Home insurance is rising with the tide

Buildings and contents cover is going up and some homeowners may be denied it altogether

The cost of decent cover for your home is set to soar, as climate change pushes up the twin risks of flooding and subsidence. But, even more frighteningly, around 200,000 homes in Britain could be left uninsurable within the next three months as an agreement that ensures flood-prone properties can continue to be insured comes to an end.

In fact the agreement – made between the insurance industry and the Government – expires at the end of June 2013. But with no sign of a new agreement to replace it, some insurers have warned that homeowners in flood-prone property might not be able to renew their cover later this year, because their new policy will then extend beyond June next year.

The current agreement says that insurers must include flood cover as standard for properties built before 1 January 2009, where the risk of flooding is low. But companies also agreed to cover at-risk households who already have flood cover to renew automatically with the same insurer, as long as flood defences are planned to be in place within five years.

It's confusion about Government investment in flood defences that is putting so many homeowners at risk. The Association of British Insurers (ABI) warned last week that the clock is ticking on the need to secure a new approach to flood insurance, but it needs Government commitment on flood defences.

James Dalton, the ABI's head of property insurance, said: "We are running out of time to ensure that people in high flood-risk areas can continue to get affordable insurance.

"The current industry agreement with the Government is unsustainable, has thwarted choice for consumers, and is past its 'best by' date."

He warned insurers would not be able to provide flood insurance to at-risk homes without a Government commitment, as happens in other countries.

Tom Woolgrove, managing director of Direct Line, which still has a dominant position in the home insurance market, said the firm has been working with the ABI in an attempt to influence the Government regarding the provision of a sustainable national plan for flood prevention.

"The current agreement is unfair to consumers and to insurers, as it does not offer the level playing field which we all expect," he said. "This situation needs urgent attention."

If you get turned down for cover for your home because of the flood risk, it could have a disastrous impact on the value of your property. This may make it unsaleable if potential buyers believe you've been turned down because the risk is so severe.

While insurers and the Government seem to be in a stand-off at the moment, homeowners are left helpless. If the Environment Agency classifies your home as being in a flood-risk area, there seems to be little you can do.

However, you may get help from one of the specialist insurance brokers which focus on finding cover for hard-to-insure properties. You can get details of these from the British Insurance Brokers' Association website at www.biba.org.uk or by calling its broker helpline on 0870 950 1790. But specialist insurance is likely to cost more than standard cover – and even the cost of this has started to rise dramatically.

Until recently, home cover costs have traditionally remained relatively flat while the cost of insuring a car has rocketed. Between 1994 and 2009, the average quoted premium for a contents policy rose by less than 1 per cent while buildings insurance climbed by less than 8 per cent. Over the same time period, motor policies increased more than 100 per cent, according to the AA.

But inflation has begun to affect home insurance prices, setting them on an upward trend. The latest Insurance Premium Index compiled by the AA, for instance, revealed that average buildings cover actually climbed by 9.5 per cent last year from £143.36 to £152.18. Meanwhile, contents premiums went up 11.2 per cent from £72.43 to £80.58 over the year.

The company said the increases were because of rising claims resulting from storm damage, flooding and burst pipes. It means that even homes far from flood plains are facing increased insurance bills because of the changing weather.

Are there ways to cut the costs of home cover? For starters if you haven't compared costs charged by different insurers, you could already be paying over the odds. The many cost-comparison sites online can help you shop around easily for the best-value deal for your home.

However, bear in mind that two of the biggest insurers – Direct Line and Aviva – don't use the sites, so it may be worth contacting them for a quote. It's also worth negotiating. Tell them what price you've found elsewhere and ask them if they can better it.

Check how much different cover is worth. Some insurers include a standard amount for contents, for instance, that may be more than you need. Others may be prepared to quote a lower premium for less cover. On the other hand, you don't want to be underinsured. If you want to cover a shed, for instance, it's probably worth paying the extra for it.

On the other hand, do you need accidental damage cover? Scrapping it could cut 25 per cent of the cost of your home insurance. You can also reduce monthly premiums by agreeing a higher excess – the amount of any claim you agree to pay.

With a £250 excess, for instance, you could cut the cost of home insurance by as much as 20 per cent. But don't let the excess be too high as it could make the policy relatively useless if claims mean no payout.

Improving security could also help reduce premiums.

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