising from the floods by hiking prices across the board, everyone is going to share the pain, with the cost of home insurance set to rise by an estimated 10 per cent.

Impact on those in flooded areas

If you live in an area that has flooded recently, you may find it difficult to renew your home insurance policy. John Geraghty, chief executive of LA Brokers, says that, following the floods, there are three options open to insurers:

1) increase premiums;

2) refuse to accept the risk of covering those in higher-risk areas; and

3) issue policies with exclusions.

While insurance companies may still give flooded homeowners home insurance, Ciarán Phelan, chief executive of the Irish Brokers Association, notes that they may exclude flood cover. And instead of insurance companies putting up premiums substantially, he suggests they may seek instead to impose excesses of between €5,000 and €10,000 on such policies. This means homeowners would have to pay the first €5,000, for example, of any claim on their property.

Moreover, with flood maps set to be redrawn, people who didn’t have problems previously and hadn’t been flooded in recent memory will now find it difficult to get flood cover, given that there is proof their property is liable to flood.

“It’s like a house on fire: you can’t get insurance for the house while it is on fire; you can only insure against the possibility that something might happen. Once it becomes fact, it becomes quite difficult to insure,” says Geraghty.

Home insurance contracts are transacted on an annual basis, which plays into the hands of the insurance companies.

“It gives them the opportunity to refuse cover, to change the terms and conditions, and to put up the premium,” says Geraghty.

The flood blacklist

It’s the list you don’t want to be on. Insurers use geocoding to compile a list of areas liable to flooding, and then frequently blacklist homeowners living in those areas. Given the latest round of floods, this list is bound to get bigger.

While many insurance firms will exclude giving flood cover to homes in particular areas, others say they examine it on a case-by-case basis.

A spokeswoman for Quinn Direct says it does not have a “blanket ban on any particular area of the country”, but evaluates “whether to offer cover for properties in areas with a history of subsidence or flooding on a case-by-case basis”.

There is no way of avoiding such exclusions.

In addition to the insurer’s geocoding work, homeowners must fill out insurance documents in the “utmost good faith”. So if you suffered some small flood damage but think that by not claiming your policy won’t be affected in the future, this is not the case.

“If anyone becomes aware that they’re in a flooded zone, they have to disclose it. Not doing so would make the insurance policy null and void,” says Geraghty.

“At the application stage, many insurers ask a question along the lines of ‘the property must not have suffered damage by flood and not be in an area with a history of flooding’. A dishonest answer could result in the rejection of a claim.”

One possible solution

If you are worried that you will no longer be able to get private home insurance cover, news that the State may set up a national insurance scheme is welcome.

Last week, Tánaiste Mary Coughlan said she was willing to consider such a scheme for those living in flood-prone areas and unable to get private cover.

Prices set to rise again

Unfortunately, even if you don’t live in an area that has been hit by the floods, your premiums are still likely to rise as insurers hike premiums across the board.

Consumers have already been hit by a jump in the cost of home insurance: it rose by 25 per cent in the 12 months to September due to an increase in claims and flood damage from last year.

With the latest flood damage expected to cost between €250 million and €300 million in claims, consumers should brace themselves for another price hike, as insurance companies seek to meet the cost of claims and, in turn, the increased cost of reinsurance being imposed on them.

“Until we have assessed the overall impact of claims paid, we cannot predict their impact on premiums,” Quinn Direct’s spokeswoman says, adding: “It would not be unreasonable to expect property rates to increase.”

“Premiums have been hardening over the past few months and are probably likely to go up again,” says Phelan, putting the potential price hike at about 10 per cent across the board. “Insurance is all about looking after the losses of the few,” he adds.

Consumers may notice a knock-on effect in other types of insurance, such as motor policies, with prices on these products also possibly going up.

It is also likely that, in the future, insurance companies will cherrypick customers to keep prices competitive for those customers who are not likely to have their property flooded.

“All insurers realise they are not alone in the market, so charging too high a premium may result in a loss of business. Charging too low a premium could mean running at a loss. Insuring properties prone to flooding could put them out of business. It’s a difficult tightrope to walk,” says Geraghty. “In insurance, the premium base always reflects the exposure rather than the hazard itself so the insurer has to ensure a fair premium will be charged.”

People with homes in “flood safe” areas would find it unacceptable if they had to pay more to cover people in flood risk areas, he adds.

Get proactive

If you are one of the unlucky ones who has been flooded, it is unlikely you will get flood cover again. If, however, you live in an area that was flooded but your property wasn’t affected, you may be able to get a deal. Insurance companies break down areas in great detail, so just because you live in an area that was badly affected, such as Bandon in Co Cork, this does not mean you will be included in a flooded area category.

Even if your house is on a flood area blacklist, Geraghty says you may still be able to get cover if you were not flooded because your house sits on a piece of higher land.

If you have not been hit by flood damage, you still need to be proactive when it comes to renewing your home insurance policy, given that prices are set to rise. Do your homework before renewing with your existing provider. “Shop around, but don’t just buy on price, look at the excess on the policy also,” says Phelan.

One thing to keep an eye on is indexation. Most insurance companies automatically increase the amount of your buildings and contents cover when they renew your policy each year to prevent you from being underinsured. But given that deflation rather than inflation is now the name of the game, you may not need such an increase. To check the cost of rebuilding your home in the current climate, have a look at the Society of Chartered Surveyors’ annual survey (www.scs.ie).

Another way to save money is to increase the excess on your policy. While it means you will have to pay a certain proportion of the claim yourself, it will bring down costs. Hibernian Aviva offers a 2.5 per cent discount if you agree to an excess of €200, while Allianz gives a discount if you increase your excess to €500.

Shopping online for a policy can also pay dividends, as many insurers, such as AIB (which knocks 10 per cent off the price), offer a discount on insurance policies this way.