With serious flooding from the effects of Storm Desmond in Cumbria expected to result in home insurance claims of around £250 million, many experts have warned of a potential increase in premiums.
However, AA Insurance has said it does not expect the storm to lead to widespread premium rises.
Mike Lloyd, director of AA Insurance, believes that it would take claims in excess of £1 billion to trigger across-the-board increases.
“We don’t expect average premiums overall to be affected. Insurers have sufficient reserves to meet claims such as the recent flooding and, although those affected will sadly expect to suffer premium or excess increases, insurers will stay with them as the heart-breaking rehabilitation process progresses. And on the whole, insurers and brokers, including AA Insurance, have responded well to calls for help from customers.”
According to the AA’s benchmark British Insurance Premium Index, home insurance premiums have been falling steadily for the past four years and the broker expects premiums during the fourth quarter to show a modest fall again.
“The UK hasn’t suffered a severe winter since 2010 and although there have been flooding events, none have been anywhere as severe as the 2007 disaster which cost insurers around £3.3 billion. Following that widespread damage our Index, which has been tracking the quarterly movement of home insurance premiums since 1994, showed that the average quote for cover rose by around 20% over the following year.
“And while benign weather may have triggered premium falls in the first place, the continuing downward momentum now has more to do with competitive pressure,” said Lloyd.
The launch of Flood Re in April next year will enable up to 300,000 householders in flood-prone areas to obtain affordable insurance. The scheme, an initiative between insurers and the government, will be funded partly from insurers and a levy on all home insurance policies. It will allow insurers to pass on the flood risk element of their home insurance policies to the scheme.
“This is long overdue and it will nevertheless be welcomed by at-risk home owners. But the government can’t use the advent of this additional cover as an excuse to reduce flood defence spending,” said Lloyd.
“The home insurance market’s profitability is dependent on the frequency and effects of severe weather including floods, freezes, drought and subsidence. Nevertheless, some analysts believe that home premiums can’t fall much further and although we don’t believe we’ll see much significant pressure on premiums until and unless there is widespread severe weather, we do expect home premiums to bottom during the first half of 2016,” Lloyd added.
