The Flood Claims Excess Problem

Insurers will increasingly be applying substantial claims excesses for flood claims in flood hazard areas. Already, excesses as high as £5,000 (more in exceptional cases) have been mentioned, but £1,000 to £2,500 is more common. While the author can understand the reasons for insurers applying such excesses, the move is essentially a "knee jerk" reaction, which may not achieve any benefit and may result in increasing alienation.

The usual reasons for applying an excess are:

• To reduce average claims costs.
• but the average flood claim is over £30,000 and an excess of even £5,000 will make little difference to the overall claims total. Besides, in a really major event, where reinsurance is triggered, the excess will simply save the reinsurer money, rather than the primary insurer.
• To encourage the policyholder to act to minimise the loss
• while this may work in motor insurance or theft insurance where the policyholder has an important part to play in risk management, this is rarely the case with flooding, where the cause of the flood is outside the policyholder's control.

A large excess which does not appear fair or justified to the policyholder is likely to cause:

• Inflated claims demands to make up for the excess
  
  
• Collusion with builders to have two sets of estimates and invoices. There is already widespread anecdotal evidence of collusion between builders, even those on insurers' accredited lists.
  
  
• Reluctance to protect the property or move contents to a safe place since all that will achieve is to save the insurer money, not the policyholder.

An alternative, which might be worth trying, would be to waive the excess in certain circumstances as outlined below, or even to apply a "negative excess". Under a "negative excess" system, the loss adjuster would be authorised to reward policyholders with a cash sum in certain cases after a flood, for example:

• Where the policyholder has made serious efforts to reduce the claims cost, by moving contents out of harms way or by deploying temporary defences
  
  
• Where the policyholder did not receive sufficient warning, or is too old or infirm to be able to take action to mitigate the loss.
  
  
• Where the policyholder is prepared to spend money to make the property more resilient to flood in the future.