According to the Environment Agency (2009), around 5.2 million properties in England are at risk of flooding and, with the additional impact of climate change, it is likely that this will increase in the future. For households that do experience flooding, insurance is able to provide significant support. However, high insurance premiums and excesses have meant some households have gone without.
To help make insurance policies more affordable, FloodRe was set up as a joint initiative between the government and insurers. This was to make reinsurance for flood risk available to insurers that underwrite the insurance policies for homes in the UK. The cost of reinsurance is set according to the council tax band of a property and provides a subsidy to the premium associated with properties that have a significant risk of flooding. To meet the costs of this subsidy, a levy is paid by insurers. The levy allows FloodRe to purchase reinsurance and build up funds during quiet periods so that it can withstand a large loss from time to time.
On the 1st October 2018, FloodRe announced that from the 1st January 2019, they will be reducing the levy they charge to insurance companies. It is believed the upcoming reduction will result in a reduction in the cost of flood insurance cover for those living in areas of the UK that have a significant risk of flooding.
FloodRe have said they will reduce its charges to insurers by 12.5% for buildings and 33% for contents, reducing the cost of a combined building and contents policy by between £44 and £112.
To assess the effects of reducing the reinsurance premium charges, FloodRe consulted with several insurance companies and found that although the final price charged to customers is decided by the insurance company, they believe that a reduction in reinsurance premiums would result in reduced prices for customers.
In the past, FloodRe have shared their concerns that people who have had their houses flooded previously, won’t purchase any insurance because of the high costs involved. They hope this change will encourage more people to obtain cover in the future.
Andy Bord, chief executive of FloodRe stated:
“Our purpose is to make flood cover as part of home insurance more affordable and available. I am delighted today to announce that we will help to make flood cover even more affordable for those most at risk of flooding by reducing our premiums. Flood Re was encouraged to note the results of our consultation, confirmed across the market, that our premium reductions will result in lower premiums for consumers. Therefore, if some households in flood-prone parts of the country have previously not taken out home insurance for cost reasons, we hope that this move may encourage them to obtain cover. Consumers should always shop around to get the right deal for them.”
For more information about FloodRe, please visit: www.floodre.co.uk.
Environment Agency (2009). Flooding in England: A National Assessment of Flood Risk. [online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/292928/geho0609bqds-e-e.pdf [Accessed 3 Oct. 2018].