You may have seen that Hiscox has been publically campaigning Government on Flood Re, the proposed solution to affordable flood cover for UK homes. But what is Flood Re and how might it affect you?
What is Flood Re?
Flood Re is the proposed solution to affordable flood cover for UK homes, negotiated by the Association of British Insurers and the Government. It replaces the Statement of Principles, an earlier agreement where insurers agreed to offer flood insurance at an affordable price while the Government funded adequate flood defences. This agreement expired on 31 July 2013.
Flood Re is a not-for-profit scheme that should safeguard the affordability and availability of flood insurance. It is funded by a levy that all UK homeowners will pay, which will equate to 2.2% of insurance premium, and the levy will be topped up by insurers if the scheme runs out of money. All homeowners will also pay their own individual flood premium. Those properties at high risk will be ceded into Flood Re, and their flood premium will be capped according to their home’s council tax band. Everyone else will be charged at normal market rates.
There are certain properties that are excluded from benefiting from Flood Re, despite contributing to the fund, these include:
- Homes built after 2009
- Homes within council tax bands H or above
- Some leasehold properties (Flood Re will only cover leasehold flats where there a no more than three homes in the building and where the freeholder owns one of them will be in scope)
Commercial buildings or property from which a business operates will be excluded but will not pay the levy as these are all considered outside of scope – they will not pay into the levy and they will not benefit from Flood Re cover.
When does Flood Re come into force?
Flood Re is due to come into force in July 2015. Until then, the insurance industry has agreed to continue to provide affordable flood insurance rather than move to free market terms.
Why do we need Flood Re?
Without an agreement between government and the insurance industry, home and contents insurance would likely become unaffordable for many people living in previously flooded homes or those at risk of flooding.
The nature of flood is changing. Incidents of flash flooding, storm or coastal surge, surface water as well as river flooding are all increasing. Therefore we believe it is important that cover remains accessible and affordable for UK homeowners.
We support the concept of Flood Re but the complexity of who is in, who is out, who is paying and who is not means that in its current form it does not go far enough to solve the problem of unaffordable flood insurance that it was created to address. It also does not learn the lessons from the UK floods earlier this year.
Consequently we are campaigning for the government and the Association of British Insurers (ABI) to provide greater clarity around Flood Re and to simplify the current scope by:
- Including Band H and above properties
- Looking again at leasehold property exclusions
- Revisiting the date from which new build homes are excluded
If Flood Re is to be a robust, workable and long term solution to flood insurance, then it must be simple both to understand and to execute.