AA Insurance welcomed the announcement (18 December 2014) that agreement has finally been reached with the government to complete the legal framework needed to establish Flood Re.
The Flood Reinsurance Scheme (Flood Re) should be incorporated next year within the existing Water Act 2014, which will then ensure that owners of flood-prone homes are able to obtain affordable insurance cover.
Janet Connor, managing director of car and home insurance broker AA Insurance, said: "I'm particularly pleased that Band H homes, or Band I in Wales, will after all be included in the scope of Flood Re.
"What this means is that insurers will be able to offer competitive home buildings and contents insurance to those most likely to be affected by flooding, because claims costs will shared through the Flood Re pool, funded by a subsidy from all home insurance policies. The industry has invested heavily, to the tune of £17m, in helping to develop Flood Re to the point that it can be built into the statute book. It has taken many months of detailed discussions to reach this stage although there is still a lot of work left to do."
Meanwhile, the so-called 'statement of principles' established in 2000 continues, following an extension when it expired in June 2013. It enables owners of homes at serious risk of flooding to continue to obtain insurance, although often at high premiums and excesses for flood claims.
The AA, which operates the benchmark British Insurance Premium Index, believes the new agreement will have a marginal effect on home insurance premiums, which have been falling over the past two years.*
"Although premiums are likely to be higher for homes in areas prone to flooding than those that are not, they will be more affordable than they are now and homeowners can look for competitive quotes," Ms Connor points out.
"Currently, while an existing insurer will continue to offer cover to a property owner with a history of flood claims, it is difficult find another insurer to take the risk on. Flood Re will ensure that the owner can look for a competitive quote just like anyone else."
"But it is vital that that the government continues to invest heavily in flood alleviation and defence schemes.
"Without that commitment, Flood Re will flounder."
* The AA British Insurance Premium Index for the third quarter 2014 shows that the quoted Shoparound premium for an annual combined buildings and contents policy is £159.88, down 11% over 12-months.
18 December 2014