The property and mortgage industries have largely welcomed confirmation that flood insurance will still be available to households at risk. It means that their homes will still be insurable and mortgageable.
However, the cost to households not at risk of flooding will be a £10 rise in their insurance bills, while the proposed solution will have a lifespan of only 20 years.
The ‘Flood Re’ proposal, which is to be consulted on, will cap the amount hundreds of thousands of people in areas at risk will pay for insurance.
Flood Re will be run and financed by insurers as a not-for-profit fund which will cover the cost of flood claims from high-risk homes.
Insurers will pass the flood risk element from those households deemed at high risk of flooding to the fund. Premiums for the flood risk will be calculated based on council tax banding up to a maximum limit depending on the band.
It is proposed that Flood Re would charge member firms £180m a year. This equates to a levy of £10.50 on annual household premiums and represents the estimated level of cross-subsidy that already exists between lower and higher flood risk premiums.
Flood Re will be designed to fully deal with at least 99.5% of years. Even in the worst half a per cent of years, Flood Re will cover losses up to those expected in a flood that would be a one in 200 year event – a year six times worse than 2007.
The Government would take primary responsibility for distributing any available resources to Flood Re policyholders should claims exceed that level.
Ian Fletcher, director of policy at the British Property Federation, said: “This is welcome news and will come as a huge relief to property owners across the country that have been living with uncertainty about flood insurance.”
However, AA Insurance said that there would be delays before the agreement can be implemented, and warned that Flood Re will only be temporary.
Simon Douglas, director of AA Insurance, says: “Legislation is required and this will take time. It is also disappointing that EC approval will be needed for something that really is a domestic issue. I hope that doesn’t lead to further delays.”
He added: “The announcement also says that the new scheme will run for around 20 years and then no longer be required.
“Given the changing nature of our climate, and given the length of time the existing statement of principles, originally introduced in 2000 lasted as a ‘temporary measure’, has continued, I wouldn’t be surprised if the Food Re solution has a much greater longevity.”
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