After negotiations with the Association of British Insurers (ABI), this new agreement replaces the current Statement of Principles that runs out at the end of July and officials said it will bring peace of mind to people who will soon need to renew their insurance.
The new agreement will cap flood insurance premiums, linking them to council tax bands so that people will know the maximum they will have to pay.
To fund this, a new industry backed levy will enable insurance companies to cover those at most risk of flooding. All UK household insurers will have to pay into this pool, creating a fund that can be used to pay claims for people in high risk homes. The system will be called Flood Re.
‘Flooding is terrible for anyone affected by it. We have worked extremely hard with the industry to reach an agreement on the future of flood insurance,’ said Environment Secretary Owen Paterson.
‘There are still areas to work through but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future,’ he added.
Otto Thoresen, the ABI’s director general, said that insurers’ priority has always been to ensure that flood insurance remains affordable and available for everyone who needs it. ‘This announcement is the start of a process that aims to deliver affordable flood insurance to high flood risk households. Getting to this stage has required compromise by both sides and there remain issues that need to be overcome,’ he explained.
‘There needs to be an unprecedented level of partnership between the government and the industry. But insurers and the government are now working towards a shared vision, with Flood Re as the government’s preferred choice,’ he said.
‘Flood Re would be a major undertaking for UK insurers and the work insurers have undertaken to get here reflects the industry’s desire to cover flood risk at an affordable price in the face of the increasing flood threat in the UK. The hard work now begins for both sides if we are to make this vision a reality,’ he added.
The proposals will be given legal backing through the new Water Bill which will last for at least the next 20 years. Until the Water Bill has passed through Parliament and Flood Re is set up, the industry will continue the current agreement.
In addition, to help keep flood insurance affordable in the long term, the government has committed to continue to invest in flood defences and will provide £370 million of capital investment in 2015/2016 rising with inflation until 2020/2021.
Officials said that the investment means that over 300,000 more households will be better protected by 2021, bringing the overall risk down and helping to secure affordable insurance for people long term. He added that the government is currently spending £2.3 billion on flood defences meaning that 165,000 homes will be better protected by 2015.
New measures will also be added to the Water Bill to give government legal powers to regulate the insurance industry, if needed, to keep flood insurance affordable.
