Confusion over a new Government-backed insurance scheme could leave many commercial property owners “paddling their own canoe”, one the country’s leading agents has warned.
Prop-Search surveyor Samantha Jones
With a 14-year agreement between the Association of British Insurers and the Government about to expire, Prop-Search fears its replacement will leave many commercial owners dangerously misled and unprotected.
Following the 2000 floods both sides signed-up to a Statement of Principles which ensured continued flood insurance cover for homes and smaller enterprises. Although the agreement relates only to domestic and small businesses, it was widely accepted by insurers that the arrangement also influenced the provision of cover for commercial properties, including landlord owned properties rented to tenants.
A replacement not-for-profit scheme — known simply as Flood Re — comes into force this year and will cover exceptional claims in high risk areas. Self-funded by an annual levy, the insurance industry accepted the new agreement on condition the Government increased capital flood defence spending by at least 10 per cent.
“This proposal should mean that people who are currently paying very high premiums in high flood risk areas will benefit from a more competitive market, but whether this will work in practice is another matter,” cautions Samantha Jones, a surveyor at Prop-Search.
“In its current format, the proposed Flood Re scheme still poses problems primarily in that commercial property will fall outside of the scheme, as will owners of H band domestic property and new homes built after January 2009.”
With millions of acres still under water from the current spate of flooding, farmers will find the new proposals difficult to navigate. While farms and outbuildings are not covered by Flood Re, the situation is still unclear concerning the home in which they live.
The Department for Environment, Food and Rural Affairs has emphasised that with farms normally being included in commercial business flood insurance they would therefore not be covered by Flood Re. A farmhouse, however, could be covered if insurers are able to split the residential part of the policy so the domestic part is covered under Floor Re.
There is also confusion, Prop-Search warns, with mixed-use properties and businesses, such as guest houses and bed & breakfasts. As it stands, these will not be included in Flood Re, although they had previously been covered by the Statement of Principles.
By nature of their business, a large proportion of these tourist-based properties are in high risk areas near to water sources. Other business premises are historically situated near rivers and lakes, which puts an estimated 300,000 UK commercial buildings at risk.
“For the time being, the insurance market is showing no signs of withdrawing flood cover for commercial property, though properties in high hazard areas may have restrictive terms and conditions imposed following thorough assessment of the local risk circumstances,” added Jones. “Many businesses will have to wait and see what the Government’s ongoing review holds for the insurance market for commercial properties.”
