Flood Update

The Water Act received Royal Assent on 14 May 2014 and sets out the framework for Flood Re, the not-for-profit reinsurance body which will form the basis for flood insurance for some residential property from 2015 for up to 25 years. During that time, the intention is for premiums and excesses to rise to appropriate risk-reflective levels.

Flood Re will collect an annual levy of £180 million from member firms at the equivalent cost of £10.50 per household. Households with a flood risk will then pay a premium based on council tax banding, up to a maximum limit for the flood element of their premium. The aim is for Floor Re to cover the vast majority of flood claims but, should the fund be overwhelmed by extreme flood conditions, the Government would step in as insurer of last resort. Flood Re will not cover small businesses and leasehold properties built after 2009. The Government response to the consultation stated that they will monitor the insurance market for small businesses and will re-consider this issue if the situation changes significantly.

Regulations (issued under the Water Act) will provide the details of how the regime will work. DEFRA issued its response to the consultation on the draft regulations in December 2014. The next steps are for DEFRA to update the regulations and then put them before Parliament. We would expect these Regulations to be enacted some time during 2015.

What will the scheme mean?

The scheme will enable those living in flood prone areas to buy affordable home insurance and aims to cap annual premiums, with claims payments coming from a central pool of money and not an individual insurer.

How will it impact you?

The scheme will ease the financial burden on those who live in high flood risk areas and are covered under the scheme. Regardless of Flood Re, we always recommend good risk management and control for homeowners and businesses. Signing up to flood warnings (Environment Agency) and preparing a plan to cope with a flood – considering the nature of the premises and likely impact on business – are simple but very worthwhile measures. Training for employees, supported by suitable emergency processes, can often be over-looked and before significant investment in protective measures, it is worth seeking specialist advice.

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