What next for Flood Insurance?


We hope you haven’t been too affected by the horrendous weather that we have seen in December 2013 and the beginning of 2014.

Prior to these awful events flood insurance was very much on the agenda as far as Insurance Companies and the Government have been concerned, and five weeks of virtually non-stop rain have kept it firmly there.  The question is simple: how can Insurance Companies continue to provide flood insurance for properties which have a history of flooding or which are very likely to suffer flooding in the future, especially when you bear in mind that the average cost of a flood claims is in the region of £30,000 to £40,000.

At the beginning of the millennium the Association of British Insurers (ABI) and the Government entered into an agreement known as Flood Insurance Statement of Principles. This statement basically said that insurers guaranteed to renew the insurance of existing customers whose properties are considered to be at a significant risk of flooding, as long as the Government bodies carried out plans to reduce the flood risk within a five year period.

This agreement expired in the summer of 2013. The ABI and the Government have been negotiating a proposed successor to the agreement, known as Flood Re. Flood Re will provide a fund to offer affordable flood insurance for people who live in high risk areas. Insurers will place into the fund risks that they cannot insurance themselves. The premium to cover the flood risk part of the household premium will be capped. The cap will be based on Council Tax bands. To fund the scheme all home insurance policies will be subject to a charge or levy.

The launch of Flood Re has been put back to the summer of 2015. There are a lot of unanswered questions including what happens in respect of homes built after 2009 as it is proposed that these will be excluded from the fund  and what happens to homes which are also used as a business. Flood Re is purely a proposed solution for home insurance. Businesses affected by flooding will not be included and it is unclear as to whether houses with home offices, bed & breakfasts or other home based enterprises will be covered.

We will try to keep you updated with how these talks progress.