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Flood RE – A new way forward for flood insurance?

After an extended and lengthy negotiation period the Government finally announced on Thursday the new flood insurance agreement - Flood Re. This original concept has been launched by the Government and Insurance industry to provide those who are at the highest risk of flooding with affordable flood cover.

What is Flood Re?

Flood Re will act as a not-for-profit organisation that will allow those property owners who are at the highest risk to access affordable cover against flooding.

A levy on insurers (or central fund) has been designed to provide those at the highest risk with an affordable level of cover, bringing an end to homeowners paying £000’s for their insurance in flood risk areas, or huge excesses. This levy, equivalent to that which exists with the ‘Statement of Principles’, will act as essential support to those at highest risk.

The Flood RE agreement will cap flood insurance premiums, linking them to council tax bands. The flooding element of household insurance premiums will be capped at £210 a year for those living in homes in council tax bands A and B. The cap will rise to £540 a year for homes in band G and homes in band H will not be covered. Homes in band H and those built after January 2009 will not be capped.

Up to 500,000 household are expected to be protected but they will have to wait until 2015 before the agreement comes into force. It has been stated that for Flood Re to be a success it will rely on both the Government and the insurance industry working together.

So what does Flood re mean for me?

For the most nothing changes and cover remains the same. For those at the highest risk Flood Re will be the solution to providing peace of mind and if flooding occurs equivalent to 2007 before the central fund has accrued enough money, insurers will provide Flood Re with the funds on a temporary basis. Flood Re would cover losses up to the level of those expected from a ‘1 in 200’ year flood occurrence.

UK household insurers will have to pay £10.50 each to a fund that can be used to pay for those claims made by the identified high-risk households, but the insurance industry states this has already happened informally, so general premiums should not rise.

The Flood Re scheme will operate for 20-25 years, after which homeowners will be expected to protect themselves. Some details still need to be resolved on the deal, but the plan is for it to be in place by summer 2015 and until Flood Re is implemented the existing statement of principles will continue.

The government also announced last week that it would spend £344m in 2015-15 on flood defences, following an extra £85m announced last year. This spend will rise to £370m in 2015-16 and will rise with inflation each year up to 2021. This money will help to keep 300, 000 more homes better protected against flooding.

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