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Flood Re – a damp squib or a torrential success?

The snappily named Flood Re was officially launched this week on 4 April 2016. The reinsurance scheme has been designed by the government and insurance industry to secure affordable insurance for households in flood risk areas. The government anticipates the scheme may ultimately benefit up to half a million households in areas at high risk of flooding.

Flood Re is a reinsurance company.  Homeowners will continue to buy home insurance from insurers or insurance brokers and will not deal with Flood Re directly. Insurers who have signed up to the scheme (currently about half of home insurers) are now able to pass the flood risk element of an insurance policy on to Flood Re.

The costs of the scheme are funded by a combination of an annual tax (amounting to £180m paid by all insurers in the UK authorised to write home insurance; a cost which most insurers are expected to pass onto their customers) and a charge for each policy which is passed into the Flood Re scheme. When a policy is passed into the scheme, the insurer will be charged a fixed price, dependent on the property’s council tax band. For higher risk homes this fixed price will be artificially lower than the market price (which is based on risk) and so the insurer should be able to offer the householder a lower price for the flood-risk element of its insurance policy.

The scheme is not without controversy. Various properties are excluded, including business premises, premises which are rented out (and not occupied by the landlord) and properties built after 1 January 2009. Critics also argue that the scheme does nothing to address the causes of flooding or prevent flooding in the first place; a valid criticism and a challenge that all those involved in land use, ownership and management need to grapple with. But for the thousands of homeowners who are now suffering from severe flooding with increasingly alarming regularity, the introduction of Flood Re will surely be most welcome.