In February, the government launched a new consultation into proposed changes to the Flood Re scheme, a joint government and industry initiative that supports homeowners whose properties are at high risk of flooding. Launched in 2016 and funded by a levy on UK home insurers, the scheme enables insurers to pass on the flood risk element of their customers’ policies to Flood Re, enabling high-risk households to access affordable insurance. When a homeowner makes a claim on their policy, it will be paid out by their insurer, who will then be reimbursed by Flood Re.
Why is the scheme necessary?
Most of us will have seen extensive news coverage of heavy flooding in recent years, which has caused severe damage to property and possessions. According to data from the British Insurance Brokers’ Association (BIBA), one in six UK properties are at risk of flood – and the problem is likely to get worse. A recent study found that climate change has increased the risk of floods in England and Wales by at least 20%, while another showed that heavy rainfalls (such as those associated with Storm Desmond in 2015) are now 60% more likely due to climate change.
As rainfall has increased, so have floods; and as floods have increased, so have flood-related insurance claims. Due to this surge in claims, the cost of premiums has steadily risen over the last few years, leaving those in areas most at risk of flooding unable to access affordable insurance – hence the Flood Re initiative.
What changes are being proposed?
The essential aim of the consultation is to improve the efficiency and effectiveness of the Flood Re and support its goal to transition to a risk-reflective flood insurance market by 2039 (when the scheme is designed to end). This means that, by 2039, insurers should be charging premiums that reflect the customer’s risk of flooding. And, in order for premiums to be affordable without the Flood Re scheme to fall back on, the risk associated with flooding must drop considerably. The proposals therefore seek to encourage greater uptake of property flood resilience (PFR) measures. PFR means taking action to prevent water entering your property, or to decrease the level of damage caused if it does.
Specific measures under consideration include:
- Discounted premiums for households that install PFR measures (e.g. flood barriers, air brick covers or flood-resistant wall coatings).
- Payouts higher than the like-for-like cost of the actual damage, allowing households to ‘Build Back Better’. Rather than restoring the house to the condition it was in before the flood, the extra money could be used for PFR measures to reduce the property’s flood risk.
- Allowing Flood Re to use its funds for more than just reinsurance, i.e. for other activities that encourage uptake of PFR.
- Reducing the scheme’s cheapest premiums to help low-income households.
Andy Bord, CEO of Flood Re, said that he was “delighted” that the government had brought forward the scheme’s proposals to consultation. He continued: “The changes proposed should help build a more resilient housing stock by increasing the uptake of property flood resilience adaptations and address the increasing threat of flooding resulting from climate change.”
BIBA also reacted very positively to the announcement, with executive director Graeme Trudgill commenting on LinkedIn: “This is a very welcome new government consultation that goes to the heart of what we have been saying about flood resilience in our Manifesto. It aims to improve the availability and affordability of flood insurance for UK households at high flood risk.”