With flooding and weather-related claims predicted to cost up to €50 million this year, a rise in insurance premiums looks inevitable, writes Caroline Madden

THE SOUND of a stable door slamming shut after the horse had bolted could be heard earlier this week, when Minister for the Environment, John Gormley, vowed that new planning guidelines would be introduced to prevent any major construction on flood plains in the future.

This announcement is cold comfort for householders who have already fallen foul of bad planning, and who now realise that their homes were built in flood-risk areas.

Apart from dealing with the financial and emotional aftermath of the devastating floods, homeowners in these areas may now face another problem. "If you live in a place where it becomes an inevitability that your house is going to be flooded every year, then effectively it's uninsurable," says Paul Moloney, a spokesman for Axa Insurance.

"If for example you [already] have insurance, insurance companies, while they'll insure your house, will limit the cover to exclude the inevitable events such as flooding," Moloney explains. "So you'll get cover for fire and theft, accidental damage, etc, but it might exclude . . . flooding."

Hibernian says that it will not withdraw cover from an existing customer if they make a flood-related claim. Instead they will advise the customer on practical measures that can minimise the likelihood of damage recurring, such as the use of floodgates. But of course, a previous claim will be factored into future calculations of the customer's premium.

Mike Kemp of the Irish Insurance Federation (IIF) is keen to point out that withdrawing flood cover is rare, and "very much a last resort". "There are only a very few small areas where there's any problem with availability," he says.

Axa's Moloney agrees that this was the case traditionally, but recent occurrences mean that it's not so any more. "Traditionally there were certain areas that were very difficult to get insurance for - areas in Cork, Clonmel, on the Tolka valley," he says. "But now it seems it's a much broader spectrum of locations - now we've got places like Newcastle West, which had never flooded before.

"So it's certainly become a much more prominent risk in the hierarchy of risks than it would have been this time last year," he says.

Is there any financial relief available for householders affected by the recent flooding who don't have insurance, either because they were turned down by insurers or because they chose not to buy it? In the past, where extreme damage has been caused by flooding, humanitarian aid has been provided by the Government. This time around the Government has been accused of abandoning people to the elements, as there is no immediate sign of a special compensation package to help flood victims.

According to a Government spokeswoman, the situation is being monitored and a full assessment will need to be carried out prior to any assistance being provided.

The Department of Social Welfare offers a modicum of relief in certain cases. Uninsured flood victims are advised to contact their community welfare officer in the Health Service Executive (HSE). Those who are currently receiving social welfare may be entitled to a one-off exceptional needs payment (ENP). "ENPs are paid at the discretion of the executive, taking into account the individual circumstances of each case," a department spokeswoman said.

If a person is not covered by insurance, and is working, they can apply for an urgent needs payment. If they are in full-time employment they may have to repay the urgent needs payment in the future, and if they have access to credit it would be expected that they seek funds through this channel instead.

Homeowners in areas that escaped the floods shouldn't assume that they are immune to the financial impact of the increasingly erratic Irish climate. With torrential rain, flash flooding and violent storms becoming commonplace, it is inevitable that insurance companies will pass on the cost of higher weather-related claims to customers.

The full financial hit taken by the insurance industry as a result of the most recent flooding has yet to be tallied. According to Kemp, initial indications suggest that it is roughly "the same sort of seriousness as the October 2004 floods", which cost the insurance industry €38 million.

"Hopefully it won't be as bad as that, but we really won't know for a couple of weeks," he says. "I would be hopeful that it can be absorbed without any significant impact on rates, but you can't rule it out as we don't know the final cost yet," he says.

Others in the industry are not so optimistic. "The overall issue of flooding is going to have a major impact on premiums because first of all it's suggesting there's a risk there that people wouldn't have thought was there in the past," says Axa's Moloney.

Secondly, when insurance companies go to buy reinsurance (which is a means of protecting themselves against losses), the reinsurers will put up their rates because they perceive that flooding is a much bigger risk than it would have been in the past, he adds. "It's pretty much inevitable that premiums will rise as a result."

Another industry expert estimates that weather-related claims for homes will hit about €50 million this year, which will have a significant impact on insurance costs in the future. It is believed that a number of players in the Irish insurance market have not been factoring in the "weather component" when calculating premiums, in order to keep prices low and undercut the competition. These insurers will have to increase prices more dramatically than others, but premiums hikes are expected across the board.

According to Moloney, car insurance premiums will also be affected, because of the huge amount of damage done to cars in the flooding.

Once a car has been flooded, it is generally written off, he says, because the electrics will never be the same again and engine parts may rust. "While the car might look perfect, and drive perfectly for even a year . . . suddenly things start to go wrong and the car becomes a write-off," he explains.

If the owner only has third-party, fire and theft insurance, then they can wave goodbye to any compensation, but if they took out a more expensive comprehensive policy, then they will be covered for accidental damage which includes flooding.

Since the flash flooding struck, a lot of energy has been spent on finger-pointing and blame-shifting. Local authorities have been lambasted for poor planning, developers have been labelled as greedy for building on flood-prone land and the Government has been criticised for inadequate investment in flood relief works.

And yet when this furore dies down, it is consumers who will ultimately be forced to pay for the mistakes of others through higher insurance premiums.

After the rain: what to do next

Take photographs of the damage to your building and contents; they may help with the settlement of your claim.

Once the flood water begins to recede, open all windows as soon as the weather permits, ensuring your home and valuables are secure. This will help to dry the house.

Do not use your electrical or gas supply until it has been checked by a qualified tradesperson.

Drying your possessions too quickly may cause them further damage - allow them to dry gradually where possible. Resist the temptation to place them directly on a source of heat which could pose a fire hazard.

If the damage is severe and you need to move to alternative accommodation, check whether the cost will be covered by your house insurance policy.

Do not throw away ruined possessions - they will need to be assessed. Wash taps and run them for a few minutes before use.

Remember that flood water may be contaminated with oil, sewage, plants or by animals. It is vital to be aware of the health and hygiene risks - be careful what you touch and look out for signs of pollution.

Check whether your insurer provides a professional cleaning service under the terms of your policy.

Do not redecorate your home immediately. It can take weeks for a flood damaged property to fully dry out.

Information provided by Bank of Ireland Insurance Services.

Further details on what to do in the event of a flood are available on www.flooding.ie

Permanent risk: sell up or move to higher ground?

YOUR WOOL carpets are sodden and stinking; your handcrafted kitchen is ruined; your plasma screen TV is destined for the scrap heap - and, to cap it all, you have discovered that your house was built in a flood-prone area, so this destruction could happen all over again.

Anyone in this situation will be tempted to cut their losses, sell up and move to higher ground. But in order to offload a flood-risk home, will you have to take a hit on the price?

Alan Cooke, chief executive of the Irish Auctioneers and Valuers Institute (IAVI), says the value of such homes would certainly be affected, although it is difficult to estimate the magnitude of the drop in value.

He says that in practice, people who decide to leave a flood-affected area don't try to sell immediately.

"It would be a bit like a fire sale," he explains. "You don't sell in the immediate aftermath."

Instead he predicts that most people will restore their homes as best they can and continue to live there until the memory of the flooding has faded.

"The advice generally is quietly sell in about two or three years time when the market recovers and when you are in a position to move on elsewhere," Cooke says.

In the meantime, if homeowners discover that their local authority approved the construction of their home in an area that is prone to flooding, Cooke suggests that they consider talking to a lawyer about their situation.

I'm not saying that they have a right of action , Cooke continues, but it's certainly something worth talking to a solicitor about, because there is a responsibility, I would think, on local authorities and indeed on councillors.

On the flipside, the flash flooding has also highlighted the importance of carrying out detailed due diligence checks and investigating a neighbourhood fully before making a decision on a house.

The first port of call for prospective buyers should be www.floodmaps.ie, which has information on areas that may be at risk of flooding.

It is also a good idea to get a structural survey carried out by an engineer or architect. Finally, don't forget to talk to the neighbours, as any recent flooding will be burned into their memory.