How do insurers deal with flooding and flood risk?

Properties in areas at risk of flooding almost certainly face higher premiums – for both building and contents cover. As well as the risk from rivers and streams, high tides and storm surges can directly or indirectly cause damage. Coverage for “flooding” in policies also applies to such matters as burst water mains – so it is also relevant to properties not apparently at risk of “natural” flooding.

Flood Re for most domestic policies

Widespread flooding causes a dramatic increase in claims. In the past, this led to large rises in premiums for customers. As a result, the Government and insurers developed a new scheme, Flood Re. This manages the increased costs for both insurance companies and most of their domestic customers.

While owners of properties at risk are still likely to pay more, Flood Re helps to limit levels of premiums and excesses. This is because it is a system of re-insurance, in which companies take out further levels of insurance to limit their own exposure. The Flood Re website explains how the system works:

Every insurer that offers home insurance in the UK must pay into the Flood Re Scheme. This Levy raises £180m every year that we use to cover the flood risks in home insurance policies.

Flood Re works with insurers behind the scenes. When you buy home insurance cover, your insurer can choose to pass the flood risk element of your policy to us for a fixed price.

If you make a valid claim for flooding, your insurer will pay the claim. Later on, we’ll reimburse that insurer from the Flood Re fund.

In short, you buy home insurance in the usual way. We cover the flood risk and that helps to keep your premiums down.

This means that insurance companies decide how to manage the risk of increased costs, rather than leaving it up to customers.

Please note though that in the UK, individuals and businesses are responsible for ensuring that they have suitable and adequate insurance coverage, so all customers should always check before agreeing to a policy.

Exclusions from Flood Re

Flood Re does not cover all policies. In those cases, premiums may be much higher or the insurance contract will specifically exclude cover for flood damage. Flood Re has published an outline of specific inclusions and exclusions.

For instance, Flood Re doesn’t cover commercial customers or leaseholders in buildings with more than three properties.

In most cases it only covers buildings constructed before 1 January 2009. The Government wanted to ensure that new housing development would avoid flood risk areas or take adequate precautions.

Customers who are or may be excluded are likely to benefit from contacting a specialist broker. The British Insurance Brokers’ Association (BIBA) has also developed a scheme intended ‘to provide BIBA members with comprehensive cover at highly competitive terms’.

There have however also been reports that not all insurers or brokers are signed up to Flood Re, despite the approach outlined above.

Customers who believe that they were not warned of any such exclusion may follow the standard complaints procedure.

In 2039 the Flood Re Scheme will end and there will be a free market for flood risk insurance. There will be a review at least every 5 years to assess Flood Re’s progress in managing a transition to this free market, which may consider the premium charged for each policy and the Levy charged by Flood Re to UK home insurers.

How can I find out if I live in an area at risk of flooding?

The Flood Re tool gives a quick overview of flood risk (and Flood Re coverage) by postcode.

Government agencies provide more detailed maps and information, through:

• The Environment Agency, for England
• DfI Rivers, for Northern Ireland
• The Scottish Environment Protection Agency, for Scotland
• Natural Resources Wales / Cyfoeth Naturiol Cymru for Wales.

Where can I find further information and advice?

As well as the national agencies listed above:

• The Association of British Insurers (ABI) has a webpage outlining issues and further sources.
• BIBA, the ABI and Flood Re have published an online tool to help customers find insurers who specialise in flood risk.  
• BIBA’s Find Insurance service. They are also on 0370 950 1790.
• The National Flood Forum offers independent advice on finding insurance and flood prevention measures in England and Wales. They are also on 01299 403055.

Disclaimer

The Commons Library does not intend the information in this article to address the specific circumstances of any particular individual. We have published it to support the work of MPs. You should not rely upon it as legal or professional advice, or as a substitute for it. We do not accept any liability whatsoever for any errors, omissions or misstatements contained herein. You should consult a suitably qualified professional if you require specific advice or information. Read our briefing for information about sources of legal advice and help.