Floods will add to rising UK home insurance bills

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Widespread flooding across the UK this week is expected to put upward pressure on home insurance prices, which are already rising swiftly as insurers respond to inflation in rebuilding costs and the effects of a warming climate.

Storms Babet, Ciaran and Debi in October and November were followed by Storm Henk at the start of 2024, which has left hundreds of homes flooded as well as businesses and agricultural lands.

Stephen Kennedy, director at pricing specialists Pearson Ham Group, said there was “heightened anticipation of the potential ramifications of Storm Henk on UK home insurance premiums”. Given the “scale and intensity” of the storm, he added, it was reasonable to expect it to push premiums higher, especially in the areas most affected. 

“Home insurers will definitely be seeing some impact on margin from all the storm damage,” said Paul De’Ath, head of market intelligence at consultancy Oxbow Partners, highlighting the string of named storms in recent months.

This was likely to “push into pricing for 2024”, he added, though how significantly will depend on underwriters’ judgment as to whether the heightened storm activity requires the longer-term trend to be reassessed.

The average cost of a building and contents policy was £350 in the third quarter of 2023, up 15 per cent year on year, according to industry data, and sector experts expect the pace of premium rises to accelerate.

Another senior industry figure, speaking privately, said the flooding would not “certainly not [make] it easier to reduce prices”, while stressing that the sector prices its policies in anticipation of winter storms and floods.

The combined force of Babet, Ciaran and Debi created £352mn in claims for damaged homes, according to the Association of British Insurers, which said it was too early to gauge the scale of damage from the latest flooding.

The ABI called for more to be done to “support communities up and down the country to be more resilient” to the weather. Laura Hughes, its manager for general insurance policy, said the government should “guarantee that flood prevention and resilience measures are considered in all planning decisions and building standards as well as adequately funding flood defence investment and maintenance”. 

Some flood-hit households may be eligible for the so-called Build Back Better scheme provided by Flood Re, the UK reinsurance scheme, and participating insurers. This offers customers up to £10,000 to fund resilience measures when they repair their properties.

Holiday and caravan parks have been left submerged by days of heavy rainfall. “Climate change is proving to be a factor in the rising cost of static caravan and holiday lodge insurance policies, particularly in areas already prone to flooding,” said Karen Stacey, managing director at specialist caravan insurance provider Compass.

The costs of materials for repairing damaged caravans and lodges were rising faster than overall inflation, she said. “This has resulted in insurers having to pass on these increases in premiums.”

Stacey urged holiday homeowners to check that their insurance policies do not have flood-related requirements, such as the need to fit a flotation device to caravans.

The costs of core insurance products, such as home and motor insurance, have come under increased scrutiny amid a cost-of-living squeeze on UK households. Motor insurance prices have hit an all-time high, with both combustion engine and electric vehicles feeling the squeeze.

Insurance executives, called upon to justify their pricing, have stressed rampant inflation in the cost of claims. The rise in claims costs has been dramatic: the latest ABI data show the value of the average home insurance claim had risen by 64 per cent in a single year. Underwriting profitability in 2022 among UK home insurers was at its worst in at least three decades, consultancy EY calculated.