Flood Re and household flood insurance

What is Flood Re?

Flood Re is a joint initiative between the Government and the insurance industry that aims to ensure that householders in areas at risk of flooding can get adequate cover at reasonable prices.

Flood Re is a re-insurance scheme that began operation in 2016. It allows insurance companies to pool the potential costs of the higher risk of flooding to many households by paying a special levy.

Because it is a re-insurance scheme, Flood Re works with insurers rather than customers. Insurers decide whether to pass (or “cede”) individual policies to Floor Re for cover.

What does it cover?

Flood Re focuses on buildings cover for single private properties and contents insurance for a wider range of private households.

The eligibility rules for Flood Re are somewhat complex. They exclude commercial properties as well as certain leasehold properties. They also generally exclude buildings constructed since 2009. This is to help dissuade developers from building on land at risk of flooding.

Flood Re is due to end in 2039. By that time it aims to have paved the way to a free-market approach in which policy prices reflect risk.

How did Flood Re come about?

There had been earlier agreements between the Government and the insurance industry to help manage the market. But more severe floods had led to large payouts and increases in premiums. This situation threatened a failure of the market in many areas. Working with the insurance industry, the Government set out the framework for Flood Re through the Water Act 2014.

Progress so far and issues for the future

Since its launch, Flood Re has reported strong and clear benefits for most eligible domestic customers in areas at risk. For instance, its 2023 annual report says that four out of five households with a history of flood claims had seen prices drop by 50%.

Flood Re now faces the challenge of helping to promote more sustainable approaches (pdf) to flood prevention, resistance and resilience. These will ultimately be needed if the market is to be able to reflect risk.

But there is a paradox in this. If customers can buy cheaper flood insurance, they may be less concerned about taking wider action to manage flood risks.

In 2022, the Government implemented some changes to Flood Re, primarily to help support wider flood resilience among householders.

Limitations of Flood Re’s coverage

Flood Re’s strict eligibility rules mean that significant parts of the flood insurance market miss out on support:

• Despite the link between the scheme and wider planning laws, many homes continue to be built on floodplains and are excluded from the scheme. Defra says that any such development should have appropriate resilience measures in place, so the cost of cover should be lower.
• The focus on the domestic market excludes commercial properties and small businesses. The Government says that the commercial market is much more diverse and that there is little evidence that businesses have difficulty finding cover.
• Blocks of more than three flats are also excluded from buildings cover. The logic is that they are often run by private management companies, and eligible for landlord insurance. But the British Insurance Brokers’ Association has argued that this unreasonably excludes up to a million householders.

Concerns about the availability and take-up of flood insurance

In 2020, the Blanc review found “worrying” levels of flood insurance cover, particularly among tenants. It called for better information and support for both owner-occupiers and tenants, as well as better monitoring of progress.

In response, the insurance industry and Flood Re jointly developed signposting schemes to help ensure that consumers struggling to find affordable cover can be directed to insurers who can support them, even if they are not eligible for Flood Re.

But some stakeholders were concerned that the recommendations might not have gone far enough in dealing with poor service by some insurers.

Defra plans to repeat an earlier study of the availability and affordability of flood insurance.