Sea change in flood risk insurance - Flood Re

Will you be adequately covered by flood risk insurance? – maybe. Under the old model the government paid to build flood defences while insisting that insurers cover most properties in flood risk areas. Now a new scheme known as Flood Re is being introduced. All householders taking out insurance will pay a £10.50 levy to Flood Re, the new not-for-profit fund to subsidise premiums for 500 000 homes in flood prone areas.

But there are constraints. Houses in the top council tax band and business will not be allowed to join the scheme. Houses with a risk higher than 1-in-75 are excluded and all new houses built after 2009 will not be covered. The assumption being that new houses must have adequate flood defences before they are built but in 2011 28 000 were planned to be built on flood plains alone.

There are two big problems. Firstly while spending on flood defence increased from the 1970’s to 2010 it is now decreasing. Secondly the risk of flooding is increasing due to:

• ·      Climate change would could lead to rising sea levels and changes in rainfall
• ·      Ageing drainage and flood defence infrastructure
• ·      More buildings in flood-prone areas  
• ·      More paving, which increases the volume of water running off 

The concern is that the Flood Re scheme will run out of money to cover the insurance bill as the risk increases and flood defence spending lags behind. The Environment Agency estimates that flood damage costs £1.1 billion a year of which only part will be covered by Flood Re (its annual income is set at £180m pa). Perhaps householders in flood risk areas should put sandbags and wellingtons on their Christmas list.