The British Property Federation said that insurers are likely to increase premiums or refuse cover altogether following the government’s decision, particularly given that claims have rise substantially after recent flooding.
In addition, a deal between the insurance industry and government to insure the bulk of the 5.2m homes in England at risk of flooding will end in 2013, any extension of which is dependent on the government continuing its previously proposed programme of flood defence work.
Bill Gloyn, chair of the British Property Federation’s Insurance Committee and a partner at insurance brokers Jardine Lloyd Thompson, said: “Flooding is a catastrophic risk. If cover is not available, and that is already the case in some areas of the UK, the consequences are almost too frightening to contemplate.
“The widespread breaches of contract will lead to chaos and a potential collapse of the property market, both commercial and residential.”
He said: “Without insurance there is no mortgage. Without mortgages, there is no property market.”
The Chancellor has cut flood defence funding by £216m to £500m a year for 2011 to 2015, half of the Environment Agency’s recommended £1bn a year by 2035 to maintain the number of houses currently protected.
The British Property Federation has argued for continued investment in flood defences in order to meet future risks. It has also urged insurers to take greater account of the actions taken by landlords and households to reduce the threat of flooding to their property.
Liz Peace, chief executive of the BPF, said: “The devastation caused by the floods in 2007, and even in Cornwall only a matter of weeks ago, are still fresh in the memory. All property owners, commercial and households, need to be aware of the risks and to investigate the measures they can take to protect their properties.”
The issues around flooding have been highlighted by MP Anne McIntosh, chair of the Environment, Food and Rural Affairs Select Committee. She said it was vital to discuss insurance and flood defence spending to raise awareness among property owners and tenants, and get the issues high on the political agenda.
