New insurance plan excludes millions of households


Flood Control, Sandbags. Sandbags stacked in a doorway to prevent flooding.

'Flood Re', a scheme to help households at risk of flooding get affordable insurance, will exclude leasehold and rented properties.

Millions of properties will be excluded from getting cheaper flood insurance cover if proposed 'Flood Re' plans go ahead.

That's the warning from the Council of Mortgage Lenders and members of the British Property Federation.

Flood Re is a scheme that has been devised by the Government in conjunction with the insurance industry to offer affordable flood insurance to high-risk homes.

The exclusions have come to light as the second reading of the Water Bill - which the new proposals fall under - is due to go through Parliament.

The types of properties that will be excluded from the cover as the Bill stands include:
  • Leasehold properties
  • Properties in the private rented sector
  • Small and medium-sized enterprises (SMEs)
  • Housing association homes
  • New-build homes constructed after January 2009
  • Council homes
  • Properties in Council Tax band H

Unexpected exclusions

When the Flood Re plan was agreed last year, officials made clear new-build homes built after 2009 would be excluded to avoid developers exploiting the scheme and building in high flood-risk areas.

Properties in Council Tax band H – the highest-paying residents – were deemed to not need access to affordable flood insurance.

SMEs were excluded because they are commercial rather than residential or 'non-domestic'. The Government and insurers agreed it would be unfair to cross subsidise commercial and residential properties, as businesses can usually find affordable deals through brokers.

However, it has only recently become clear that privately rented, council housing and housing association homes as well as leasehold properties are to be excluded from the scheme.

There are around five million leasehold properties thought to be in England and Wales and over four million properties in the private rented sector, which means many more homes could be excluded than originally expected.

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Why are these properties being excluded?

The main reason for the exclusions of these types of properties is that they are classed as 'non-domestic', rather than 'domestic' by the insurance industry - making them commercial rather than residential.

The Association of British Insurers (ABI) argues that local authorities, housing associations, management companies and commercial landlords already have ways of accessing affordable flood insurance so shouldn't be able to use Flood Re.

But the majority of the private rented sector is owned by individual landlords or buy-to-let investors with one or two properties to manage who might not be able to afford the cost. And it is feared that rather than landlords or big organisations, the exclusion will impact tenants and their contents.

The CML and groups representing different property interests have warned that these plans could impact 'swathes' of properties and have urged the Government to rethink its position.

Paul Smee, Director General of the CML said: "We find it difficult to believe that the original policy intention was to exclude a whole swathe of residential property from the stated aim of ensuring that affordable flood insurance continued to be available across the market. Given that this appears to be an unintended consequence, we strongly urge legislators and the insurance industry to reconsider the proposals and ensure flood cover remains available on homes as people would expect."

But Stephen Sobey from the Association of British Insurers told us that the rules won't be as black and white as CML and other groups are claiming and confirmed those that need access to Flood Re will get

He said: "Flood Re will cover domestic properties, regardless of whether leasehold or freehold, as long as they are insured by individuals rather than companies....The contents insurance of individual's homes, regardless if rented either through a local authority, housing association or rented privately, will be covered by Flood Re."

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What is Flood Re?

Back in 2000, the Government and the insurance industry agreed on something called the 'Statement of Principles' to help flood-prone homes get cover.

However, this agreement was found to be in need of updating as it does not guarantee affordable flood premiums or manageable excesses. Ian Crowder from the AA told us last year that a home that has been flooded more than once can carry an excess of more than £10,000.

Flood Re has been devised by the Government and insurers to help provide affordable protection on home insurance policies for properties in areas at risk of flooding.

The cost to cover the flood risk part of the household premium will be capped. The cap will be linked to Council Tax bands, starting at no more than £210 per annum in Bands A and B, rising to £540 per annum in Band G.

To help fund this cap, all home insurers will be subject to a levy of £180,000 a year to put into the pot. On average this works out at £10.50 a year on all home insurance policies.

The Flood Re plan should provide cover to 500,000 at-risk households that would otherwise struggle and should be up and running by summer 2015.

If your home is at risk

For more help if your property is at risk of flood read Where to get home insurance for high flood-risk homes and Protect your home against flooding.

And you can see if the mainstream insurers are willing to consider you by using our home insurance quote engine.

What do you think? Are these exclusions fair? How will your property be affected?

Places at most risk of flooding in Britain

Places at most risk of flooding in Britain