Flood Re was established to provide affordable cover for households located in high risk flood zones. Access to Flood Re is not available to commercial properties and businesses and house built after 2009.
The ABI and the Government recognised this lack of competition in the marketplace and hence Flood Re was created as a non-profit reinsurer, owned and managed by the Insurance Industry.
How it works is quite simple. Flood Re will take on the flood risk element of a household policy from the Insurer. In return the Insurer will pay a premium based on the properties council tax band. Furthermore Flood Re will charge the Insurer an excess of £250.
In addition Insurers will each contribute to the Flood Re pot by way of a levy of £180m in total to subsidise the venture.
This allows Flood Re to charge a ‘below market’ premium which is affordable to the consumer with sensible excesses.
The Home owner will not deal directly with Flood Re but with their Insurer in the normal way that will process any claim and be reimbursed by Flood Re.
Flood Re estimate that there are approximately 350,000 households at risk of flooding in the UK therefore this initiative has to be welcomed and will ease the worry and concern of those affected.
A word of warning to the wise. This is a temporary measure and will cease in 2039 at which stage the market will revert to risk reflective pricing. In the meantime a lot has to be done to reduce the cost of flooding and mitigate future risks.
At this stage there does not appear to be any ‘road map’ outlining how or what will be done to transition. If nothing is done and the Industry and Government just sit on their hands we will revert to the status quo pre Flood Re.