COLUMN: Changes to flood insurance rules could have a devastating effect

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Surveyor James Fairman outlines why changes to insurance rules might prove costly for businesses and residents in this area...

Recent flooding (not the Fens I might add) has raised concerns again about the risk of flood insurance being withdrawn from high risk zones.

Many areas of the Fens are considered, by the Environment Agency, to be high risk by virtue of their proximity to the sea and low lying level.

The fact that the Fens has an excellent track record in this respect seems to be of little concern.

An agreement between the Government and the Association of British Insurers (ABI) has guaranteed flood risk insurance for all UK householders. Unfortunately this agreement is due to expire in June 2013, leading to a number of heated discussions between the Government and representatives of the ABI with regards to its continuation.

The problem is the insurance companies do not wish to insure properties which are considered to be at risk of flooding as this means that the odds of a payout are stacked against them.

The issue with regards to properties on low-lying areas which haven’t flooded is that, if flood risk insurance is withdrawn, technically mortgage holders are in breach of their loan agreements as they have to have full cover. In addition, any future mortgage company require flood insurance to be in place as part of an agreement for a new loan. This does not only affect houses but also commercial property and, agricultural land.

The effect of the withdrawal of flood insurance therefore could have a devastating effect on the market for properties generally. The value of land and property in the affected areas which, on the east side of England would cover areas from the Lincolnshire Wolds down to the Bedford Levels could see values tumble, mortgage covenants broken left, right and centre, and send the whole economy into a new banking crisis caused by lack of security of existing securitised assets.

For this reason alone I doubt that we will come to this situation.

Not all companies are ABI linked, of course, and there is no reason why a suitable insurer could look at an area under risk, such as the Fens, and decide to offer flood insurance. This potential stream of new business could mean them cleaning up the market.

Of course, the flood defences could always be improved to a level similar to that experienced in, say, Holland.

No doubt the situation will be resolved; however, at this point in time it is difficult to see how this will happen.

•James Fairman is a chartered commercial surveyor, MRICS and registered valuer who has worked for local and national firms including Savills.

He is a Director of Poyntons Consultancy,, based at Fydell House on South Street, Boston. You can contact him with any queries at