Memorandum of Understanding reached between Government and the Association of British Insurers for flood insurance
Finally, some good news for those whose properties are at risk of flooding. Following months of uncertainty as to whether the cost of insurance for an ‘at risk’ property would make this unattainable, the Government and Association of British Insurers (ABI) have agreed upon a Memorandum of Understanding on a not-for-profit scheme ‘Flood Re’.
Put simply, this means that both parties are committed to working together to ensure that those with homes at risk of flooding will be able to get affordable insurance cover now and in the future.
The key points of the agreement are that the scheme will be run and financed by Insurers as a not-for–profit fund for homes at high risk of flooding. This will be financed by Insurers’ paying the ‘flood risk element’ of buildings policy to the fund. Premiums will be calculated using council tax banding. A levy of £10.50 per household premium (the estimated current cross- subsidy in place between high and low risk homes on premiums) will be applied to contribute to the fund.
It is considered that the above will provide cover for losses for 99.5% of years and that in the case of a major catastrophe (considered 1 in every 200 years), the Government will take primary responsibility, working with the industry and Flood Re to make available resources should policyholders claims exceed the level.
It is anticipated that Flood Re will be operational by the summer of 2015. In the meantime ABI members have agreed to continue to offer flood cover to existing customers under the Flood Insurance Statement of Principles.
Source: Association of British Insurers