DEFRA has delayed publication of its response to the consultation on the Flood Re regulations. Defra says that the delay is due to the “complex and technical” nature of the regulations and that it “continues to discuss a number of practical issues with the insurance industry." Given that implementation of the Flood Re scheme is scheduled for July 2015, it was hoped that the Government’s response would be issued before Christmas.

Commenting on the delay, Richard Smith, head of Penningtons Manches' environmental law practice, said: “It is disappointing that the final details of the scheme are still unknown. With one in six homes now under threat of flooding and with climate change projections pointing to an ever increasing flood risk, people do need to know whether flood insurance will be available to them in the future.

“That said, the Government’s unprecedented six-year £2.3 billion flood defence programme announced on 2 December is encouraging and indicates that reducing flood risk remains high on the Government’s agenda."

WHAT IS THE FLOOD RE SCHEME?

The Flood Re scheme will be a not-for-profit flood reinsurance fund owned and managed by the insurance industry. It is intended to provide affordable flood insurance to homeowners whose properties are at a high risk of flooding. 

Powers were included in the Water Act 2014 allowing for the introduction of Flood Re, with the detail being given in the Flood Re regulations. The scheme, once implemented, will replace the current voluntary arrangement under which ABI insurers continue to provide flood insurance to households and small businesses (under the Statement of Principles on flood insurance provision). 

HOW WILL THE SCHEME WORK?

  • Insurers will maintain a direct relationship with their customers, with policyholders paying premiums and making claims directly to the insurer in the normal way. 
  • For households deemed at high risk of flooding, insurers will pass the flood risk element to Flood Re.
  • Premiums for the flood risk element will be based on council tax banding and will be subject to a maximum limit depending on the band. Premiums will increase with the council tax bands, with “A” banded properties paying the lowest premiums and “G” banded properties paying the highest premiums.
  • Where the flood risk has been passed to Flood Re and a flood claim is made, the insurer will pay the claim directly to the homeowner and Flood Re will reimburse the insurer.

Funding for the Flood Re pool will come from two sources:

  • the premiums paid for the flood risk element, where that risk is passed to Flood Re and
  • a levy raised from the insurance industry. The levy will be set at £180 million each year for the first five years of the life of the scheme and subject to review thereafter.

WILL ALL PROPERTIES BE COVERED?

No, not all properties are covered by the Flood Re scheme.  Below are examples of exempted properties. Owners/occupiers of these will have to obtain flood insurance in the open market, on whatever terms (and price) they can get.

PROPERTIES NOT COVERED BY FLOOD RE

  • Household premises built since 1 January 2009
  • Homes in Council Tax Band H
  • Any business premises
  • Buy-to-let household premises
  • Most blocks of flats
  • Homes which are "genuinely uninsurable" (but presently there is no guidance on what that phrase means)
  • Properties owned or occupied by charities
  • Mixed use properties
  • Holiday homes that are rented out

Various bodies including the British Property Federation and the Law Society have asked for the scope of the scheme to be extended. It is still possible that the regulations will be amended so watch this space.