Prepare for stormy weather ahead

If you are still in any doubt about the scale of the threat of flooding then maybe it is worth taking a close look at the Thames barrier which was built by the GLC in response to the North Sea flood of 1953 that claimed over 300 lives. The barrier was deployed on 13 successive tides this January and  it has already been deployed more times this year than in its first ten years of operation. In December 2013 it protected London against a larger tide than the 1953 event.

Elsewhere in the UK areas, not previously considered to be a risk, have been affected. Possibly the paving over of urban areas contributing to an increase of flash flooding from surface water coupled with previously unseen weather events.

As you might expect the “evil boffins” employed by insurers have already predicted the impact of weather and the results of their predictions are starting to filter into the world of block insurance. Further advances in their flood mapping will see even more blocks designated as being at high risk of flooding. In addition, insurers are beginning to predict, with some accuracy, locations likely to be at risk of surface water incidents, better described as flash floods. Premises likely to be affected by surface water are probably not in low lying areas but are in the path of water finding its way to lower ground as the result of significant weather events. The impact of this is that up to 10% of blocks could now be considered at significant risk of flooding and surface water incidents.

Flat owners living in blocks which the insurance industry identifies as being at high risk of flooding will probably be adversely affected on both their personal contents insurance and the block policy. And even top floor flat owners may have some nasty surprises as some of this new flood and surface water modelling is far from perfect. Some contents insurers will identify the building as high risk from flood but as yet have not evolved the sophistication to understand which flats are exposed. That said, with up to two thirds of flat owners not having contents insurance, this is unlikely to gain many headlines.

The problems facing block building insurance policies are likely to attract more attention. Already insurers in 2014 are increasing premiums to cater for an expected increase in bad weather events but, more worryingly, are cleansing their books of high risk flood and surface water locations based on their latest data. Many blocks are facing significant premium increases and large flood excesses which are likely to displease flat owners and result in insurance challenges. So, logically, you would expect these blocks to move to insurers with lower premiums and excesses. But probably where this happens it will be as a result of some insurers having a lower understanding of the risks because of the differing levels of investment by insurers in flood and surface water mapping. The danger is these insurers may even exit the market because lack of data leaves them disadvantaged.

Just to compound problems the ABI agreement is coming to an end and whilst it looks likely that Flood Re will become the new saviour for many home owners, and indeed some flat owners in respect of their contents cover, there is a massive shock in store for many blocks. The first phase of Flood Re will only apply to personal policyholders.

Block buildings insurance is classified by the insurance industry as commercial insurance because the policy is normally arranged by a separate entity such as the freeholder, residents association or RTM company rather than the private individuals who own their homes as leasehold flats.  As such the first phase of Flood Re will not apply to most blocks of flats in respect of buildings insurance. Many blocks could be left without flood cover for several years as a consequence.

As ever in respect of block insurance this will be interpreted when challenged by the First Tier Tribunal based on the covenants in the lease, covenants which undoubtedly may be deficient and will yet again be subject to retrospective scrutiny they were never intended to satisfy. Some lessors may have leases which contain phrases such as “as available in the market” and may stand up to scrutiny. Many however will leave the lessor in breach of lease if flood cover becomes available for the block policy.

The First Tier Tribunal will be subjected to a significant number of insurance challenges as a result of the insurance industry’s reaction to flood and surface water threats. It is easy to blame the insurance industry for this impending crisis and I am sure many will, whilst others may blame the lack of investment in flood protection. But the fact remains that flood, surface water and significant weather events are on the increase and this needs to be addressed.

Stepping back however let us not forget that it is flat owners who are the ultimate victims of these failings of the leasehold system to interact with the changing insurance market and the Property Chamber has the unenviable task of giving judgement retrospectively.  I personally believe that this uncertainty is unhealthy and that change is needed.