Flooding is an increasingly serious risk for many properties for a variety of reasons including climate change, inadequate flood defences and the development of floodplains, making it progressively difficult for insurers to provide affordable flood insurance to those at greatest risk. As a result, the government, in conjunction with The Association of British Insurers, is seeking to address the problem by establishing a not-for-profit flood fund to ensure that flood insurance remains available and affordable for those homeowners considered by the Environment Agency to be at high risk of flooding.
Insurers will charge increased, although capped, premiums which will be pooled in a central fund and used to fund payouts for flood damage. The current proposal is for the flood aspect of building insurance premiums to be capped on the basis of Council Tax bands, starting at £210 per annum for Bands A and B, rising to £540 in Band G.
Many types of property are to be excluded from Flood Re and will need to obtain flood insurance from the open market. These include the following:
- All commercial property
- Any home built after January 2009
- Homes falling within Council Tax Band H
- Buy to let residential properties
- Most blocks of flats
The implications of the availability and cost of flood insurance are wide ranging and must be considered particularly in commercial transactions when purchasing or mortgaging property or entering into new leases.
The framework for Flood Re is set out in the Water Act 2014 with details to be included in secondary legislation. The aim is for Flood Re to be in place for June 2015 although many consider this optimistic.