A short guide to Flood Re
Flood Re is being taken forward to help households at the highest risk of flooding with the
cost of the part of their home insurance which relates to flood risk. Households in flood risk
areas are more likely than in the past to be charged a premium that reflects their risk of
making a claim. While in the long-term this will help build greater awareness of flood risk,
and encourage appropriate steps to be taken to reduce the risk of flooding, in the shorter
term many households might have struggled to afford ongoing cover. Flood Re will provide
transitional support over a 25 year period; this will provide time for choices to be made and
risk management action to be taken.
Flood Re will be a not-for-profit reinsurance body, run and managed by the insurance
industry. The scheme will effectively limit the cost of flood insurance for properties at the
highest risk, with the level of the premium varying according to the Council Tax band (or
equivalent) of the property. Flood Re is only intended to cover those properties most at risk
– if a property is not at high flood risk, we expect the market will provide insurance at more
competitive rates. It has been estimated that around 1-2% of domestic households might
benefit from being reinsured through Flood Re.
Insurers will maintain a direct relationship with their customers, with policyholders paying
premiums and making claims directly to the insurer. However, if an insurer calculates that
the flood risk element of a policy will cost more than the premium set under Flood Re, that
insurer can cede the flood risk part of the policy to Flood Re. In the event of a flood, the
insurer would pay the claim to its customer and seek reimbursement from Flood Re.
Funding for the scheme will come from premiums and a levy, which will be raised from
insurers according to their market share. The levy will be set at a level that replicates the
cross subsidy that already exists in the market (currently, all domestic policyholders
subsidise ‘at-risk’ policyholders). This will be £180 million each year for the first five years
of the life of the scheme, and subject to review thereafter.
For more information on Flood Re, see the previous consultation, “Securing the future
availability and affordability of home insurance in areas of flood risk”, which is available at:
https://consult.defra.gov.uk/flooding/floodinsurance and the Water Act 2014, available at:
http://www.legislation.gov.uk/ukpga/2014/21/section/64/enacted. Details of the intended
scope of Flood Re is set out in a briefing note which is available at: