The regulations approving Flood Re, the reinsurance scheme devised to ensure access to affordable flood insurance for homeowners, have been approved and the first part of the tender process to secure reinsurance protection is now complete.
With the UK at an increasing risk of flooding, the Department for Environment, Food and Rural Affairs (Defra) estimates that 5.8 million properties (about 20% of all homes) are at some risk. Many homeowners are faced with significantly increased premiums and excesses after being flooded. Insurers currently offer homes flood insurance in accordance with a Memorandum of Understanding between the government and the Association of British Insurers (ABI). However, premiums are not currently capped and therefore reflect the risk of flooding. The previous coalition government, in conjunction with the ABI, proposed the introduction of a not-for-profit reinsurance body run and managed by the insurance industry, known as Flood Re. The scheme will be funded by a premium for the flood risks and an annual levy on all insurers authorised to write home insurance in the UK.
Flood Re has been working towards achieving operational status by April 2016 and currently remains on track to do so. At the end of October the scheme announced that it had appointed Michael Batholomeausz as chief risk officer. The regulations bringing the scheme into force were signed by Flooding Minister Rory Stewart earlier this month.
The scheme will purchase its own reinsurance in order to ensure that it can cover claims and has now secured a significant proportion of the reinsurance required. It is planned that the scheme will have an annual liability limit of £2.1bn. The first part of the tender for reinsurance protection has now concluded securing £1.29bn of cover, including significant support from market leaders Munich Re and Swiss Re. The second part of the tender is expected to conclude in January 2016, with a further £720m of cover being sought.
Authorisation has been sought from the financial regulators (the Prudential Regulation Authority (PRA)) and the Financial Conduct Authority (FCA) and this authorisation is required before Flood Re will be ready to accept policies. Flood Re Chief Executive, Brendan McCafferty has also stated that the scheme needs to ensure that over the next few months every insurer who wishes to test with Flood Re is able to do so.
The scheme currently remains set to start in April 2016. For now the current Memorandum of Understanding remains in place for those homes at risk of flooding.