Insurers charge flood-safe homes more than they should to subsidise flood-prone homes because the industry signed up to a Statement of Principles giving the government time to put in place adequate flood defences. Successive governments have failed to keep their side of the bargain.
Distorted marketDavid Williams, managing director for claims at AXA, said: "Many householders do not realise that flood insurance is heavily subsidised and discounted due to distortion in the insurance market brought about by the Statement of Principles.
"The real concern for home owners is that the Statement of Principles will not be renewed when it expires in 2013 which could impact on the availability and affordability of insurance in high flood risk regions.
"It is incumbent on government, the insurance industry and other key stakeholders to find a new way forward to share risk, recognising that flooding is likely to increase in the UK as weather patterns become more unpredictable and extreme.
No subsidiesI've said it before but it worth saying again. Those of us in inner cities where the risk of crime is greater, have to pay for our own security measures before we can get insurance and still pay higher premiums.
Riverside country dwelling and rural towns do not subsidies our crime risk. We should not be subsidising their flood risk.
AXA's research shows:
- 77% of people living in a higher flood risk area were unaware their premium was being subsidised
- Less than a fifth of people realised how much premiums would need to rise in flood risk areas if the subsidy was removed
- 62% agreed that people should have access to 'affordable' flood insurance
- Every low flood risk AXA customer is paying an extra 5% on their premium to subsidise those in high risk areas, and this amount is likely to rise in the future
Now it strikes me that AXA has its numbers wrong. It suggests that when the subsidy is removed, flood-risk homes will see their premiums rise by about 50%. AXA's maths says the rise from 42% to 100% is 58%. But it isn't.
Premiums to rise 138%
If customers are currently only paying £42 out of every £100 of the true cost of their insurance, the premiums will need to rise by £58 for every £42 currently paid. That is a rise of 138%. So, if you are paying £500 for your home insurance now, expect it to rise by £690 to £1,190.
There are 5.2 million homes in England alone at risk of flooding. Start saving now.