Flood Insurance Changes

In recent years there seems to have been an increase in the frequency and severity of flooding events in Britain. In 2008, some of the worst and most widespread flooding took place for over half a century. It is not yet fully understood why this is happening, although some think severe weather events are on the increase.  It has certainly not been helped by increased building on flood plains – the flat areas next to rivers that are designed by nature to allow an increased flow of water down valleys at times of heavy rain.  A ‘flood risk’ for a property means that there is greater than a 1 in 75 chance in any year of a flood. However, in 2008 there were even old properties flooded that had never flooded before in living memory.

How to Pay for Extreme Weather

The 2008 ‘extreme weather events’ were responsible for a very large number of claims on insurance for flood damage, widely spread throughout the country. There were worries by insurers that flood insurance might no longer be an acceptable commercial risk in large areas of the UK. The government came to an agreement with insurers for a 5 year scheme where the insurers would continue to cover people in risk areas at the same time as the government spent more on flood defences. This did not cap insurance premiums though, and left many people affected by flooding struggling to pay home insurance. It also meant that consumers had little choice as to who they could insure with. By 2013, it was obvious that this scheme was becoming increasingly unsustainable for the insurers and customers.

The government had talks with the insurers who are represented in the UK by the ABI (The Association of British Insurers). The ABI is motivated by wanting to continue to supply flood insurance to as many people as possible and making a reasonable return out of it.  As a result, Flood Re has been set up with input from government agencies and the insurers. This is a not-for-profit funding scheme, and is planned to be fully functional by 2015 (previous arrangements will continue in the meantime)

The Flood Re Fund

Flood Re will be based around continuing to provide affordable flood insurance for the vast majority of properties. Paid for by a £10 levy on all home insurance customers, whether or not they live in a flood risk area, the scheme provides capped flood insurance based around rateable bands. For example, A and B band properties will pay £210 a year, and this rises to £540 for band G properties. Band H, and their equivalents in Wales, Scotland and Northern Ireland will not be capped and some even may be uninsurable. New properties built since 2009 will also not be covered. This is to deter developers from building in high risk areas which has led to some criticism of government agencies for previously allowing this to happen.  Appeals against development of flood risk areas can now be made directly to the government minister responsible.

Concerns and Reassurances

Also, many medium and small business premises will be excluded from Flood Re. This is causing some concern as they may face huge increases in their uncapped insurance premiums or find themselves uninsurable.

Whilst some may moan at the £10 forced increase in their premium as a cross subsidy to people with flood risk homes, it may be a small price to pay for continued sensibly priced home insurance cover for as many people as possible. It is hoped that over the next 25 years, home insurance costs will not rise in real terms. However, insurers do see a situation where catastrophic flooding, such as that which happens once every 200 years on average, could still not be covered.  It would have to be a job for government to deal with then, not insurers.

The government is also increasing markedly the amount being spent on flood defences. Up from around £260 million a year in 2012 to a planned £370 million by 2016. With the Flood Re funding scheme, it is hoped that this will go some way to moderating the effects of flooding in the UK.