In Britain insurance did not cover bomb damage. Though Lloyd's had insured against Zeppelin (and other aircraft) attack during the First World War the increase in destructive potential of bombers between the wars led to fears of a "knock-out blow", a massive, devastating bombing attack using explosive, incendiary and poison gas bombs to cause such catastrophic damage as to render a country unable to fight. Such fears led to insurance companies excluding war damage from 1937; the government announced, prior to the declaration of hostilities, that it would pay compensation for buildings, furniture and clothing, but due to the pre-war estimates of catastrophic levels of damage and the more pressing requirement to prosecute the war the precise terms of compensation were left for post-war settlement.

The Blitz, though awful, proved to be less destructive than feared. With no obvious end to the war in sight and people in desperate need for assistance the chancellor first agreed to make advanced payments of compensation to families with an income of less than £400 per year then introduced a War Damages Bill in 1940, a collective scheme of insurance in which all property owners paid a premium to cover compensation.

Around two thirds of people did not own their own homes, so property insurance was not an immediate concern for many rendered homeless, and local authorities were ill-prepared for the situation. Cardboard coffins had been stockpiled in case of the appalling devastation feared pre-war, but as it turned out casualties were fewer and homelessness more of a problem - something like one person in six in the London region (of 1,400,000 people) was homeless at some point over 1940-41. Outright destruction of houses was comparatively rare; in the first six weeks of attacks around 16,000 houses were destroyed, 60,000 seriously damaged but repairable, and 130,000 slightly damaged. Unexploded bombs also forced many houses to be evacuated, with over 3,000 UXBs by the end of November 1940 awaiting disposal.

Rest centres had been established for bombing victims, typically in schools, but these were envisaged as a very short term measure, for a matter of hours rather than days before people made their own arrangements for accommodation. In most cases this was possible; many arranged to stay with family or friends, wealthier people could rent another flat in London or a cottage in the home counties. Some took to 'Trekking', leaving cities entirely at night for camps outside in places such as Epping Forest; others were evacuated to different parts of the country. For some (around one in seven) the rest centres became longer term accommodation. Up to 25,000 people were staying in them during the first months in poor conditions, most rest centres having minimal sanitation facilities and insufficient bedding, but they were rapidly improved by both government action and individual volunteers. Responsibility for assisting the victims of bombing was disjointed, with 96 different authorities concerned with billeting and housing in the London region. Some exhibited posters after attacks with information about the rest centres and other services, but the approach was piecemeal until late 1940; air raid victims could spend much time going from office to office trying to get assistance.

On September 26th 1940 Henry Willink was appointed Special Regional Commissioner for the Homeless. Repair of damaged houses was a priority, as people strongly desired to return to their own homes, or at least neighbourhoods, if at all possible, and by January 1941 80% of the 500,000 damaged houses in London had been repaired with linoleum, cardboard, plasterboard and tarpaulin used for at least temporary repairs if necessary. Local authorities requisitioned empty houses (25,000 by late October 1940), though these still required furniture, bedding and utilities before people could be moved in, and Willink also appointed a permanent staff of social workers for as a Ministry of Health circular put it: "Experience has shown that the rehousing of homeless people involves more than securing simply that there is accommodation in billets or in requisitioned homes for the number of persons involved. 'Case-work,' taking into account the needs of the individual persons or families affected is also necessary and becomes more important the greater the distance between the original home and the new accommodation". By the middle of 1941, then, the situation was greatly improved. More government administrative centres and information centres had been established, along with assistance from voluntary bodies such as the Women's Voluntary Service. Over the course of the London Blitz around 107,000 people were rehoused, 366,000 were billeted, and 181,000 mothers and children were officially evacuated.

The War Damages Bill was passed in 1941 and ultimately some 4 million claims were made under the resulting Act, payments totalling more than £1,300 million and continuing into the 1960s.

Further reading:
Britain's War: Into Battle, 1937-1941, Daniel Todman
The People's War: Britain, 1939-1945, Angus Calder
The Bombing War: Europe 1939-1945, Richard Overy
Problems of Social Policy, Richard M. Titmuss