Flood Re - the Future of Flood Insurance

Mary Dhonau OBE, Community Flood Consultant and Chief Executive of Know Your Flood Risk Campaign

At the end of June the Government announced that they had agreed a memorandum of understanding (MoU) with the Association of British Insurers (ABI) on how to develop a not-for-profit scheme called Flood Re that would ensure flood insurance remains widely affordable and available. The MoU is a first step towards establishing Flood Re.

The announcement came as a huge relief for the hundreds of thousands of people in the UK who live at risk of being flooded and lived in fear of both individual property and community blight.  This announcement confirms that Flood Re is the Governments preferred option.  There is much detail to work through, but the ABI have in place a framework agreed with the Government on which to proceed.

I was panel speaker on the flood insurance debate at the recent ABI Biennial conference and the general consensus of opinion at the conference was hugely positive towards the establishment of Flood Re.

The key aspects of Flood Re are:

• A cap on flood insurance premiums.
• Caps will be linked to property council tax bands.
• The Flood Re pool will be funded through a new industry-backed levy. All UK household insurers will have to contribute to the levy, creating a fund that can be used to pay claims for people in high-risk homes.
• It will take time to implement, therefore in the interim the ABI have agreed to support the existing Statement of Principles (SoP).
• Proposal for Flood Re to be in place for at least 20 years.

The proposals published by government outlines the premium cap for the flood component of a policy, which it indicates will result in a typical saving of between 30-40% on overall policy premiums for properties in high flood risk areas.

The Flood Re pool is likely to be set at £180million for the first five years, which equates to around £10.50 for each household in the UK with both buildings and contents policy.

But what will not be included in Flood Re?

• Houses in Council tax band H will be excluded- as Flood Re has been developed to support people who need help in affording insurance. It’s Government’s view that in general people living in Band H (very expensive) homes (many worth over £1million)  is not the right place to direct support and the insurance industry would agree with that.
• Also excluded are houses built post 2009 (as per the existing agreement for the Statement of Principles.) I believe it is very important that building in areas of flood risk is not incentivised. It would be foolish to allow properties being built today, in an era of good flood mapping and modelling, to get subsidised flood insurance. If the planning system is right and works properly then there shouldn’t be any homes in this post-2009 category that would need help.

I have been flooded on many occasions myself  and that one of the aspects of Flood Re that gets my thumbs up to is that it will also include surface water flooding, which in fact equates for the majority of flood insurance claims.  The SoP does not include surface water flooding and this has left those at risk of this type of flooding in a precarious situation. Another favourable aspect is that if a policy holder is put into Flood Re and takes moves to protect their home from being flooded and can prove that they have reduced their risk, they can be taken out of Flood Re and pay less for their insurance. Details of how to protect your home from being flooded can be found in our Homeowners Guide to Flood Resilience at www.knowyourfloodrisk.co.uk.

The period of consultation has just ended and we now wait for an announcement from the Government in the autumn.