Flood Re, the body set up by the UK government and the insurance industry to reduce the cost of cover in flood-prone areas of the UK is set to launch in April 2016. However, this arrangement is only set to continue until 2039, by which time it is expected that the home insurance market will return to risk-reflective pricing.
Yesterday, Flood Re published its first transition plan setting out how the scheme will work with partners to enable lower prices and excesses to be offered to consumers by the time it comes to an end in 2039.
According to their statement yesterday, Flood Re’s role is to support these partners by providing a detailed evidence base highlighting:
How the data it collects on the cost of flood claims can be used by insurers and others to cut the cost of repairs.
Where it believes spending and incentives would be most effective in cutting the cost of flooding.
How it may be possible in due course to incentivise householders and insurers to take the most effective measures to protect homes against flooding, whilst remaining firmly on the side of the people affected.
These three combined elements will enable informed decisions to be taken on the most effective ways to reduce the cost of flooding and therefore insurance. The plan does not comprehensively describe how Flood Re will reduce the scheme’s subsidy as the evidence base required to plan for transition does not currently exist.
Brendan McCafferty, Chief Executive of Flood Re, said: “Flood Re has been established to improve the availability and reduce the cost of flood cover. We will be ready to accept policies in April and consumers should speak to their insurer and be prepared to shop around from that point on.
“If we are to successfully reduce premiums and excesses for flood prone homes in a sustainable way over the coming decades, action must be taken to reduce the cost of flooding. These properties will need to be made more resilient when flooding happens and action needs to be taken to bring down the cost of repairing flood damage.
“Flood Re has an important role in ensuring any action is taken on solid evidence. However, as Flood Re has limited powers, we rely on developing strong relationships with the Government, government agencies, insurers, consumer groups and others to ensure that they take the necessary action to reduce the cost of flooding.
“This transition plan is important because it is the first time we have been clear about what the market should look like when we end in 2039. Whether it is in our transition plans, in public debate or private engagement, Flood Re will remain true to its purpose of helping high risk households to access affordable flood cover.”
To create the evidence base Flood Re will listen to a wide range of stakeholders by establishing a transition plan advisory body with relevant experts. The next plan will report back on its work and will be published in time to inform the first of Flood Re’s five year reviews.