Flood Ark

Flood Re: Is the Government’s Insurance Scheme Working?

16/01/2018 Flooding, Insurance Flats in flood zone

Flood Re – the contract between insurance companies and the government that is supposed to reduce insurance premiums on properties at risk from flooding – has been running for nearly two years now. The system is an excess-of-loss reinsurance scheme (more of which below) but it has been implemented patchily and individuals whose properties do not qualify for the scheme are understandably disappointed. Let’s take a look at how the insurance scheme works and who is likely to benefit from it.

The Problem

Flood events can cause catastrophic damage to homes and businesses leading to huge pay outs from insurance companies. So huge that insurance companies can’t afford to take the hit. If the insurance companies go bust, then nobody gets the money they need to repair and rebuild. One answer is to increase premiums for properties in flood zones to reflect the risk. If the market were left alone to set the price of insurance, it would be unaffordable for most. To postpone this situation while decent flood defences are put in place, the government has temporarily introduced Flood Re – a reinsurance scheme.

Reinsurance Reminder

Reinsurance is how insurance companies spread risk. There are different types, but the Flood Re scheme is an excess-of-loss reinsurance scheme. The insurers only have to pay out so much and the government will cover the rest to avoid bankrupting the insurance companies in the event of a big flood event. This keeps premiums down for those who qualify for the scheme.

Welsh Example

A recent feature for the BBC news website looked at the take up of the Flood Re scheme in Wales. The country is famous for its valleys and rainy weather, so it will come as no surprise that it has seen its fair share of flooding. Around 10,000 eligible properties have signed up for the scheme, but it has had mixed reviews. Some claim that their premiums have risen since their insurance company has signed up to the scheme. However, everyone praised one feature of Flood Re: the excess (the amount paid by the claimant in order to make a claim) is capped at £250. Under previous schemes, people living in flood prone areas were being forced to pay excesses of thousands of pounds. 

Exceptions to the Rule

On the whole, Flood Re has been good news for homeowners who live in properties built before 2009. Unfortunately, there are a whole host of exceptions. If your property falls under one of the following categories, you do not qualify for Flood Re insurance:

  • Properties built after January 1st 2009
  • Commercial properties - affecting many small business owners.
  • Multi-use properties under commercial ownership
  • Tenanted properties (tenants can get insurance for their possessions, but the landlord's building does not qualify).
  • Flats in leasehold blocks of four or more homes.

2039 Deadline

Even for those who do qualify, the scheme is only supposed to last until 2039. The idea is to give the government time to implement its flood defence program. Once this is in place, a return to market-based insurance premiums won’t be a problem. This all sounds grand in theory – but the cracks are already starting to show. Take the distinction made above between properties built before and after 2009. Properties built after 2009 are excluded from Flood Re because all new developments are supposed to include flood protection and Sustainable Drainage Systems (SuDS). As we reported in May last year, this simply hasn’t happened. There are legal parameters in place to force developers to comply – Schedule 3 of the Flood and Water Management Act 2010 – but they have never been commenced.

Insurance Industry Response

The insurance industry knows exactly what needs to be done over the next twenty years before Flood Re comes to an end. ABI – an umbrella organisation of insurance companies – published their buildings blueprint detailing five steps that need to be taken to reduce flood risk (and therefore premiums):

  1. Protect communities by spending more on building and maintaining flood defences.
  2. Protect homes and businesses by increasing the flood resilience measures within properties.
  3. Prevent increased flood risk by including sustainable drainage systems in all new developments.
  4. Increase understanding of flood risk by giving house-hunters up-front information.
  5. Improve planning processes to ensure no inappropriate developments are built in high risk areas.

All these ideas seem eminently sensible, but the government’s funding priorities are elsewhere at the moment. Too much policy has been reactive rather than forward-thinking. Will we have to wait for another major flood event before action is taken?

At Flood Ark, we manufacture and install barriers that provide proven property level protection. If you are interested in our products or would like to organise a FREE survey of your home or business, call us on +44 (0) 1603 879977. Alternatively, you can email info@floodark.com.

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