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Flood Re: Peace of mind for flood hit areas

Flood Re: Peace of mind for flood hit areas

Category: Insurance

Updated: 27/02/2014
First Published: 24/02/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Living on a small island means that many properties are at risk from flooding, whether it be a threat from the coast, rivers or the fact that you live in a low lying area. In fact the Environment Agency considers around 350,000 UK households at risk of flooding, and many could have suffered from recent events.

The personal and emotional devastation caused by a flood hitting your home will be irreparable, but knowing you will have the finances available to begin the clean up will at least give some peace of mind. Make sure you're properly covered with a suitable insurance policy – always check the small print and, if it's time for an upgrade.

However, with annual insurance premiums climbing all the time and flooding hitting the headlines every day, it is no wonder everyone is worrying about the effects it could be having on their policy.

Currently there is something called the Statement of Principles which means insurers take on an obligation to offer cover to flood-hit homes in return for Government money to go towards flood defences. The main problems with this agreement are that there is no capping element to it and insurers are only obliged to offer cover to existing customers, which has seen people tied into policies and perhaps still paying over the odds.

It has been recognised that this is unsustainable, and in positive news for flood-hit homeowners, another scheme is due to be introduced in summer 2015 called Flood Re.

What is Flood Re?

Flood Re is a not-for-profit scheme set up by the Government and the UK insurance industry to ensure everyone in flood-risk areas is able to afford the appropriate cover for their property and that this insurance is readily available. It puts a cap on the flood risk part of the household insurance, ensuring annual premiums don't get out of control.

How is it able to do this, who is covered and how is it worked out?

This will be achieved by all insurance premiums from flood risk areas going into a central pool of money and payouts will be taken from there. What you will pay is worked out through council tax banding, so one thing to do before this scheme comes into play is to ensure your property is banded correctly.

At present it has been advised that the flood aspect of insurance for band A and B properties will be capped at £210 a year and this will rise to £540 for Band G properties. To see if your house is included in the scheme, the Environment Agency has an interactive map showing the flood-hit areas.

Is anyone not covered?

Yes. Surprisingly there are a lot of properties that are not covered by the scheme, and in fact the British Property Federation (BPF) has called on Government and the insurance industry to address the lack of fairness.

  • Firstly, any leasehold properties are not covered by Flood Re, although there are an estimated 840,000 properties at risk.
  • Properties that fall into council tax band H are not covered. Owners of these properties could see their premiums rise with no limit to the amount, or even worse they could become uninsurable with companies refusing cover altogether. If your property falls into this band there is one thing you could do – why not challenge the banding of your property with your local council?
  • Homes built after 2009 are also not included in the scheme. The idea behind this is to deter any unwise building on flood risk areas, but this does not help anybody who has already purchased a house after this time. If you are looking at buying a relatively new property, do your homework and ensure it has not been built in an area at risk. Use the Environment Agency's interactive map on the 'Risk of Flooding from Rivers and Sea' to check.
  • Landlords must beware that buy-to-let properties are not included in the scheme either (tenants must make sure they have contents insurance arranged) and holiday lets are not covered. All business properties are not included.

Will we all end up paying higher premiums?

One of the aims of Flood Re is to stop others paying out for flood hit properties. All insurance policies will have a levy of around £10.50 added to their premiums and this is paid into the overall central fund, however, it has been advised that homeowners have always been paying this as part as a subsidy, so it shouldn't come as a shock. Those that do come under the scheme are also to remember that it has only been put into place for flood damage, and if they claim for any other things their premiums may still go up.

It's not starting until 2015, what do we do in the meantime?

In the meantime you must try to ensure that you have comprehensive cover that is right for you and your property. You may find if you are on a floodplain that your premiums do inevitably go up for now but at least you will have peace of mind that Flood Re is coming into place soon.

What Next?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.