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The ‘Flood Re’ Scheme: The solution for at flood risk homes?

Sue Woodall, Director, Solicitor and Head of Astle Paterson’s Conveyancing Department discusses the Governments proposals to solve problems with obtaining insurance for homes that suffer from flooding.

Sue said “Following the severe floods that have affected parts of the UK in recent years which resulted in massive cost to insurers, it has become clear that some arrangement would have to be agreed between the insurers and the Government to ensure that the owners of houses that have been affected by flooding in the past or that are situated in areas designated as being at high risk of flood will still be able to arrange buildings insurance at a reasonable rate.

The Water Act 2014 sets up the framework for a new scheme which will be known as Flood Reand further details of the scheme have been released recently.

The scheme will be operated on a “not for profit” basis and it is essentially a reinsurance scheme whereby individual insurance companies will continue to sell property insurance policies in the usual way but they will be able to pass the flood risk element of the policy to a reinsurance company, or reinsurance vehicle such as Flood Re.

The risks are then pooled into a fund which pays out to the insurer if a claim for flood damage is made by the home owner under their property insurance policy.

It will still be the responsibility of the original insurer to deal with the claim but Flood Re will reimburse the insurer behind the scenes for the cost of the claim for flood damage.

It is intended that because large claims will be more widely spread, the insurers should still be willing to accept the risk of insuring properties that have been affected by flooding in the past or are situated in high risk areas.”

Sue continued, “This should not mean that insurance premiums will be increased.  Customers have already been paying increased property insurance premiums to cover the high cost of the claims that insurers have had to fund in recent years.

It is hoped that once the scheme is operational, it will create a contingency fund of approximately £18m a year.  This is, of course, only a fraction of the potential cost of claims after widespread flooding.

It is of note that the claims arising from the floods in South Yorkshire and Humberside in 2007 alone cost the insurance industry £3bn!

Whilst some commentators feel that the costs of setting up the Flood Re Scheme would have been better spent on improving flood defences, regardless as to the perceived downfalls in the scheme, it is set to be implemented this summer in 2015.”

As Astle Paterson are Conveyancing Quality Scheme accredited and are best placed to help you through the process of buying or selling your home. 

Please contact our conveyancing department on 01283 531366 or by email at conveyancing@astlepaterson.co.uk to discuss matters further.  

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