As we have previous reported, the Statement of Principles on the Provision of Flood Insurance, an agreement currently in place between the Association of British Insurers and the Government which committed insurers to provide affordable flood cover for domestic and small business premises, was due to expire at the end of July 2013 following a short stay of execution.
After months of closed door negotiations, the ABI and the government have at last agreed a memorandum of understanding to safeguard the affordability and availability of flood insurance for home owners. The memorandum provides for the current agreement to continue until a new fund, Flood Re, is created.
Flood Re will be a dedicated fund to cover the cost of flood claims by collecting an annual levy of £180 million from member firms to cover the cost of flood claims from high risk homes. The cost of the levy will be passed onto all households through increased insurance premiums. The cost is expected to be around £10.50 per household.
Households with flood risk will then pay a premium based on council tax banding, up to a maximum limit.
The aim is for Flood Re to cover the vast majority of flood claims. If the fund were overwhelmed by extreme flood conditions (those expected in a year six times worse than 2007, the worst year for floods in recent memory) the Government would act as an insurer of last resort.
In a statement, Otto Thoresen, the ABI’s Director General explained that:
“Getting to this stage has required compromise by both sides and there remain issues that need to be overcome. For Flood Re to be established successfully there needs to be an unprecedented level of partnership between the Government and the industry. But insurers and the Government are now working towards a shared vision.”
The aim is for Flood Re to be up and running by summer 2015.