Flood Re: What it is, how it works and what it means for you

Launching in April 2016, Flood Re aims to give homeowners in high flood-risk areas more options when it comes to protecting their properties. Property journalist Cherry Casey explains what you need to know about this latest innovation to the home insurance market.

On Saturday 5th December 2015, Storm Desmond crashed into the UK, producing the UK's highest ever 24 hour rainfall total at 341.

Photograph: Alamy

Who would have thought that the names Desmond, Eva and Frank could send a shiver down the spines of so many people across the UK? But it was these three winter storms that led to 20,000 flood claims, over 8,300 loss adjuster visits and an estimated £1.3bn paid out across the insurance industry.

The impact of such flooding is likely to be felt for many months to come as properties must now be cleaned, dried out and repaired. For some, this will not be the first or last time their homes flood, and providing coverage for those in high-risk areas is an ongoing challenge. This is where ‘Flood Re-insurance’ comes in: a government-backed scheme that ensures home insurance remains available and affordable for all.

How it works

Flood Re is, essentially, insurance for insurance companies. This means that when a homeowner makes a flood claim, the insurer can pay out to the customer, and Flood Re will then reimburse the insurer.

The Flood Re scheme also helps people to better understand their level of flood risk and explains how they can take action to reduce their risk, where possible. The scheme is intended to operate for 25 years, allowing time for the government, local authorities, insurers and communities to work together to improve flood preparedness. This could mean, for example, making use of effective land planning, sustainable drainage, sustainable development and effective flood-risk management.

Insurers will sell insurance in the normal way, and have an incentive to compete for the business of customers with high flood risk because they know they can pass the flood element of the policy into Flood Re.

What it means for you

Homeowners will not have to deal with Flood Re directly and should not have to do anything differently when it comes to making a claim. What high-risk homeowners should find, however, is that they can shop around for flood cover to find the policy that best suits their requirements.

Tim Slattery, Personal Lines Underwriting Manager at Hiscox, explains: ‘At the moment a homeowner may find they are very limited when it comes to buying home insurance if the property they live in is deemed very high risk and the flood risk element of their policy carries a hefty premium. With Flood Re in place though, the choice for many is likely to be improved as they will be able to approach any insurer participating in the scheme, a list of which will be available through Flood Re.’

York Floods 2015; buildings flooded by the high water. Image shot 12/2015. Exact date unknown.

Buildings flooded by the high water in York. Photograph: Alamy

How is it funded?

The insurance industry is paying the £10m set-up costs to get Flood Re up and running. The Flood Re pool itself has two sources of income. The first is a £180m levy on the industry, equivalent to the existing cross-subsidy that exists in the market. The second is the flood element of the policies passed into it, for which premiums will be capped according to the property’s council tax band. These will start at £210 for Band A and increase to £1,200 for Band H homes.

Band H homes were not originally in scope of the scheme, and this was something Hiscox lobbied against on behalf of its customers. ‘We felt we had a duty to our customers to point out that living in a Band H property doesn’t guarantee wealth. With many of the wealthiest individuals living in lower banded properties, the exclusion felt slightly misplaced,’ says Slattery.

With Flood Re on track to go live on 4 April, the scheme is good news for homeowners across the UK as it creates greater choice and peace of mind for those living in flood-risk areas. For more information on Flood Re, please visit floodre.co.uk

 

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