AA boss warns homes could become 'uninsurable'

AA Insurance’s Simon Douglas has warned that some homes could become uninsurable if the government fails to find a replacement for the Statement of Principles that expires in June next year.

The Statement of Principles is an agreement between insurers and the government that provides affordable flood cover to those in the most exposed areas.

Douglas’ comments come at the release of the AA’s latest benchmark AA British Insurance Premium Index, which revealed that some home insurance premiums have climbed by up to 7.2% over the past 12 months.

The index found that the average cost of buildings cover increased 5.2% over the past 12 months, or 2.4% to £181 during the third quarter of 2012, while contents cover rose 7.2% over the past 12 months, or 1% to £242 in the third quarter, following a washout summer of storms and flood.

Every region in the UK experienced a rise in premiums, with London and the South East the most expensive places to insure a home, with an average buildings premium of £200, up 2.9% in the third quarter. The biggest increases were in Yorkshire and East Anglia, where average premiums leapt 3.5% to £177.

Central and North West England were the most expensive areas for contents insurance with an average of premium of £101, up 0.7% in the third quarter.

Douglas said that the wet summer, which according to the ABI has cost insurers more than £400m, is a sharp reminder that the industry must be ready for more of the same in the future.

The Environment Agency predicts that heavy rainfall will become three or four times more common in the coming decades, increasing flooding tenfold. Meanwhile, the Climate Vulnerability Monitor, a report on the worldwide effects of global warming published in September, suggests that the cost of flood damage in Britain is likely to triple by 2030.

“I am very concerned that no agreement has yet been reached in finding an affordable option to the Statement of Principles between the insurance industry and the government, which ensures that families in flood-prone properties can continue to obtain flood cover,” Douglas said. “This expires in June next year and if no agreement is reached soon, could lead to the most vulnerable homes becoming uninsurable.

“To put this into context, insurers measure flood risk in terms of events likely to happen over a period of years. Even if a home is at risk of flooding once in a century, given that the average cost of repairing a flood-damaged property is £20,000 that is the equivalent of £200 per year, on top of the cost of covering other risks.”

Douglas said that despite the cost of damage and disruption caused by flooding, investment in flood defences had fallen by more than 20%.

“It’s vital that the government and local authorities make tackling the problem at source by investing in flood defences a priority,” he said. “It’s hard to think of a better return on investment.”

All regions saw average premiums fall, with the exception of Anglia (an increase of 1.4%). Greater Manchester and Liverpool is still the most expensive at £1,059 (a fall of 0.3%).