Bomb damage cost hits flats

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HUNDREDS of thousands of flat-dwellers in city centres face huge increases in insurance premiums to cover their properties against terrorist bomb damage. The extra charges have led to accusations that householders are subsidising owners and occupiers of large office blocks in commercial centres such as the City of London. Few blocks of flats have been substantially damaged by IRA bombs.

The extra premium will be as high as pounds 180 a flat in a block of five in central London, valued for insurance purposes at pounds 1m.

Leon Brown, an executive with Snell & Company, managing agents, gave the example of a London block valued at pounds 850,000. The new premium, including bomb cover, will be pounds 2,200; last year it was pounds 956. 'Frankly it's a bit of a cheek having residential flat owners asked to subsidise big business in the City,' he said.

The IRA bomb that shattered the Baltic Exchange in the City last year cost insurers pounds 800m. Afterwards the big insurance companies pressed the Government to pay for all terrorist bomb damage in Britain, as it does in Northern Ireland.

After first refusing to help, the Government did a partial U-turn. Under arrangements being finalised now, the insurance industry is to charge extra for bomb cover on commercial and industrial buildings with the money going to a central pool to meet claims. If this is not enough, the Government will act as 'insurer of last resort' and top it up.

But the decision to treat blocks of flats, including converted houses, as commercial properties will shock leaseholders and tenants, whose landlords are likely to pass on the extra cost.

Michael Jones, chief executive of the Association of British Insurers, said the extra premium is likely to be charged on 'flats in what are seen as possible target areas for terrorist bombs'. Many residents will be unable to avoid the extra cost. Paying for bomb cover is not compulsory, but Mr Jones said 'mortgage lenders or landlords renting out on a full repairing lease are likely to insist on the insurance cover'.

Details of the charges are still being worked out. The precise amounts will depend on the location and size of buildings and whether they are rented or owner-occupied. Blocks valued at less than pounds 1m may be exempt. 'The measure is really aimed at flats in places like the Barbican in the City,' Mr Jones said.

He estimates that the extra charge will typically be 0.09 per cent of the building's insurance value in areas such as central London and Birmingham, with lower charges in some cities and none in smaller towns. Mr Jones said owners of office blocks in areas such as the City will pay up to 50 per cent more than flat owners.