Flood Re: A home insurance safety net for the UK

How RSA and the rest of the insurance industry are working with the Government to ensure affordable flood insurance for high-risk homes.

What is Flood Re?

Flood Re is a scheme that gives households at high risk of flooding access to affordable insurance. All insurers who offer home and contents cover pay into an annual pot of £180 million and any claims against flood damage from policies eligible for Flood Re will be drawn from there.

Essentially it’s an insurance scheme for insurance companies to minimise their risk, meaning they can offer affordable cover to any of the UK’s 350,000 high-risk households without charging high premiums or excesses to their customers.

Excesses for policies that fall into the Flood Re category will be capped at £250 for flood damage (currently they can run into thousands), and total premiums are calculated on a property’s council tax band. All costs to customers remain at the discretion of the individual insurers, though.

Why is it needed?

Flood Re replaces a previous agreement between the Government and members of the Association of British Insurers (ABI), which guaranteed flood insurance for high-risk properties. It also had a few drawbacks.

The agreement, known as a Statement of Principles, has been in place since 2000 and meant insurers had to include flood damage cover in all their policies. However, companies were allowed to reject new applications - meaning many people at a high risk of flood damage, or with previous claims for flooding, were stuck with one insurer at an uncompetitive rate because no one else would accept them.

“The Statement of Principles didn’t really work because insurers could still apply excess and premium increases after someone makes a flood claim. Those customers couldn’t really shop around either because most insurers would decline people who’d had a previous flood claim,” said Ian Bostock, Governance Director for Personal Products and Pricing.

“We, the Government and the ABI recognised this lack of competition in the market and that’s where the idea of Flood Re - a not-for-profit re-insurer - first came from.”

Major UK flood events of last 10 years

Throughout the last decade, communities across the country have endured flood damage of varying degrees of severity - resulting in lost lives and billions of pounds worth of repair bills. RSA’s claims experts picked out these as the most severe episodes they’ve dealt with.

Craig Monks, RSA’s Home Claims Functional Leader and National Events Coordinator, has been dealing with flood claims for the past 22 years and says the introduction of Flood Re will have a very real impact for people who live in high-risk areas because it will take away some of the worry that comes with sorting out adequate cover.

The stress of a flood claim is often significant. Unlike many other claims, such as theft or small house fires, you cannot continue living in your own home.
Craig Monks Home Claims Functional Leader and National Events Coordinator at RSA

“That upheaval of moving out, finding somewhere suitable to live at short notice and changing all your routines is huge. And the novelty of living in a hotel wears off pretty quickly. Imagine if you received a call tomorrow and someone said you have to move out of your home immediately. Where would you go? That’s the reality.

“Flood Re will make a difference in people being able to afford the right cover. There are areas of the country that very few insurers will touch because it’s too big a risk but we, as an industry, have an obligation to ensure those people are protected. Flood Re will help with that.”

What will it mean for customers?

In simple terms, a wider choice of insurers and lower premiums for those at risk of flood damage or who’ve made a similar claim before. These are the people who, Bostock says, will benefit the most from Flood Re because “they’re the ones who, at the moment, will almost always be on the ‘declined’ list”. The determination of ‘high risk’ does differ from insurer to insurer though, and isn’t a decision made by Flood Re.

Flood Re will:

Enable flood cover to be affordable for those households at highest risk of flooding;
Increase availability and choice of insurers for customers;
Allow time for the government, local authorities, insurers and communities to become better prepared for flooding; and
Create a 'level playing field' for new entrants and existing insurers in the UK home insurance market.

However, some properties won’t be included.

Are you covered by Flood Re?

Your home is covered if:

The insurance contract is held in the name of, or on trust for, one or more individuals or by the personal representative of an individual;
It has a domestic council tax band A to H (or equivalent);
It is used for residential purposes;
It has an individual premium;
The holder of the policy, or their immediate family, lives in the dwelling for some or all of the time (whether or not with others) or the dwelling is unoccupied;
It was built before 1st January 2009 (if a building is demolished, built pre 1st January 2009, and rebuilt, the new property is still eligible);
It is located within the UK (so England, Wales, Scotland and Northern Ireland, but excluding the Isle of Man and the Channel Islands).

Still not sure if you are eligible for Flood Re? Full details of who is and who isn’t covered

Some exclusions from the scheme may sound arbitrary, although Bostock says there are good reasons for them.

“There was some discussion about whether to include small and medium enterprises but, on balance, it was decided affordable cover already exists for businesses. Flood Re is to protect homeowners,” he explains. “That’s also the reason blocks of flats and leasehold properties are excluded, unless they are owner-occupied.

“The reason for the 2009 cut-off is to encourage responsible construction - the introduction of Flood Re shouldn’t be seen as a way of opening up areas to build upon in flood plains.”

What will it mean for insurers?

The cost of paying claims for widespread flood damage will be significantly reduced for insurers because the risk will now be spread across the entire industry. Insurers will pay a levy to Flood Re, based on their total market share, and that will go into a £180m annual pot to effectively act as an insurance scheme for insurers.

There are so many facets to dealing with a flood claim that you don’t get with ‘normal’ claims - it can be very expensive.
Craig Monks Home Claims Functional Leader and National Events Coordinator at RSA

“There are so many facets to dealing with a flood claim that you don’t get with ‘normal’ claims - it can be very expensive, especially when it’s a flash flood and it happens without warning,” Monks explains.

“Among the things that might need to be covered straight away are alternative accommodation and emergency funds to replace things like your transport, clothes, or necessary electricals. Then there’s what we call the complete ‘drying regime’ to get your home back to the way it was, which is far from simple because water that comes into the home will be contaminated so you can’t just wash things to get them clean.

“Lastly it’s about getting your property back to the way it was before and refitting and replacing everything, from carpets and wallpaper to your DVD collection.”

The Flood Re pooled fund will be in place for a minimum of 25 years although the total of the levy due, which has been set by an independent actuary, will be reviewed every five years.

Why has it taken so long to come in to force?

According to Bostock, the process has been a great deal more protracted than anyone expected at first. The total of the levy needed to be carefully calcuated, insurers and the Government both need to be confident in the processes involved in any claims, and all the rules, regulations and restrictions needed to be thought through.

However, he said the delays had been necessary in order to ensure the system has no bedding-in period - it needs to work first time, every time for customers.

“RSA has been involved from the point Flood Re was first proposed, which was about three years ago, shortly before the Statement of Principles was due to expire in July 2013,” he says. “There’s been lots of complexity involved, at all points in the process - insurers, consumers and Flood Re itself. Insurers’ information systems needed to be fully updated and there were changes needed throughout the industry, the PRA (Prudential Regulation Authority).

“Now all the documents are signed RSA will be an original member from its go-live date on 4^th April 2016.

I live in an area prone to flooding - what will I need to do?

You’ll probably notice little to no difference in the way you take out an insurance policy. Flood Re will just work in the background to enable insurers to offer more competitive deals, and give homeowners more choices on both contents and buildings insurance. Part of the overall premium you pay will go towards the Flood Re pot – but that’s about it.

“The customer never gets involved directly with Flood Re, their relationship is always directly with insurers,” Bostock adds. “We, as insurers, will always pass on any savings to the customer from their eligibility for Flood Re cover, and that is all determined by the level of flood risk for that property.

“But don’t forget that the flood element is only one of a number of things that make up a home insurance premium.”

Nine steps to take if you are flooded

Do not touch the electrics.
Once the flood water has started to recede, if the weather allows open all windows during the day – the air outside the house will be less moist than that inside, so it helps to dry out the house. By mid-afternoon, the air outside will be moist, so close your windows and put your heating back on.
Although you will instinctively want to dry items as quickly as possible, do not expose them to extremes level of heat as this could result in further damage.
When salvaging photographs/valuable paperwork, remove excess water and keep tightly together. Leave to dry naturally. Using a de-humidifier (your insurer should provide one) leave it running in every affected room.
Fridges and freezers should be cleaned out as soon as possible and any food thrown away. If you have the relevant insurance cover, remember to keep a list of food items for your claim and, if possible, take a photograph.
Store damaged furniture and fittings in a dry place, as they may have a salvage value or could be repairable. Either way they will need to be inspected.
Remove all soaked rubber-backed carpets and leave them in the garden as these will have to be replaced. Leave hessian-backed carpets on the floor to dry, as they will shrink if lifted. Once they are dry, the carpets can be lifted to dry the areas underneath.
Once the flood water has receded, remember it may be contaminated. Be careful what you touch and look out for signs of pollution.
Do not attempt to redecorate straight away, as it may take months for a property to dry out properly. Your insurer will be able to advise on this. It is important to check with a decorator or other experts to ensure that the walls and other surfaces are fully dried out and, if necessary, treated to prevent mould.