The launch of Flood Re in April 2016 aims to ensure affordable flood insurance is available for those homes at the highest risk of flooding. Here we provide you with everything you and your customers need to know about this latest development to the home insurance market.
Over 2.4 million properties are at risk of flooding from rivers and the sea. Of these Flood Re will benefit over 350,000 households that face difficulty getting insurance, either because the cost is too high or because the risk is so high the property is basically uninsurable, by having access to those more affordable policies.
What is Flood Re?
Flood Re is a joint industry/Government sponsored scheme to:
- Enable flood cover to be affordable for those households at highest risk of flooding;
- Increase availability and choice of insurers for customers;
- Create a transitional measure to allow flood insurance to move towards risk-reflective pricing within 25 years; and
- Create a level playing field for new entrants and existing insurers in the UK home insurance market.
It was enabled through primary legislation under the Water Act 2014.
When will it go live?
The Flood Re levy went live on April 1st 2016 followed by the placing of risks (ceding) on April 4th 2016.
Flood Re will increase the availability and choice for home owners, making it easier to shop around to get the best deal.
Flood Re will help eligible homeowners living in flood prone areas to be able to purchase affordable home insurance with reasonable excesses in order to protect their homes.
N.B. The scheme is not available for homes built after 1st January 2009, landlords or any commercial business.
For insurers, Flood Re enables them to place (cede) the flood risk element of domestic property insurance with Flood Re at a capped reinsurance premium paid by the insurers linked to property Council Tax bands.
How does Flood Re work?
Flood Re will collect a levy, from the insurance industry and will also charge insurers a premium for each policy sent to it by insurers, based on that property’s council tax band.
This will create funds from which Flood Re will pay the flood related claims on those policies sent to Flood Re by the insurers.
Over time, this should have the effect of producing more competitive premiums for high risk properties and increasing availability of cover.
How do customers buy Flood Re products or make a claim with them?
Customers will continue to purchase their home insurance or make a claim in the same way as before, whether that’s through a price comparison site, directly from an insurer or through a broker.
Insurers will continue to set the premiums they charge to their customers for home insurance, taking into account other factors in the competitive UK property insurance market such as the risks of fire, theft, subsidence and other costs. It is expected that insurers could cede buildings, contents or combined home insurance policies to Flood Re, relating to around 350,000 households.
Flood Re makes no difference to the way customers buy their home insurance and all claims will continue to be handled by the insurance companies themselves.
What does the scheme mean for consumers? Will insurance premiums be capped?
Flood Re will charge a fixed reinsurance premium per policy to insurers for the flood element of policies transferred to Flood Re, based on that property’s Council Tax band.
How is the scheme funded?
Flood Re will be funded through an industry-wide levy which will be reviewed within the first five years of Flood Re’s operation. The individual levy per insurance firm will vary depending on their home insurance market share. Flood Re will also receive the fixed reinsurance premiums per policy ceded by each insurer
Our approach to Flood Re
RSA went live with the Flood Re levy from April 1st 2016 but will begin to cede risks at a later date. These dates will vary dependent on product and distribution channel.
We are currently working with our software house partners to better understand their approach to Flood Re so that together we can develop a solution.
Our mid net worth product is currently out of scope due to system constraints. We’ll keep you up to date with any advancement in this area.
If you have any questions about Flood Re in regards to RSA policyholders please contact a member of the broker development team or for more information on Flood Re, including a customer video, please visit floodre.co.uk
Managing Director – Private Client inc. Oak Underwriting
Director – Regional Broker