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The flood debate goes on

What is Flood Re?
 
Flood Re is the not-for-profit fund being established jointly by the Government and the insurance industry to provide affordable cover to those living in areas of high flood risk.
 
It is hoped that the scheme will be up and running by the summer, although industry-Government talks have previously been held up by lengthy discussions over the responsibility for footing the bill for a catastrophic flood, described by the Association of British Insurers (ABI) as a one in 200-year event. Such an event would not be covered by Flood Re.
 
What are the sticking points?
 
The “memorandum of understanding” between ministers and the ABI gives the Government “primary responsibility” in such an emergency, but it is reported that insurers fear the wording is too vague.
 
Another sticking point is said to be the question of who – Government or insurers - would benefit from any surplus in Flood Re when it is eventually wound up. This is a rather more academic point, as the scheme has not even started and there is no fixed end-date.
 
The ABI is reported as saying all involved are still working towards a summer 2015 launch.
 
For those at risk of flooding, any delay in establishing the scheme, which will need its own corporate vehicle setting up, could prove to be expensive. Until Flood Re begins operations, insurers’ treatment of high-risk homeowners is governed by an earlier agreement with ministers dating from 2000.
 
This arrangement – the “flood insurance statement of principles” – obliges insurers to offer flood cover only to their existing customers, which has inhibited competition as policyholders in high-risk areas have been reluctant to switch insurance companies.
 
Affordability is Key
 
Affordability is a key feature of Flood Re, with insurers putting into the fund those high-risk homes they do not wish to insure themselves. Premiums will be capped and will go into the fund.
 
This will meet some of the cost of claims, with the balance being paid for by a levy on all home insurers, regardless of whether they live in flood-prone areas, of an average £10.50 a year.
 
Sensitive to suggestions that ordinary people are being asked to subsidise the insurance of those living in scenic riverside locations and similar desirable places, the ABI points out there has always been some subsidy between low and high flood-risk policyholders, adding that recent information showed many more people were at risk from flooding than previously imagined, “and not just people living near a river or the sea”.
 
The sort of catastrophic flooding that will be beyond the remit of Flood Re has been described by the ABI as “very unlikely…it would need to be six times worse than the flooding of 2007, which was described as the biggest peacetime civil emergency since the Second World War”.
 
What to do next? 
 
We have a team of experienced insurance professionals who would be happy to talk to you about property insurance risk. If you would like to discuss further then please give us a call.
 
Call 01789 761660

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