Flood Risk Insurance Agreement is a Welcome Compromise

flood insurance agreementThe government and the insurance industry have finally come to an agreement that ensures affordable flood risk cover for 200,000 homes and businesses across the country.  While the finer points still need to be thrashed out, both parties have agreed on the following:

Why all the changes?

The existing agreement between the Association of British Insurers and the government was due to expire at the end of June 2013 and neither party were willing to re-sign. The insurance industry wanted the government to invest more in flood defences while the government were keen to cut costs as part of the austerity measures.

How will the new agreement work?

Working together the government and the insurance industry will set up a not-for-profit fund called ‘Flood Re’ to offer homes and businesses that can’t afford cover a set-price alternative.

What are the bare bones of the agreement 

Insurance for flood risk homes will work pretty much as before with a choice of providers offering different policies. However, behind the scenes the Flood Re fund will be used to help finance claims.The fund itself will be built-up by insurers charging a levy to all homeowners.

Flood risk properties will have the ‘flood element’ of cover capped according to their Council Tax band. Homes in bands A and B will be capped at £210 a year with the figure rising to £540 a year for homes in band G. Homes in the most expensive Council Tax band won’t have a cap on the levy, while homeowners living outside a flood risk postcode will pay just £10.50 a year.

Surely it’s unfair to homeowners who aren’t at risk?

The vast majority of homes are at some risk of water damage, whether from a leaking water source or a flash flood. Accordingly an element of flood insurance cover is required by most mortgage lenders.

When does Flood Re start?

The new scheme is scheduled for summer 2015. Meanwhile, home and business insurers have agreed to carry on with the current arrangements.

The government has committed to spending £344 million on flood defences and flood prevention schemes in 2014-15 rising to £370 million the following year.

The Environment Secretary Owen Paterson commented “Flooding is terrible for anyone affected by it. We have worked extremely hard with the industry to reach an agreement on the future of flood insurance. There are still areas to work through but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future.”

Quoteline Direct has a dedicated ‘non standard’ insurance team specialising in insurance for homes at risk of flooding.


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