The government has been consulting on the detailed rules for the flood reinsurance scheme (Flood Re) to be brought in under the aegis of the Water Act 2014.
There has NEVER been any guarantee that, if you buy a property, you’ll also be able to obtain insurance cover against the risk of flooding.
However, under a June 2008 agreement between the Association of British Insurers and the government, UK insurers agreed (in return for government investment in flood defences) to provide flood cover for domestic and small business policyholders.
That 2008 agreement is due to expire and the government is aiming to replace it with a new scheme, known as Flood Re, by July 2015.
Only domestic property will benefit from Flood Re, not business premises.
Flood Re, a not-for-profit reinsurance fund, is to be funded by a levy on domestic insurance companies. The cost of the levy will be passed by insurers through to policyholders (roughly £10.50 per household), spreading the cost equally among lower and higher risk households.
Under the scheme, flood insurance premiums will be capped and Flood Re will reimburse insurers for any claims made. Flood insurance will therefore remain affordable and available for domestic properties in high risk areas.
The Flood Re scheme will NOT extend to the following:
- business premises; and
- houses built after 1 January 2009.
(The government has dropped its earlier proposal also to exclude from Flood Re all houses in council tax band H.)
Controversially, the government counts residential properties let by private landlords as business premises and as therefore excluded from the scheme. (Although tenants will be able to obtain contents insurance through the scheme.)
Accordingly, a family home rented out for a short period will be outside the scope of the scheme for that period. However, the government has confirmed that traditional lodging arrangements (where a room is rented while the landlord remains living in the home) will be covered.
The government has also said that a property converted into flats (as opposed to a purpose-built block of flats) will be covered by the scheme if all of the following conditions are satisfied:
- there are no more than 3 flats in the building; and
- the freeholder lives in one of the flats, or the "owner of a share of freehold" does so; and
- the property is insured by the freeholder.
For all properties (whether business or residential) excluded from the Flood Re scheme, there will remain NO guarantee that owners will be able to obtain satisfactory flood insurance.