Government agrees flood insurance deal

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A fund is to be set up to keep flood insurance cover affordable for high-risk homeowners.

The Government and the insurance industry have agreed to create a not-for-profit fund, which will be known as Flood Re, to allow premiums to be capped for the 200,000 UK homes at most risk of flooding.

High risk properties are those deemed to have a greater than one in 75 chance of flooding in any given year.

The fund will be built up via a levy on insurers if flooding should occur, and the limit on premiums will be based on council tax bands. Householders will still be able to shop around for flood insurance.

This deal replaces an existing arrangement, put in place in 2008, under which insurers have been obliged to provide affordable cover for high-risk properties, while the Government was obliged to improve flood defences.

The industry claimed that this model was unsustainable and there was a risk of flood insurance premiums having to rise for all households if an alternative arrangement could not be made.

Under the new plans, the flooding element of the household insurance premiums will be capped at £210 a year for those living in homes in council tax bands A and B. This cap will rise for bigger homes to £540 a year for homes in band G. Homes in band A will not be covered. Homes in band H, and homes built after January 2009, will not have a cap.

The new deal should be implemented by summer 2015.

Clare Francis, editor-in-chief at MoneySupermarket, said:

“The extreme weather in recent years has resulted in many homes having been affected by flooding for the first time, and while this has obviously cost insurers a huge amount in payouts there was a fear that thousands of homeowners would be left unable to afford insurance for their homes.”

Ian Fletcher, director of policy at the British Property Federation, said:

“This is welcome news and will come as a huge relief to property owners across the country that have been living with uncertainty about flood insurance.

“It’s clear that without an agreement with Government the insurance market would not be able to offer protection in high risk areas, and with recent flood incidents still fresh in the memory this would have been an unpalatable outcome.

“Universal flood cover was always a prize worth persuing, as is ensuring it remains affordable to everyone.”