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A special scheme is due to be launched in the coming months to help those who pay through the nose for domestic insurance in high flood risk areas. The Flood Re scheme is a not-for-profit flood reinsurance fund. It will be owned and managed by the insurance industry, and established to ensure that domestic properties in the UK, at the highest risk of flooding, can receive affordable cover for the flood element of their household property insurance. Royal Assent for the scheme was gained in May 2014 and the ABI is working hard to try and get Flood Re launched this summer.
Households in flood risk areas have, in the past, been charged a premium by insurance companies for cover. Some residents simply cannot afford to pay the high prices charged. Flood Re will assist those affected with the cost of the part of their home insurance which is applicable to the flood risk. As part of the scheme, risk management support and strategic decision assistance can be taken over a period of 25 years in a bid to minimise future damage.
For those properties at the highest risk of flooding, Flood Re will assist in reducing the cost of insurance. The premium level will depend on the property Council Tax band. Steve Cowman, Director at Nationwide Broker Services (NBS) said:
“The Flood Re scheme has been designed to cover domestic properties which are at the highest risk of flooding.”
“Statistics show that between one and two percent of UK domestic households would benefit from being reinsured through Flood Re. We anticipate that the market will provide more competitive rates for those at high flood risk once Flood Re has been introduced – a welcome development for many.”
Once the scheme is in place, policyholders will continue to pay premiums and make claims to their insurer. The difference will be when insurers estimate that the flood risk part of the insurance policy will be higher in cost than the premium provided under Flood Re. In these cases, the insurer will be able to attribute the flood risk element of the policy to the Flood Re scheme. If a flood claim was to be made, the insurer would pay the claim and be provided with a reimbursement from the scheme.
In order to kick start the Flood Re scheme, the insurance industry is stumping up £10 million in set up costs. The scheme will have two income sources:
1. The flood part of the policies which are passed into it
2. An additional levy on the industry, which is equivalent to the current cross-subsidy that exists in the market
The levy will amount to a national average of £10.50 per customer or 2.2% of a policy. It is important to emphasise that this will not lead to an extra £10.50 on bills as customers already cross-subsidise high flood risk. It will simply formalise this.
Did you know?
NBS specialises in non-standard home and contents insurance cover, such as risks with previous flood and subsidence history and non-standard construction. This is as well as proposers with CCJ history.
If you would like further information about Flood Re or Home and Contents Insurance,
please contact us today.
Notes to editors
Nationwide Broker Services provides competitive and market leading commercial insurance services to insurance brokers.