If you’re not familiar with the nuances of the insurance industry (and quite frankly, who is?), then the name Flood Re may seem odd. It’s the moniker given to a new government-backed scheme designed to help homeowners in flood-stricken areas reduce their insurance premiums.
Launched yesterday, Flood Re is the first of its kind in the world. A joint initiative between the insurance industry and the government, its title derives from the word ‘reinsurance’. It’s essentially a type of company that allows insurers to insure themselves – in this case against losses because of flooding. Put simply, the higher cost of insurance associated with flood-risk areas is passed on to Flood Re, meaning insurance companies don’t have to foot the bill, and should offer cheaper policies to those affected.
With the pictures of flood-devastated communities still fresh in people’s minds, Flood Re can’t come soon enough. Consider this new research from price comparison site, MoneySuperMarket. It calculates that homeowners typically pay £33 (or 24 per cent) more than the national average for annual contents and buildings insurance. Those who have made a claim for damages caused by flooding in the past typically see premiums rise by 213 per cent – adding £372 to the cost of cover each year.
And that’s just the average statistics. Many households have effectively become ‘uninsurable’ either because insurers deem them too high a risk for cover or impose unaffordable large premiums and excesses.
MoneySuperMarket’s analysis reveals the average claim during seven recent flood events was £22,339. This amount varies significantly, depending on the event – those affected by the 2014 floods in the Thames Valley region claimed an average £28,051, whereas homeowners in Cumbria, Lancashire and Yorkshire in December 2015 claimed £36,483 on average.
Dan Plant, editor-in-chief at MoneySuperMarket, said: ‘Households who have been priced out of buying insurance completely, or who have been saddled with the prospect of enormous four-figure excesses if they make a claim, should now be able to secure cover at more affordable rates.
‘Anyone living in a high-risk flood area who has recently bought home insurance should take a few minutes to run an online quotation to see what prices they would be charged now that Flood Re is in operation. If there are substantial savings to be had on their existing premium, it could be worth cancelling the current policy and taking out a new one. Policyholders should bear in mind that they will have to pay a cancellation fee. And if they’ve made a claim on the old policy, no premiums will be returned. But if the saving on the new policy is big enough, it could still be well worthwhile making the change.’
As with everything, the devil is in the detail. One of the stipulations for Flood Re eligibility is that the homeowner must live at the property, so landlords living elsewhere will not qualify. And only residential properties in council tax band A to H are covered; businesses are not included. Flats in leasehold blocks of more than four are also excluded. And the property must have been built before 1 January 2009 to prevent incentivising building on flood-risk areas. It’s also worth remembering that not all insurers are members of the scheme.
In addition to all this, one financial firm says that many flood-hit homeowners are not aware of the new scheme. Admiral says that more need to be done to educate those affected as only one in seven of us have heard of Flood Re.
Noel Summerfield, head of household at Admiral, said: ‘The Environment Agency estimates that one in six homes are at risk of flood in England alone. Most experts agree that incidents of flooding are likely to become more commonplace, so perhaps those considering buying a home should do more research around the risk of flood.’
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