After the deluge comes flood cover restrictions and pricier premiums

The recent spate of floods has extracted a terrible emotional toll on the people whose homes and businesses have been flooded. Not only that, but they have also incurred a significant financial cost.

And with insurers cracking down on offering flood cover to properties in flood areas, many have had to foot the bill for the damage themselves.

According to industry group Insurance Ireland, about 2 per cent of policies exclude flood cover. Given that there are about 2.35 million homes and commercial premises in the State, this equates to about 47,000 properties.

But is there any respite in sight for such property owners? Could a scheme pioneered in the UK offer some relief? And why are homeowners unaffected by the recent inundations set to face a 5 per cent increase in their home insurance premiums?

I've been flooded: Will I get insurance again?
A standard home insurance policy will offer flood protection as a routine benefit. However, if you have been hit in the past by floods, renewing such a policy will become considerably more difficult. A standard screening question before any company will quote you is that your property should not be "in an area with a history of flooding".

“You have one shot at a claim. If you have a flood claim, invariably the insurance companies won’t renew the policies, or will do so but will exclude flood insurance,” says Seán Burke of Burke Insurances in Galway.

Indeed the National Consumer Agency surveyed eight insurers last August and found that none would offer a quote on a property that had previously made a claim due to flooding. But it's not a hard and fast rule.

A spokesman for Allianz, for example, says the insurer will provide full cover to policyholders who reside in areas it deems as flood-prone, “provided they do not sustain more than one flood loss”.

Make more than one flood-related claim, however, and you can well and truly wave goodbye to flood cover.

“It’s going to be extremely difficult in those areas to get cover,” says Brian McNelis, director of general services at the Irish Brokers Association.

However, while you may not be able to get flood cover, you might be able to get regular home insurance cover – with flood risk excluded.

“If you stay with your existing company, they will provide home insurance without flood cover. But if you go to a new player it could be extremely difficult to get,” advises McNelis.

Of course this approach has its own perils, as you will have to pay what your insurance company charges – there will be little room for negotiation or shopping around.

And remember, if you have had an insurer withdraw flood cover from your policy, when you go to shop around for a new policy, you must tell them about this.

“You must disclose that as a material fact,” says Burke.

I haven't been flooded but areas close to me were
Insurers typically exclude properties from home insurance based on their geocoding or flood-mapping services, which highlight areas across the State that are prone to frequent flooding. One fear is that insurers will broaden the range of properties they exclude from flood cover as a result of the recent inundations.

Allianz says it “consistently refreshes and renews” its approach to flood mapping and that recent events “will inform that ongoing review process”.

Burke’s office for example is located in Galway’s Wood Quay, near the Corrib. While the office wasn’t directly affected by the recent floods, he wonders whether it might be excluded from flood cover in future.

“They have it down to a fine art, where they’ll give cover and not,” Burke says, though he notes that some insurers might take a broader approach than others.

It is insurers with the more complex geocoding systems that might actually be more open to offering insurance in flood areas. “Technology is becoming more sophisticated, so insurers can identify and pinpoint, for example, that number one on a street floods, but that number five is halfway up the hill and it’s okay,” says Pádraig Lynch, chief executive of Chill Insurance.

For insurers, this means that they won’t have to exclude otherwise profitable business because they will have determined that the risk of flooding is negligible for certain properties; for consumers, it means that opting for an insurer with this technology might mean that you can actually get flood cover.

Who will pay for

flood damage if I can't get cover?
"You'll have to pay for the damage yourself. Once you're in an area prone to flooding, there won't be any insurance available," says Burke.

The Government has set aside a €25 million relief fund to help those in distress, and said that more capital will follow once the extent of the damage has been calculated. The fund will be administered by the Department of the Environment. It consists of the €10 million fund established back in 2009, as well as an additional €15 million contribution.

However, given that just €2.3 million of this fund has been spent since 2009, there are some concerns about its effectiveness.

Mark Fielding, chief executive of small business association Isme, questions the efficiency of this fund for commercial businesses. "It would seem that it's mainly for the personal side of things – lost possessions in houses more so than businesses".

The Department of Social Protection is also running a humanitarian assistance scheme, which is intended to provide “emergency financial assistance to households who are not in a position to meet costs for essential needs in the period immediately following flooding”.

This scheme covers emergency income support and funds to cover the cost of damaged carpets, flooring and furniture. It is means-tested as follows: a single person with gross income of €30,000 will get 100 per cent of the amount allowable. For amounts over €30,000, the person will have to make a 1 per cent contribution for each additional €1,000 of income; couples with an income of up to €50,000 will be entitled to 100 per cent of the amount allowable – amounts over this will again require a 1 per cent contribution per €1,000. The income limits are increased by €10,000 for each qualified child. (See http://www.citizensinformation.ie/ for full information).

If an investment is made in flood protection, will

I get flood cover?
This is the $64 million question. The Office of Public Works (OPW) is currently spending approximately €40 million a year on flood protection and the Government is set to invest a further €250 million to bolster flood defences over the next five years.

But will this have a material impact on those struggling to get home insurance cover?

Last September, Insurance Ireland said it would come forward with a protocol that would require its members to offer home insurance to people in affected areas, based on the level of investment by the OPW in flood protection.

According to Michael Horan, non-life insurance manager for Insurance Ireland, the association is currently in the process of finalising a memorandum of understanding with the OPW, and hopes to do so "over the coming weeks".

He says it will address one of the information gaps of the past, in that the OPW will share information on flood defences with insurance companies, but it will be up to individual companies whether they decide to offer flood risk or not.

“It might make them rethink their approach provided the remedial works are up to European standards,” says Lynch.

However, he adds that while towns such as Fermoy and Clonmel have had their flood defences bolstered, “it’s questionable whether insurers have taken up flood risk in those areas yet”. “The key is that we need more communication between OPW and Insurance Ireland to get an agreement before the work is done. We need more of that discussion”.

Isme’s Fielding would like the Government to step in and make a dual investment – an insurance fund to give flood cover to beleaguered businesses, as well as an investment in infrastructure. However, he fears the money simply isn’t in Government coffers to facilitate this.

“They’ve been dragging their heels on it,” he says, noting that the association has sent in a letter to Government requesting this, as it has done during previous flooding incidents.

“Businesses will not survive if they can’t get insurance or some way or stopping the flooding,” he warns.

Lynch suggests that “something similar to the UK, where insurers and the government work together to come up with a solution” is preferable, because it would mean that insurance could be made available if the work was done on infrastructure to prevent reoccurrence.

Last June, the Association of British Insurers and the British government agreed to develop a not-for-profit scheme, “Flood Re”, to ensure the availability of affordable flood insurance. The scheme, which will ensure flood cover for all, regardless of where their property is located, is to be funded by a £10.50 levy on all home insurance policies and has a launch date of summer 2015.

But does such a scheme offer lessons for Ireland? “It’s too soon to know how well that UK scheme will work or not. For us, the solution is to try and implement flood-prevention measures in areas that are prone to flooding, so that insurers can provide cover against the risk of something happening,” says Horan.

In the short term, however, such an approach in Ireland will likely see plenty of property owners out of pocket and having to foot the costs of flood damage themselves.

Will the storms push up insurance premiums

?
There have been eight major flood events costing the insurance industry approximately €700 million in flood claims from 2000 to 2012, with the floods of 2009 costing the industry about €244 million alone.

However, as Lynch notes, this year’s floods represent the “first big catastrophe in two to three years, so you would hope that insurance companies might have made some money over last two years and that might be enough”.

Indeed, as Burke notes, much of the damage done to homes this time around will have been uninsured because homes that have been affected would not have been able to get flood cover because of previous incidences of flooding.

McNelis agrees, pointing out that “much of the destruction has been in the Office of Public Works domain, such as shorefronts, walls, coastline, etc”.

As such, Burke notes that “premiums haven’t increased generally” since the onset of the latest floods.

However, McNelis argues that premiums are set to rise nonetheless. “Direct operators are looking at their margins,” he says, adding that home insurance is set to rise by about 5 per cent this year.

The reason for this is likely to do with the problems at RSA Insurance, which also operates the 123.ie brand.

It had to inject almost €250 million into its beleaguered Irish subsidiary, following the discovery of financial irregularities at the operation late last year. With the insurer likely to hike premiums to recapture some of its losses, competitors are likely to follow suit.