Flood Re launches

Flood Re’s aim is to promote the availability and affordability of flood insurance to those who own and live in properties in flood risk areas. It is the first scheme of its kind anywhere in the world.

Customers will still buy their insurance from insurers or insurance brokers in the usual way, they will not deal directly with Flood Re. When the cost of the flood risk part of their policy climbs above a certain level, it may make sense for the insurer to place that part of the policy with Flood Re.

In the case of a customer making a claim because of a flood they will have their claim managed and repair works completed by their insurer in the usual way, but that insurer will then be able to recover those costs from Flood Re.

When a policy is passed into Flood Re, the insurer will be charged a fixed sum dependent on that property’s council tax band. For higher risk homes, this set price will be artificially lower than the price in the market which is based on risk, meaning the insurer should be able to offer the customer a lower price for the flood part of their insurance.

The final amount the customer is asked to pay for the overall insurance policy will depend on a wide range of factors, which different insurers take into account in different ways. This will include considerations such as what the policy holders do for a living, the age and condition of the property, and the likelihood of a claim being made because of fire, theft or subsidence, for example, not just flooding.

It is expected around 350,000 properties will meet the eligibility criteria and benefit from Flood Re over time, although there is no cap. This figure represents about 2% of eligible UK households. The decision about which properties are passed on will be taken on a financial basis; if a property can get a better price for flood insurance outside of Flood Re there will be no need to use it. Only when the cost of covering the flood risk becomes more expensive than the cover offered by Flood Re will it make sense to pass that part of the policy on. This means the properties which end up in the scheme cannot be predicted on a purely geographical basis – and it is possible different decisions could be reached even for neighbouring properties.

The majority of homes in high flood risk areas will be eligible for Flood Re, but there are some important exclusions. Significantly these include properties built after January 1st 2009 as well as all flats in leasehold blocks containing four or more homes. As this is a home insurance scheme it does it not cover businesses.