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With the recent countrywide flooding, commercial property agent Prop-Search has growing concerns that a new not-for-profit insurance scheme, agreed in principle between industry and Government, may leave commercial property owners paddling their own canoes.
Following the floods in 2000, an agreement was made between the Association of British Insurers and the UK Government to continue to provide flood insurance cover for domestic homes and small businesses. Although the Statement of Principles relates to domestic and small businesses only, it was widely agreed by insurers that the existence of this agreement influences the provision of cover for commercial properties, which includes landlord owned properties rented to tenants.
The end of this agreement is imminent as a new replacement flood scheme, known as Flood Re is proposed. Flood Re will be a not-for-profit fund designed to cover exceptional claims in high flood risk areas and will be financed by insurers in the form of an annual levy - on the basis that the Government will increase capital spending on flood defences by 10%.
Samantha Jones, a Surveyor at Prop-Search, says: “This proposal should mean that people who are currently paying very high premiums in high flood risk areas will benefit from a more competitive market but whether this will work in practice is another matter. In its current format, the proposed Flood Re scheme still poses problems primarily in that commercial property will fall outside of the scheme, as will owners of H band domestic property and new homes built after January 2009.”
It has also been confirmed that farms will not be covered by Flood Re - the issue is less clear for farmhouses. The Department for Environment, Food and Rural Affairs has said that farms are included in commercial business flood insurance and therefore would not be covered by Flood Re. A farmhouse could be covered if insurers are able to split the residential part of the policy so the domestic part is covered under Floor Re.
There is also confusion surrounding mixed use properties including small businesses such as guest houses and bed & breakfasts. As it stands, these will not be included in Flood Re, although they had previously been covered by the Statement of Principles.
A high proportion of commercial properties are in high risk areas near to water sources. This is not surprising given the historic location of trade centres at the confluence of river crossings and the need for industry to source water both for process and transport. Some estimates suggest that about 300,000 commercial buildings across the UK are at risk, which is a shocking 15% of the supply.
For the time being, the insurance market is showing no signs of withdrawing flood cover for commercial property, though properties in high hazard areas may have restrictive terms and conditions imposed following thorough assessment of the local risk circumstances.
Samantha Jones concludes: “Businesses will have to wait and see what the Government's ongoing review holds for the insurance market for commercial properties.”
Further information or advice can be obtained from Prop-Search - Tel: 01933 223300 / 01604 492000 or its website: www.prop-search.com