Mark Adams, Wednesday November 14, 2007
Insurers are already clamping down on flood damage payments - but are you covered if your home is hit by an earthquake? We take a look
Insuring your home and belongings should bring you peace of mind in the event of disaster - such as the earthquake that struck the UK this week. The eruption registered 5.2 on the Richter Scale and hit an estimated 40 million UK homes and insurance experts predict claims for structural damage and broken belongings will run into tens of millions of pounds. Yet will Britain's leading insurers pay out?
People with properties at risk of flooding are already set to pay much higher insurance premiums - or, worse still, not be able to insure their homes at all. Industry body the Association of British Insurers (ABI) insists that current flood defences are inadequate and warns that higher premiums are likely to be put in place to cover the cost of this summer's payouts - especially for the 2.2m households in flood-prone areas.
Floods are one thing - but what happens if the disaster that befalls you is of such epic proportions that even an insurance company doesn't want to step in and take responsibility? A spokesperson for industry body the Association of British Insurers (ABI) moved to reassure homeowners that this week's tremors won't result in increased premiums - but how much damage can you claim for?
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How an "act of God" affects you
Home insurance policies have historically included an "act of God" clause to protect firms against acts of nature which could not have been foreseen or prevented. It covers events such as floods, tropical storms, earthquakes, tidal waves, meteor damage or even plagues of insects.
The clause was designed as a kind of get-out clause for insurance firms to protect them from financial wipeout in the event of natural catastrophe. Needless to say, there have been many arguments between claimants and insurers that have ended up in court fighting over what could reasonably have been foreseen or not.
Today things are different: most policies now cover many extreme events - particularly earthquakes, hurricanes and lightning. Subsidence is also generally covered but not external cracks - unless they're the result of a passing car smashing into your house, in which case insurers tend to pay up. Tornadoes are often not specifically mentioned but are usually included under any "storm damage" clause.
Many people still fail to claim on their policies in these events because they still assume they come under the "act of God" clause - and others are finding that they are paying higher premiums for less protection following this year's devastating floods.
Premiums set to rise
Royal & Sun Alliance last year estimated that the full cost of the June floods in Yorkshire will be £55m, while the bill to repair July's floods in Gloucestershire will be even higher at £65m. Britain's largest insurer Norwich Union announced plans to hike home insurance premiums by 10% in the wake of the floods. Royal & Sun Alliance vowed not to increase premiums across the board but warned that some individual bills may increase.
The total cost of Britain's summer floods will top £3bn, according to Government figures. The UK is almost unique in that private insurers tend to pick up the tab for flood damage - in most other countries the government foots the bill. And with as many as one in four UK homeowners lacking contents insurance, millions of flood victims will find themselves severely out of pocket.
Most home insurance policies currently protect against flood damage - but climate change concerns suggest that this may not be the case in future. That's why the industry is looking at ways of providing high-risk cover that won't bankrupt them in the future.
One solution that has recently been launched is the incorporation of so-called 'ClimateWise' principles into policies. In future this could see initiatives that reward 'green' behaviour, such as offering flood protection if homeowners go some way towards protecting their house themselves - for example, replacing wooden floors with concrete ones.
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