A new report suggests that landlords claiming for flood damage risk being knocked back by insurers.
Consumer organisation Which? carried out an analysis of 133 insurance policies sold by 67 firms, finding that nearly a third (32%) of home insurance policies contain what it views as potentially unfair flood definitions and a fifth (20%) of policies have potentially unfair storm definitions.
These include policies offered by some of the largest insurance firms. Policies with potentially unfair flood definitions were sold by three of the 10 largest underwriters by market share: Ageas, Aviva and Axa.
Of 54 documents which define both storms and flooding, there are four policies – offered by John Lewis, Nationwide and Tesco Insurance – for which both definitions are considered by Which? to be potentially unfair. In response to Which?’s research, Tesco Insurance has acknowledged that its wording in relation to floods could be improved.
The consumer champion based its judgement on what a ‘fair’ definition of a storm or flood is based on several factors, including: reviewing evidence that policy terms in these areas had caused harm to consumers; analysing expert, industry, regulatory and ombudsman guidance on defining these weather events; and a nationally representative survey to establish consumer expectations of what constitutes a storm or flood and the coverage they would expect their home insurers to provide in these situations.
Published complaints by the Financial Ombudsman Service (FOS) show that insurers have rejected claims from customers who have suffered damage caused by torrential rain, because they claimed winds speeds weren’t high enough for a storm to have occurred. There are also cases where claims have been rejected when flood damage was deemed to have occurred too slowly.
Over half (56%) of home insurance policies reviewed have no definition for a flood and a third (32%) do not define a storm, leaving customers without clarity on whether they should expect to be covered if their property is damaged by one of the weather events.
Which? has reviewed previous FOS cases where claimants have been rejected when their insurer did not have a definition of a flood or storm. These show that, even in cases where insurers had no definition of storms or flood in their policies, firms still turned down claims by relying on definitions which the FOS deemed unfair.
Which? also surveyed 1,325 UK adults with buildings insurance. Over two-thirds (69%) defined a flood as an event where water enters and builds up in a home regardless of speed, while three-fifths (60%) defined a storm as a combination of extreme weather conditions, any of which could occur alone.
Most respondents both expect to be covered for floods and storms excluded by the definitions that Which? considers to be potentially unfair, and feel that to deny claims based on them would be unfair.
These consumer expectations are broadly in line with industry guidance from the Association of British Insurers, the country’s largest insurance trade association, the FOS and the Flood Re scheme, a joint initiative between the government and insurers.
Each of the 27 potentially unfair storm definitions exclude damage by at least one of rain, snow or hail alone, in the absence of strong winds, from their storm coverage. Of these, rain is the most commonly excluded event, followed by snow, hail, and then documents which exclude all three.
Some 17 out of 42 potentially unfair policies defined flood in terms of the speed at which water enters the home. Many insurers used language like ‘rapidly’ and ‘suddenly’ while others made explicit exclusions to water which enters the home gradually.
Which? wants the Financial Conduct Authority (FCA) to investigate whether all firms’ storm and flood definitions comply with the Consumer Duty as part of its ongoing claims-handling review and take enforcement action where necessary.
This should include investigating whether all firms have: evidenced how they have met the reasonable expectations of their target market in any storm and flood definitions; reviewed rejected claims for storms and floods to understand how to better align their approaches to their customers’ reasonable expectations; and addressed any identified issues with their products.
The FCA should also make clear to firms, such as via issuing new guidance, that using the ABI and Flood Re definitions of storm and flood is one way for them to ensure they are currently meeting the Consumer Duty.
The FCA should also review the impact that a lack of definitions for terms such as storm and flood has on consumer outcomes, and consider requiring firms to define these terms and any others where this may better prevent harm from arising.
Rocio Concha, Which? Director of Policy and Advocacy, says: “Storms and floods can be disastrous for homeowners, yet our research shows that claims are being rejected because insurers say a property flooded too slowly, or the wind wasn’t blowing hard enough during a torrential downpour, often leaving consumers baffled.
“Consumers rightly have common sense expectations of what should and shouldn’t be covered by storm and flood damage and they’re backed up on this by industry guidance.
“The FCA must use its review into claims handling to assess whether firms are complying with their obligations under the Consumer Duty – and shouldn’t hesitate to take tough action against those falling short.”
This article is taken from Landlord Today