Flood Risk - the new 'reinsurance' scheme (Part 1)

Since 2000 there has been a series of voluntary agreements between the Association of British Insurers and the Government that has made flooding insurance widely available to households at high risk of flooding.

However these agreements did not cover the affordability of home insurance. Over the past few years large scale flooding throughout the UK has attracted the attention of the media. The recent flooding between December 2015 and January 2016 highlighted the financial impact on those who are within a high risk area and concentrated on how insurance is no longer affordable.

"With increasing pressure to resolve this issue the Government and insurance companies worked together in order to develop a different way to deal with flood insurance for high risk households, and on the 1 April 2016 launched Flood Reinsurance – better known as Flood Re. The actual insurance side of this scheme launched on the 4 April this year, says Conveyancing Partner Clare Hallett.

The scheme is said to be in place for the next 25 years and is designed to:

• Offer help to people to increase their understanding of the level of the flood risk to their property.
• Explain how and where it is possible to take action to reduce the risk of their property flooding.
• Enable flood cover to be affordable for those households at the highest risk of flooding
• Allow time for the Government, Local Authority, insurers and communities to be better prepared for flooding.

It has been estimated that the scheme should be able to help benefit 350,000 (2%) of households overall. However the scheme is still very new and will continue to develop over the next 25 years, so it is possible that this number could change. The decision about which properties are passed on to Flood Re 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.

How is Flood Re being funded?

The pool of money to cover claims made against policies which are in the scheme will come from two places:

1. A charge from each policy which is passed into Flood Re which is payable by the insurance company,
2. An additional annual £180 million levy shared between all UK home insurers. Flood Re also has its own reinsurance policy in place to ensure it will be able to cope with significant or multiple flood events.

Our Conveyancing Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. For a free initial chat, please call 01202 499255 and Clare or a member of the team will be happy to discuss any questions that you may have.