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Flood REcovery: from snowmen to sandbags
Inside Disputes

Real Insights - Property Update

Author
Helena Liebster
Date
29 January 2016

The bookmakers tore up white Christmas bets as the warm weather and Storms Eva and Frank led to severe flooding around the country.


Flood REcovery: from snowmen to sandbags

The bookmakers tore up white Christmas bets as the warm weather and Storms Eva and Frank led to severe flooding around the country.  

Insurers are expected to pay out around £1.3 billion to residential customers affected and damage to commercial property is estimated to be up to £700 million.  There is even a rumour of the insurers suing the government over failure to avert the floods and in particular the decision to raise the Foss flood barrier.

Is Flood Re the solution?

Yes for residential homes in flood areas built before 1 January 2009.  It is estimated that it will be used for 350,000 homes.

No for commercial properties, mixed use properties, residential properties built since 1 January 2009 (the reason being to incentivise responsible planning decisions), blocks of flats and buy to let properties where the landlord manages insurance.

How does it work?

It is a reinsurance scheme which provides commercial insurers with the opportunity to purchase subsidised reinsurance against flood risk where they are not prepared to underwrite that risk themselves.  It is funded by an annual levy paid by the insurers together with the flood component element of the policies which they pass into Flood Re. If they are flooded, customers deal with their insurer in the usual way to get their claim paid and Flood Re will reimburse the insurer for the cost of the claim.

The flood risk element of the premiums will be capped at a level based on the property's council tax band. There will be a cross subsidy of approx. £10.50 on annual household premiums.

Lifespan and start date

It is being launched in April 2016 with a lifespan of 25 years. It is an interim reactive measure to flood damage to give the government, local authorities, insurers and communities time to become better prepared for flooding and to address the causes of flooding.

Where next?

Flood Re is considering excluding homes which have made three claims and failed to take flood prevention measures.

Small businesses are calling for the scheme to be extended to cover commercial policy holders. However, there is little sign that this will happen, presumably because it would increase the cross-subsidy to a politically unacceptable level.