Home insurance can be a huge financial headache if you live in areas at high risk of flooding, such as the recently affected north west of England, with premiums often in the thousands of pounds.
Some householders have not been able to afford cover following the impact on premiums of severe weather incidents in 2005, 2009 and 2012.
But a new scheme should help protect homeowners from spiralling premiums. Flood Re, which is due to come into effect in April 2016, has been set up to ensure premiums will be more affordable, even if your property is at high risk of flooding.
Here’s what you need to know…
Flood Re explained
Flood Re has been set up by the Department for Environment, Food and Rural Affairs (DEFRA) and the Association of British Insurers (ABI) to ensure even the highest risk homes can insure against floods.
The scheme covers both buildings and contents insurance.
It works like this. If an insurer deems a property to be high risk, it can pass the flood insurance part of the policy to Flood Re.
To do this, the insurer must pay a premiums to Flood Re at a level determined by the property’s Council Tax band.
These premiums start from £210 for buildings and contents for homes in lower A and B council tax bands, rising to £246 and £276 respectively for homes in the C and D bands.
Flood Re has been set up by the Department for Environment, Food and Rural Affairs (DEFRA) and the Association of British Insurers (ABI) to ensure even the highest risk homes can insure against floods
Premiums are £330 and £408 for homes in E and F bands, £540 for homes in G, and £1,200 for band H properties.
It is widely expected that insurers will pass on only this capped cost to their policyholders – leading to more affordable premiums than at present (remember – this is only the flood-related portion of the premium; you’ll also have to pay for protection against other risks, such as fire and theft).
In total, it is estimated that a pre-Flood Re combined buildings and contents policy costing £1,140 for someone in Band A would fall to £650 after April.
Someone in Band G could expect their cost to ease back from £1,850 to £1,550.
How Flood Re pays out
Premiums, which will rise in line with inflation each year, will go into a central fund which will then be used to settle flood claims made by the properties concerned. Flood Re will also buy its own insurance in case the pooled premiums aren’t sufficient.
Flood Re also offers insurers an excess per policy of £250, but the scheme cannot control the way they set excesses for customers, so your excess in the event of a flood claim may be more than this.
How Flood Re will affect you
The way you buy insurance and, if necessary, make a claim, won’t change.
If the worst happens and your property is flooded, you’ll make a claim to your insurer in the same way as normal, and they will then be reimbursed by Flood Re.
You won’t have any contact with Flood Re yourself, only your insurer will deal with them.
If your property isn’t at risk of flooding, you will still be affected by the introduction of the Flood Re scheme.
That’s because all home insurance customers will have to pay a levy into the fund too, which will add on average £10.50 a year to the cost of your cover.
You can find out more about how the Flood Re scheme works here.
Who’s not covered
Initially the Flood Re scheme was only going to cover properties in council tax bands A to G, but it has now been expanded to cover properties in Council Tax band H and I too.
However, some properties are excluded.
You won’t be protected by the scheme if you’re a landlord who's buying building insurance for a property that you don't live in (such as a buy-to-let landlord), or if you own commercial premises (although you will be covered if you work from home).
You’ll also be excluded if you live in a property which has been built since 2009. This is because the government and insurers want to discourage developers from building on flood plains.
But please note that if you are a tenant buying contents cover and you live in a flood-risk area, then you WILL be protected under the scope of the Flood Re scheme.
The only exceptions to this are contents policies which are block-purchased commercially for tenants, such as insurance with rent schemes, as these aren’t purchased in the name of an individual.
What happens if my property floods before the Flood Re scheme is introduced?
Since the year 2000, insurers have committed to offer insurance to people who’ve been previously flooded, or who are at risk, under an agreement called the ‘Statement of Principles.’
This means if you have cover in place, and your home has flooded, your insurer must continue to offer you cover. But there is no limit to what they can charge under this existing arrangement.
If my policy is due for renewal before April, should I renew as normal and then cancel it to set up a post Flood Re policy once it is available?
You should never be uninsured, so if your home insurance policy is due to end soon, don’t wait for April and the introduction of Flood Re to renew cover.
Once the scheme is introduced next year, shop around for cover then, and see if you can find cheaper cover elsewhere.
If you can, it may be worth cancelling your existing cover and setting up a new policy. Your existing insurer will charge a cancellation fee, but if this is less than the potential saving, then it would be worth moving to a new Flood Re-backed policy.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.