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HOW FLOOD RE WILL WORK

UPDATED 12 JANUARY 2016

Flood Re is part of a plan which is intended to ensure that homes at a high risk of flooding will be able to obtain buildings and contents insurance at a reasonable cost.

It begins throughout the UK on 4 April 2016. From that date an estimated 350,000 dwellings at high risk of flooding will be put into the Flood Re scheme.

Flood Re will be funded by a levy on all insurance companies. From 4 April 2016 all home insurance policies will include a supplement which will pay for that levy. The Government has estimated that will add around £10.50 a year per policy. It will almost certainly not be shown separately on insurance premium bills. But as part of the premium it will be subject to insurance premium tax of 9.5% which would add £1 to that amount. The levy will be reviewed in the first five years of the scheme and if it changes the supplement could change too. Almost all insurers are expected to join Flood Re and all of them, in Flood Re or not, will pay the levy based on the amount of home and contents business they do.

In Flood Re
If your home is put into the scheme by your insurer the flood risk element of your insurance will be charged at a fixed rate depending on your council tax band (valuation band in Northern Ireland). The amount for combined buildings and contents will range from £210 a year for the lowest band properties through £276 in the mid-range to £1200 a year for the highest. If you insure just the buildings or the contents the amounts will be lower. Details here 

Those are the fees that Flood Re will charge your insurer for taking on the flood risk. The insurer can pass those costs on to customers or can charge more or less than that for the flood risk. Charging less is very unlikely. The excess on the policy - the amount that has to be paid by the insured in the event of a claim - will also be fixed at £250 on this flood risk element. But again your insurer can charge whatever excess on this part which it chooses.

The rest of the insurance against all other risks will be estimated and charged as normal by your insurer on top of the amount for the flood risk. There is no guarantee what these premiums will be or what excess will be charged. The premium you pay will include all risks, including the flood risk passed to Flood Re, and you will not see those as separate elements in your premium. 

Your home will only be put in the scheme if your insurer chooses to do so. It is not clear if there will be any mechanism to request a property is or is not put into the scheme or to appeal against a decision. 

Flood Re expects to have 350,000 properties passed to it in the first year. It claims it can accommodate more than that but it is entirely up to insurers to decide which properties to include. The Environment Agency has estimated that more than 5 million homes are at some risk of flooding.

If a claim arises for flood damage the householder will claim directly to their insurers not to Flood Re which will have no contact with consumers.

Excluded from Flood Re
Some properties will specifically be excluded from the scheme even if they are at high risk of flooding. These include

·         Homes built from 1 January 2009
·         Purpose built blocks of flats
·         Houses converted into flats. But if the freeholder lives there and there are only one or two other units it can be part of Flood Re.
·         Buy to let property where the landlord arranges insurance.
·         Commercial property
·         Mixed use property – for example flats over shops.
·         Social housing buildings – but contents can be part of Flood Re.

The rules are complex. More details from Flood Re  

It is not clear whether or at what price these excluded properties will be insurable.

May be excluded in future
Flood Re Chief Executive Brendan McCafferty has said that homes liable to frequent flooding could be excluded from the scheme if the owner did not invest in flood resilience measures. Flood Re would gather information over the next few years and decide if these homeowners could be taken out of the scheme after three claims. He also some very high risk properties that flood every year or two could be excluded from the scheme whatever steps they took.

Not in Flood Re
If your home is one of the estimated 5 million or so homes at some risk of flooding but is not in Flood Re then insurers will no longer make any guarantees about providing insurance nor about the level of premiums or excess charged on these homes. The existing deal called Flood Insurance Statement of Principles will end on 4 April 2016 when Flood Re begins.

The Statement of Principles, which in one form or another was in force since 2000, guaranteed that your existing insurer would offer insurance – though at an uncapped premium – and included all properties. From 4 April 2016 all homes not in Flood Re will be subject to normal market forces including those at risk of flooding. Insurers can refuse to insure homes at flood risk or insure them on any terms, with any premium or excess they choose. The industry hopes that firms will be able to offer insurance on all property either by putting it into Flood Re or, if the risk of flooding is low, then taking on that risk in the normal way. But whether that happens remains to be seen.

The future
The Association of British Insurers says that in the 1990s there were three flood events which led to claims of £150m or more. This century there has been one a year. Further bad weather will test this latest effort to provide insurance to its limits.

Matt Cullen of the Association of British Insurers and Brendan McCafferty, Chief Executive of Flood Re, explained the scheme from their point of view on Money Box 9 January 2016.

Version 1.2
12 January 2016