Cost-effective flood insurance will be available to all.
Affordable home insurance for properties at risk of flooding is one step closer to becoming reality, after the Government and insurers reached agreement of exactly how this insurance will operate.
Flood Re (Flood Reinsurance Scheme), a pooled insurance system which means even the most at-risk properties will have access to insurance, is set to launch this year.
Flood risk
The Association of British Insurers (ABI) estimates that between 300,000 and 500,000 households that are at risk of flooding would find it difficult to obtain flood insurance.
[SPOTLIGHT]Unlike earlier plans, properties which fall within the most costly Council Tax bands will now be included within the scope of Flood Re. The top Band in England and Scotland is H, while Wales introduced Band I for its most expensive properties in 2005.
How will it work?
Insurers will be able to ‘avoid’ taking on the flood risk element of a policy themselves. Where they feel unable to insure a home against flooding, they will pass on this risk to Flood Re. This comes with a fixed premium for a household, which will be calculated at set rates based on its Council Tax band.
These premiums would start at no more than £210 per year for Bands A and B, rising to £540 in Band G. As the inclusion of Bands H, and I in Wales, has only been recently agreed, the premiums have not yet been set.
Flood Re will allow insurers to pass on the money paid for the flood risk element of a household’s home insurance policy into one particular fund. The fund will then pay out upon subsequent flood claims.
Brendan McCafferty, chief executive of Flood Re, said that he was “very pleased” that a “workable and sensible agreement” had been reached. “Flood Re is of huge importance to hundreds of thousands of householders at risk of flooding,” he commented, “and this agreement allows us to progress beyond the design phase so that Flood Re can become a reality.”
When will Flood Re roll out?
There is no set date for the delivery of the project at this time, but it is expected to be active within the second half of 2015, backed by an investment by insurers of £17 million.
Currently, insurers are acting under the Flood Insurance Statement of Principles, which means that they will offer flood cover to customers whose properties are not at ‘significant’ risk of flooding according to the Environment Agency, or where the Government has made plans to reduce the risk of flooding in an area below ‘significant’ within five years.
However, premiums and excesses in these cases aren’t capped, as these are based on the insurers’ understanding of a flood risk.