In the face of the rising flood risk, we have estimated that 350,000 flood risk UK households would struggle to obtain affordably priced flood insurance without a scheme like Flood Re.

The Government and others agreed with us that the Flood Insurance Statement of Principles established in 2000 had become unsustainable and that a new approach was needed to help households at risk of flood obtain affordable flood insurance.

The Statement was only ever intended to be a temporary measure and restricted customer choice as insurers only had commitments to their existing customers, and new insurers could decide to whom they offered flood insurance.

Insurance companies are  able to pass on the flood risk element of eligible home insurance policies to Flood Re. Flood Re charges the insurers a premium for each policy, based on the property’s Council Tax band. It is estimated that insurers will pass on the flood risk element of buildings, contents or combined home insurance policies for around 350,000 households.

Flood Re makes no difference to the way customers themselves buy their home insurance. All claims continue to be handled by the insurance companies themselves, and insurers continue to set the premiums they charge to their customers, taking into account the Flood Re premium and other important factors (such as the risks of fire, theft, subsidence and other costs).  As a result of the Flood Re scheme, there is now greater choice of home insurance policies for customers at risk of flooding and those policies should be more affordable.

Part of the Flood Re scheme includes providing information to people about how to increase their understanding of their level of flood risk and where they can find information about taking action to reduce their risk, where possible. Flood Re will only operate for 25 years, allowing time for the Government, local authorities, insurers and communities to become better prepared for flooding. This could mean, for example, making use of effective land planning, sustainable drainage, sustainable development and effective flood risk management.

When Flood Re ends, it is anticipated that there will be a system for home insurance prices that will be based more accurately on the kind of flood risks each household actually faces (known as ‘risk reflective pricing’). There is, therefore, an incentive for homeowners, local authorities and the government to take action to try and mitigate the effects of flooding.

Those people who pay higher premiums as a result of their home having flooded can expect their home insurance to become more affordable.  This is due to a combination of insurers being able to pass the flood risk to Flood Re, and the policyholder now being able to shop around in a more competitive market that may have been closed to them previously.

Flood Re does not set prices for home insurance, but gives insurers the opportunity of passing to it the flood risk element of a home insurance policy (buildings and contents) at a premium that is capped, depending on the Council Tax band of the property. It is up to an insurer to decide whether they wish to pass the flood risk element of the cover to Flood Re.

Flood Re charges insurers a fixed premium for flood risks passed to it, based on a property’s Council Tax band.  In addition, Flood Re charges an insurer an excess of only £250 per policy. To cover the shortfall between the estimated cost of flood damage and the new, lower premiums and excesses, insurers pay Flood Re a combined total levy of £180m per year.

Insurers remain responsible for pricing and deciding how best to pass on the benefits of lower premiums and excesses charged by Flood Re to customers. For further information on the funding structure click here