Your new floor insurance cover - our advice

Your new floor insurance cover - our advice

Back in 2000, the government and the Insurance industry drew up a voluntary, temporary agreement which guaranteed continued flood coverage for households with existing policies. The agreement, known as Flood Insurance Statement of Principles, concludes in June 2015, and will be replaced with Flood Re, a new scheme for at-risk properties which supports homeowners who don’t have flood insurance and are most unlikely to obtain affordable coverage. On the 29th of January, 2015 the European Commission issued a press release stating its approval for the fund under the EU state aid rules.

There has been widespread fear that insurers will charge homeowners in high flood risk areas high premiums for flood coverage, which could force at-risk-homeowners out of the market because of affordability issues.

The transition to the new scheme, Flood Re, may open a can of worms in that thousands of households might be at risk of losing their cover because insurers are no longer obliged to renew customer policies. The UK is one of the few countries with flood insurance as a standard feature of home insurance, but Flood Re changes this. It’s important to note another matter relating to coverage: Homes built after the 1st of January 2009 aren’t covered by the scheme. The measure is included to discourage building in high-risk areas. The government has also published planning guidelines which aim to discourage property development in high-risk areas.

The other side of the same coin is that the Statement of Principles has restricted customer choice, because the Insurance industry agreed to continue coverage for existing clients with the right to reject applications from new customers. The Insurance industry made clear that the Statement of Principles is unsustainable and that another approach was needed to ensure affordable flood insurance for homeowners, especially those in at-risk areas.

About Flood Re

Flood Re is a scheme which pays for the fund for high-risk homeowners who would have difficulty getting affordable flood insurance, with a cap set at a specific price. If your home falls into the at-risk or high-risk classification, then a portion of your premium is paid into the fund. It’s a standalone, industry-wide fund with the sole mandate of paying flooding claims. The cap will be set according to the local council tax-band, starting at a maximum of £210 per annum in Bands A and B and rising to £540 per annum in Band G.

The Association of British Insurers (ABI) estimates that each home insurance policy will have an annual £10.50 levy added to help fund the scheme. The insurance industry has welcomed the development and has pledged to work with government in crafting the fine details of the scheme, which will provide a structure whereby affordable and widely available insurance is within the reach of the homeowners who are the at-risk contingent of flooding and flood insurance cover.

Flood Re is a not-for-profit insurance pool that will cover losses from flooding in at least 199 years out of every 200. The ABI feels confident that the once-in-200-years incident will also be covered, but the extent of such a future catastrophe would most likely see the government take a leading role.

The floods that hit the UK in 2007 were considered the biggest peacetime civil emergency since WW2. Any future flood would have to be six times more severe to reach the point beyond the scope of Flood Re.

photo credit: Water Over Road via photopin (license)

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