The ABI and the Government today agreed a Memorandum of Understanding (MoU) on how to develop a not-for-profit scheme - Flood Re - that would ensure flood insurance remains widely affordable and available. The MoU is a first step towards establishing Flood Re, and confirms it as the Government’s preferred option.
Otto Thoresen, the ABI’s Director General, said:
"Insurers’ priority has always been to ensure that flood insurance remains affordable and available for everyone who needs it. Today’s announcement is the start of a process that aims to deliver affordable flood insurance to high flood risk households.
"Getting to this stage has required compromise by both sides and there remain issues that need to be overcome. For Flood Re to be established successfully there needs to be an unprecedented level of partnership between the Government and the industry. But insurers and the Government are now working towards a shared vision, with Flood Re as the Government’s preferred choice.
"Flood Re would be a major undertaking for UK insurers and the work insurers have undertaken to get here reflects the industry’s desire to cover flood risk at an affordable price in the face of the increasing flood threat in the UK. The hard work now begins for both sides if we are to make this vision a reality”
Environment Secretary Owen Paterson said:
“Flooding is terrible for anyone affected by it. We have worked extremely hard with the industry to reach an agreement on the future of flood insurance. There are still areas to work through but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future.”
Key elements of the framework are:
- Flood Re will be run and financed by insurers as a not-for- profit fund which will cover the cost of flood claims from high risk homes.
- Insurers will pass the flood risk element from those households deemed at high risk of flooding to the fund. Premiums for the flood risk will be calculated based on council tax banding up to a maximum limit depending on the Band.
- Flood Re would charge member firms an annual charge of £180million.This equates to a levy of £10.50 on annual household premiums and represents the estimated level of cross-subsidy that already exists between lower and higher flood risk premiums.
- Flood Re will be designed to fully deal with at least 99.5% of years. Even in the worst half a per cent of years, Flood Re will cover losses up to those expected in a 1 in 200 year – a year six times worse than 2007 – with Government taking primary responsibility – working with the industry and Flood Re – for distributing any available resources to Flood Re policyholders should claims exceed that level.
Providing operational issues, including governance and regulatory approval, are resolved, the aim is for Flood Re to be up and running by summer 2015, with regular progress reviews taking place to ensure Flood Re can proceed. For now ABI members will voluntarily continue to meet their commitment to continue to offer flood cover to existing customers under the previous Flood Insurance Statement of Principles.
For more information, see our Q&A: What you need to know about Flood Re