Flood Re – Assisting Homeowners in High Risk Areas

By Andrew Rodgers

Flood Re is a new scheme set up to assist homeowners living in high risk flood areas of the UK to obtain affordable insurance premiums and was launched on 4th April 2016.

Flood Re is not a home insurer itself, it works behind the scenes with existing insurance companies who are part of the scheme to assist them in offering affordable flood insurance to those in areas at risk of flooding. This scheme was deemed necessary as thousands of home owners had been paying large additional premiums to ensure their homes were protected. About 350,000 could ultimately benefit from the scheme.

It is intended this scheme will develop over time so that people in these high risk flood areas should have even more choice in the future.

The cost of this new scheme will ultimately fall on ordinary policy holders with it being estimated that there will be an increase of approximately £10.50 on average building insurance policies.

Initially, seventeen insurance companies are taking part in the scheme. If necessary, they can pass on any flood risk to Flood Re which is being funded by the Insurance Industry as a whole. Its costs will be covered by an industry levy of £180 Million a year.

Criteria for property to eligible for Flood Re

Properties will be eligible to be part of the scheme only if they meet all of the following criteria;

  1. They are covered by an insurance contract which is held in the name of, or on trust for, one or more individuals or by the personal representative of an individual;
  2. The holder of the policy, or their immediate family, must live in the property for some or all of the time (whether or not with others) or the property must be unoccupied;
  3. They have a domestic Council Tax band A to H (or equivalent);
  4. They are used for private, residential purposes;
  5. They are a single residential unit or a building comprising of two or three residential units;
  6. They are insured on an individual basis or have an individual premium;
  7. They were built before 1st January 2009 (if a home is built before 1stJanuary 2009 but then demolished and rebuilt, the new home is still eligible); and
  8. They are located within the UK comprising England, Wales, Scotland and Northern Ireland (excluding the Isle of Man)

It is expected that the following properties will be eligible for buildings or combined cover provided they also meet criteria 1-8 above;

  1. Bed and breakfast premises paying Council Tax and insured under a home insurance contract;
  2. Farmhouse dwellings and cottages. Where farmhouse dwellings are included in a commercial line policy, provided the insurer can split out the dwelling element (which meets the criteria 1-8 (inclusive) above), that part of the risk can be ceded to Flood Re;
  3. Holiday/Second Homes;
  4. Properties occupied by home workers;
  5. Individual leaseholders protecting their own property/flat;
  6. Leasehold blocks if they contain 3 units or fewer and the freeholder(s) lives in one of the units to be insured;
  7. Single unit leasehold properties where the leaseholder insures the structure of the property
  8. Residential ‘buy to let’ properties
  9. Static Caravans/homes if in personal ownership;

Properties which we would not expect to fulfil the eligibility criteria for buildings or combined cover include:

  1. Bed and breakfast premises paying business rates;
  2. Blocks of more than three residential flats;
  3. Company houses/flats;
  4. Properties covered by contingent buildings policies (e.g. held by banks);
  5. Farm outbuildings;
  6. Properties used by freeholders/leaseholders in deriving commercial income insuring blocks/large numbers of properties in a portfolio;
  7. Housing association’s residential properties;
  8. Multi-use properties under commercial or private ownership;
  9. Residential ‘buy to let’ (which do not meet the criteria 1-8 (inclusive) above);
  10. Social housing properties; (eligible for Contents cover but not eligible for Buildings cover);
  11. Static caravan site owners (for commercial gain).

It is increasingly accepted that managing the impact of flooding is a key issue for future governments, and this scheme is designed to be one step in doing so. It is hoped that Flood Re will be a positive step towards making the insurance industry more competitive so that customers can shop around to get the best deal and right premium for their needs.

Significantly, the Flood Re scheme is time limited, ending in 2039, after which flood insurance will return to the free market. This means there is an onus of responsibility on government and all stake holders including the insurance industry and Flood Re to ensure the impact of flooding is reduced so that affordable insurance is widely available.

If you have any concerns regarding the insurance of your home or require any assistance in respect of any property related matters including the sale and purchase of your home, please get in touch with Andrew Rodgers or Denis McKay of our conveyancing department.

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