Flood Insurance: What you need to know
Flood Re Insurance
What is Flood Re?
Flood Re is a non profit, joint initiative between the insurance industry and the Government and was established by the Water Act 2014. It was developed in 2016 by collaboration between insurance companies and the Government. The scheme became operational in April 2016 and aims to make flood insurance more affordable for homeowners living in areas at risk of flooding, whilst helping tenants to find affordable contents insurance. It also allows insurers to offer an affordable range of appropriate policies to their customers.
It is worth noting that Flood Re is designed to offer help for residential homes only and cannot be provided to owners of businesses or leasehold flats in blocks of four units or more.
How does it work?
To be eligible for Flood Re, your home must:
- Have been built before 1st January 2009,
- Have a domestic Council Tax band A to H (or equivalent)
- Be insured by you as the individual homeowner through an insurer that participates in the scheme.
Flood Re has increased the number of insurance companies able to offer affordable flood insurance, making it easier to shop around and find the best deal for you. According to Flood Re, 90% of the insurance market offers the Flood Re scheme, see below for a list of participating insurers.
For you as the homeowner, Flood Re works so that insurance can be obtained as usual, with all purchases and claims being handled directly through the insurance company. Funding for Flood Re comes from three sources – a Levy, a premium and an excess – all of which are paid for by insurers.
Every year, Flood Re collect a Levy of £180million each year (for the first five years of Flood Re) from insurers offering home insurance in the UK. Flood Re uses the money to administer the scheme and reimburse insurers for valid claims made and to pay out the customer. Flood Re accepts a flood risk for a property and charges the insurer a fixed premium. This amount is tied to your council tax band, not the actual flood risk, this helps to keep the overall price of the policy down.
The decision of whether or not to insure a property or contents through the Flood Re scheme ultimately lies with the insurance provider.
How are the costs capped?
The insurance company cannot increase your flood excess by more than £250, as offered by Flood Re.
To keep costs fair, the flood risk element premiums are dependent on the Council Tax band of your home and these should not increase the overall premium by more than the values shown in the table below.
The scheme which ends in 2039 will allow customers time to adapt to the changing challenges associated with flooding in the years ahead, so that a risk reflective market should be affordable without the need for Government intervention when the scheme ends.
During the transition period to the Flood Re scheme closing, there may be some financial incentives for improving your property’s resistance and resilience to flooding.
Who can insure you?
The list of participating insurers is updated regularly, the most up to date list is available on the Flood Re website here.
Other insurance options
If you find that you are ineligible for the Flood Re scheme, there are other options that you could consider:
Flood Excess Insurance
This involves purchasing a second policy to cover the cost of the excess on the primary policy in the event of a claim. In some cases, it may not cover the cost of the primary policy’s excess in full, but it may still make the overall cost of a claim much more affordable.
Tailored policy through a broker
Insurers may offer the option of having a lower premium at the expense of a higher excess in the event of a claim or vice versa. Therefore, it is important to be aware of your flood risk and consider the likelihood, severity and impact of a flood event on your home, to estimate your potential damage costs if a flood event was to occur. Household food planning can be very effective at reducing costs. It is important to always ensure that you could afford your policy’s excess in the worst case flood scenario.
There are specialist Insurance brokers who can assist you with finding insurance for your property. They can help you negotiate with insurers and arrange suitable cover if your property is ineligible. The British Insurance Brokers Association (BIBA) can help you find an insurance broker who specialises in flood risk. Using insurance brokers is usually free of charge and any fees and commission is paid by the insurance company instead.
If you have considered all flood insurance options and they are either not available or not appropriate, you will need to fund any flood recovery yourself. It is important that you take into account all the potential financial losses and set aside a contingency fund for future flood recovery.
Sources: Flood Re website, Money Advice Service, BIBA