Carter Jonas
Carter Jonas

Get ready for Flood Re launch in April 2016

Flood Re, the long-awaited reinsurance scheme for properties at risk of flooding, has now been confirmed as likely to launch in April 2016.

It’s a good nine months behind the anticipated launch of July, 2015, itself almost two years after the previous insurance arrangements by providers came to an end.

Landlords of residential lettings properties need to be aware that Flood Re does not embrace their properties except in very limited circumstances, leaving them at the mercy of the open market for buildings cover. Tenants should still be able to arrange contents cover under Flood Re.

Flood Re is a complex form of reinsurance that will be funded through a levy on every home insurance policy, typically costing about £10.50 for every policy issued or around 2.2 per cent of the premium.

Insurers will sell insurance in the normal way, and have an incentive to compete for the buildings and contents business of customers with high flood risk because they know they can pass the flood component element of the policy into Flood Re, based on Council Tax band, and priced accordingly – from £210 for Band A homes to £540 for Band G homes.

Insurers will use this facility for the 1-2% highest risk homes – an estimated 350,000 to 500,000 homes – that would have struggled to find any affordable cover in a normal market. If they are flooded those customers will deal with their insurer in the usual way to get their claim paid and Flood Re will reimburse the insurer behind the scenes for the cost of the claim.

While Flood Re is being developed, ABI members are voluntarily continuing to meet their commitments to existing customers under the old Flood Insurance Statement of Principles agreement. This means they are offering flood cover to existing customers where flood risk is not “significant” according to the Environment Agency, or where the Government has announced plans to reduce flood risk below “significant” within five years. The premium and excess will not be capped, as they will reflect the insurer’s understanding of the flood risk.

While the confirmed launch of Flood Re may be good news for many of the households occupying those 350,000

– 500,000 properties, there are notable exceptions that should concern all landlords and some homeowners. 

Flood Re is designed to provide support to those homeowners who without it are most likely to face problems in obtaining affordable flood insurance.

Homes built after 1 January 2009 will not be covered (as applied under the old Flood Insurance Statement of Principles) - this is to avoid incentivising unwise building in known high flood risk areas. Commercial properties, including commercial leasehold properties, will not be included.

The individual nature and assessment of business and commercial property risks means that available and affordable flood insurance is less of an issue than for homes. While some individual firms may experience problems in accessing flood insurance, these can usually be resolved by using (as most do) an insurance broker. Flood Re will establish clear rules for “borderline” cases such as Bed and Breakfast properties.

Leasehold blocks with three residential units or less will be eligible for Flood Re providing the freeholder responsible for purchasing the buildings insurance lives in the block and the building meets the other required eligibility criteria.

Flood Re will cover the risk if the residential property:
i) Is in the name of an individual or personal representative of an individual
ii) it has a domestic council tax band (or equivalent),
iii) has been added to the Council Tax Valuation List (or equivalent) or been constructed before 1st January 2009,
iv) is not in a portfolio of properties for commercial gain, and
v) is lived in for all or some of the time by the policyholder or their immediate family.

Landlords who know their properties will fall outside the Flood Re parameters need to act now to ensure they have insurance cover arranged for the first renewal after the scheme comes into effect.

It may be easier to sell a property that can be insured as a private home before cover potentially becomes a problem (or becomes more expensive as insurers reassess risk) and reinvest in a property for which it is easier to arrange cover. Our residential and valuation teams can help with valuations and give guidance over sales and reinvestment.

Lisa SimonMARLA

Partner - Head of National Residential Lettings

Lisa is the head of Residential Lettings at Carter Jonas; she is based in our Knightsbridge and Chelsea office where she started her career and advises on all aspects of letting and managing propert...

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