Insurance solution for flood-risk homes

Updated: 

Owen Humphreys/PA

A new solution to help homeowners on flood plains insure their properties is set to launch this summer.

With a government agreement that requires insurers to cover flood-prone homes due to end next year, 'Project Noah' is currently being trialled to help the thousands of households who face becoming uninsurable.


The problem
Back in 2000, the government and the insurance industry joined to produce a document called the Flood Insurance Statement of Principles. It governed insurers' treatment of policyholders in flood-prone areas and was renewed for five more years in 2008.

The agreement is set to expire in June 2013 and industry body, the Association of British Insurers (ABI) has warned that it will not be renewed. The ABI says the agreement 'grossly distorts' the home insurance market because policyholders in low-risk areas are paying higher premiums to subsidise those living on flood plains.

As a result, 200,000 flood-risk homes could be uninsurable and consequently plummet in value due to owners not being able to secure cover for their home and contents.

New solution
With the government refusing to subsidise flood insurance and home insurers rejecting a compulsory industry-wide levy to help with the cost of covering flood-risk homes – these 200,000 households are teetering on the edge of disaster.

Now 'Project Noah' – a new flood risk reinsurance pool is set to launch later this year to enable fair priced home insurance for all households.

It is the creation of broker and risk management firm Marsh and reinsurance intermediary service provider Guy Carpenter, together with the Landmark Information Group - providers of digital mapping and land data intelligence.

By using its newly-developed flood risk pricing model, Project Noah claims it can identify and calculate the flood risk of every residential property in the UK, which will enable targeted flood defense investment.

Reduce risk
The aim of Project Noah is to reduce the risk of insuring flood-risk properties by allowing insurers to transfer their residential flood risk policies, less a small retention, into the international reinsurance market.

"The provision of cost-effective home insurance for homes in areas exposed to flooding is a major challenge for the UK's insurance industry," said Hutton Swinglehurst, head of flood risk for Marsh UK. "We have tested Project Noah with some of the UK's largest insurers, as well as leading global reinsurers, who believe that this state-of-the-art model provides an innovative solution to an intractable problem."

Reinsurance is a means of risk management where insurance companies buy policies from other insurance companies. It reduces risk for an insurance company by transferring the exposure to loss to another insurer, or group of insurers.

The goal is that by reducing the flood risk element in household insurance policies, insurers will be able offer competitive and fairly priced cover, even to properties with a high flood risk.

"For many years, insurers have been wanting to compete for the business of consumers who would otherwise be attractive were it not for the flood risk to their homes. Project Noah will allow them to do so," adds Swinglehurst.

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