This week saw the publication of the UK Government’s response to their public consultation on flood insurance.
Back in June we reported the announcement of “Flood Re”, the proposal to secure the availability of insurance for the thousands of UK homes facing a high flood risk. Flood Re is set to be a dedicated fund (or reinsurance pool) to cover the cost of flood claims from high-risk properties. The source of the fund will be a levy imposed upon member insurance companies, with the ultimate cost trickling down to households through an increase in their insurance premiums. The Statement of Principles, which is the voluntary agreement between the Government and the Association of British Insurers committing insurers to provide affordable flood cover for both domestic and small business premises, is to remain in place until Flood Re is implemented.
The Government received nearly 150 consultation responses in total, with over a third from individuals and groups at risk of flooding. The next largest numbers came from Local Authorities and (unsurprisingly) the insurance industry. This deluge of responses revealed overall support for Flood Re as a solution to ensure the future of affordable flood insurance. The Government’s intention to legislate for Flood Re through the Water Bill, due to be debated in the House of Commons soon, remains strong.
The responses also showed general support for the introduction of a Flood Insurance Obligation, effectively a back-up plan if Flood Re proves unworkable or ineffective. In contrast, responses from the insurance industry to this proposal tended not to support it and highlighted concern over the practical implementation of such an Obligation. In spite of these industry concerns, the Government is pressing ahead to seek powers to implement both Flood Re and the Obligation. Whether the insurance industry will act as a barrier to the successful implementation of the latter, should it ever be needed, remains to be seen.
Whilst the Government’s plan looks set to ensure affordable cover for residential properties, hopes that the cover would extend to small business premises appear to have been washed away. The Government remains of the view that there is insufficient evidence to justify intervention in insurance cover for small businesses, which at present is priced according to risk.