Everything You Need To Know About Flood Re

A new scheme to help home-owners in flood-stricken areas reduce their insurance premiums launches today, but what exactly is Flood Re? Here's a handy guide.

:: What is Flood Re?

A scheme run jointly by the Government and the insurance industry. The aim is to make insurance more affordable for those living in areas with a high risk of flooding, where insurance premiums are likely to be higher.

The higher cost associated with flood-risk areas is passed on to Flood Re, meaning insurance companies don't have to foot the bill, and should offer cheaper policies to those affected.

Essentially it is a reinsurance company, which allows insurers to insure themselves against losses because of flooding.

It’s not-for-profit, owned and managed by the insurance industry, and is the first of its kind in the world.

:: How does it work?

It (Other OTC: ITGL - news) is up to the insurer to decide if they wish to take part in Flood Re and pass on the flood-risk element of cover to Flood Re.

If they do want to pass on the flood-risk, insurers will pay a fixed charge per policy.

Issuance companies will also contribute to an annual £180m fund; the levy is raised from all UK home insurers according to their market share.

:: How is it calculated?

The cost for insurers to pass on the flood-risk to Flood Re is calculated according to the council tax band of the house. It starts at £210 for a Band A house, going up to £1,200 for Band H homes.

Flood Re doesn't set prices for home insurance, that is still set by the insurance company.

:: Who is eligible?

Only residential properties in council tax band A to H are covered. Businesses and buy-to-let properties are ineligible.

The holder of the insurance policy, or their immediate family, must be living in the property.

Flats in leasehold blocks of more than four are also excluded.

The property must have been built before 1 January 2009 to prevent incentivising building on flood-risk areas.

The Association of British Insurers (ABI) estimates some 350,000 properties in the UK will be eligible.

:: What do you have to do?

Buy your insurance cover as normal. You will need to check with your insurer if you're eligible and if they offer Flood Re products.

You will make claims through your insurer as before, and won't deal directly with Flood Re.

:: Who's taking part?

The following insurance brands offer insurance products that include the benefits of Flood Re: Admiral, Avantia (HomeProtect), Aviva Home Insurance, Bank of Scotland, Cherish insurance Brokers, Churchill, Direct Line (Other OTC: DIISD - news) , First Direct Home Insurance, Halifax, Hiscox Broker, Legal & General (LSE: LGEN.L - news) , HSBC Home Insurance, Liverpool Victoria, Lloyds bank, More Than, Nationwide (LSE: NBS.L - news) and Privilege.

:: Is it fair?

Insurance companies are expected to pass on the cost of the Flood Re levy to their customers, which could raise average bills by around £10.50.

The scheme means those in lower-risk areas are helping to subside those in higher-risk places, where the premiums have been capped at an artificially low rate.

The Committee on Climate Change has said the scheme is not good value for money, specifically that it is subsidising more households than needed, meaning “costs are higher than necessary at the expense of other households’ insurance bills.”

The CCC has called for the exclusion of band H houses, which, it says, are not likely to struggle to cover the cost of insurance. Band H homes were initially excluded from the scheme, but Flood Re argue "the impact of a flood can be no less devastating for Band H homes (Other OTC: UBGXF - news) ".