House sales falling through because insurance companies are refusing to provide cover

House buyers may be able to get a mortgage, but without house insurance the banks won’t release the funds, as Laurie O’Flynn reports

A NUMBER of house sales in Cork City have fallen through in recent times because insurance companies are refusing to provide cover to properties in areas with subsidence or with a history of flooding. What most house buyers don’t realise until they need to draw down their mortgage, is that the bank cannot release the money until house insurance is in place.

“Over the last 12 months we have had people in who had mortgage approval, but who could not get house insurance. The banks won’t release the money until that is in place, so the house sales fell through as a result,” says Billy Kenny of O’Mahony Boylan Golden Munster Ltd.

“Insurance companies have told me directly they don’t want the business. They would rather give no cover than have a subsidence exclusion because of the bad press, he added, saying that it is difficult to get house insurance at all in Cork City at the moment.

His claim is backed up by Cork-based members of the Society of Chartered Surveyors Ireland who say prospective house buyers cannot get quotations in places known in the insurance industry as ‘blackspot’ areas, which is creating a difficulty because some financial institutions are insisting on subsidence cover. In some cases, where there is an existing insurer, they say the prospective purchaser has no option but to deal with that insurer, which eventually leads to higher insurance costs because of a lack of competition in the market.

“It’s a problem that has extended all over the city... Ballincollig, Montenotte and Midleton are also affected. Even with underpinning, people are not getting subsidence cover,” explains Mr Kenny.

“One or two companies ask the home owner to provide an engineer’s report to prove that the work was done, and even then you are not guaranteed that they will provide cover. Subsidence claims have been a plague on insurance companies over the past ten years and they are not cheap, so it’s understandable that they are clamping down,” he said.

Michael Wheelahan of FBD says that in 2011, subsidence claims ranged from €10,000 to €500,000. However, he added that they account for just 0.25% of all claims that year. The most common and expensive claim last year was escape of water within the house (33%), followed by storm damage (15%) and accidental damage (15%). The other big issue in Cork City is flooding. In 2009, floods cost insurers €500m.

“It can turn a business unprofitable at the click of a finger,” says Mr Wheelahan, who adds that it did cause insurance companies to withdraw flood cover from a number of areas because repeated flooding is not an insurable risk.

Paul Kavanagh of McCarthy Insurance Group says that insurance companies are beginning to pull cover already from more parts of Cork City because of the recent flooding. Like many, he believes a lack of maintenance and over-development have aggravated the problem.

“Cork city and county councilors are very quick to say there’s a one-in-100 chance of flooding, but we all know that the drains are not maintained due to the cutbacks. Where I live, I clean my own one. The north side of the city never saw flooding like this before. Because of all the building, water can’t go where it used to go. In Blackpool, when all the water came down, it was obvious where it was going to lodge. As far as insurance companies are concerned, Cork is bad news and action needs to be taken by local and national government. It’s not about putting €10m into the Red Cross, it’s about finding a government solution,” he says.

One suggestion he makes is to have a centralised flood warning system run by Cork County Council, where somebody ‘presses the red button’ in order to prevent all the damage because, he says, insurance companies are close to excluding flood on all household policies in Cork because you can’t insure the inevitable.

While some clients were aware that they had no flood cover to pay for the latest setback, others are just coming to that shocking realisation, according to Mr Kavanagh. “There are a lot of distressed people out there who switched insurers and are now realising they have no flood cover and/or that they didn’t divulge a previous claim.”

Insurance companies log every claim on a shared database, so they can see your claim history and that of your property. “You risk having your policy voided if you don’t disclose all information”, according to Michael Horan of the Irish Insurance Federation, “because everything comes out in the wash”.

Last year the IIF reported a huge increase in the number of queries regarding disclosure, evidence of insurance companies clamping down and highlighting the need for buyers to read the fine print. “Even if you have no previous claim, but if you live on the side of a cliff, you have to tell them,” adds Mr Kavanagh, who says he would welcome an Oireachtas report on the fallout from Cork floods, as called for by Fine Gael TD Jerry Buttimer, not just examining insurance companies, but also planners and county councils.

“You can’t blame the insurance companies. Political corruption is one of the roots of the problem. It was a lack of common sense and planners don’t have the muscle to say no,” says auctioneer, Andy Moore, who adds that it’s not too late for the next generation.