In Autumn 2013, we blogged on the Statement of Principles for flood insurance coming to an end. The Statement of Principles was a mutual agreement between the Government and the insurance industry offering households affordable home insurance in return for the Government agreeing to develop new and reinforce existing flood defences. The end of the Statement of Principles could have resulted in some homes being left without insurance.
Since then, the Government and the insurance industry have been working on a new scheme known as ‘Flood Re’ which is due to be introduced in April 2016. The scheme creates a not-for-profit flood reinsurance fund managed by the insurance industry. The fund has been created to provide affordable flood risk insurance to those owning domestic properties that are at the greatest risk of flooding.
The fund is to be financed from a levy equivalent to £10.50 a year on home insurance policies. Responsibility for settling claims remains with the insurers, but the scheme allows insurers to spread the risk of large claims as they can themselves claim against the fund.
Premiums for the flood element of home insurance are to be determined according to the Council Tax band of the property, Band A homes having the lowest premium and Band H homes having the highest premiums, with a standard £250 excess on flood risk claims.
Fixing the roof or papering over the cracks?
The following are excluded from the Scheme:
- Homes that are not at ‘significant risk’ of flooding. The Environment Agency website has an interactive map to assist in determining which homes are ‘significant risk’ of flooding.
- Homes built since 2009.
- Buy to let properties and holiday lets.
- Leasehold properties. The British Property Federation estimate there are 840,000 leasehold properties at risk of flooding, 70,000 of which are deemed to be at high risk.
- Small businesses. This includes properties that form part of a mixed use scheme or homes also used as an individual’s place of work.
Left high and dry
For the estimated 500,000 homes that are expected to be covered, the Scheme will offer a solution to unaffordable flood risk premiums. Those that do not qualify, could see premiums rise or be unable to obtain flood risk insurance. This could have a knock on effect on the value of such properties and funders are unlikely to be willing to lend against properties where insurance is not available.