The UK’s new residential flood insurance scheme will enable insurers to offer affordable policies to the many owners of properties at risk of flooding. It works by charging all home insurers a fee which with other charges to insurers using the scheme will pay for flood claims.
All home owners are likely to find that they are chipping in as insurers add a small amount to all policies to cover the fees they pay to the scheme. So we will all subsidise the policies of homes that are in flood areas.
The price of the flood element of an insurance policy will be fixed according to the home’s council tax band. A home owner in band A would pay £210 a year for buildings and contents flood cover, rising to £1,200 for band H.
The Association of British Insurers is advising home owners to wait and shop around rather than rush to renew a policy before it is due as there will be more choice as more insurers sign up.
In the small print there are various limitations, for example homes built since 2009 will not be covered to discourage further development on flood plains.
According to a report from Fitch Ratings it reduces the financial incentive for policyholders to make flood resilience improvements to their properties and for the government to invest in flood defences. So while some of the money will go towards improving flood defences, the scheme is certainly not a solution to the problem of homes flooding. Would the outcome have been different if King Canute had been able to apply to this new scheme? Perhaps the real question is should we be insuring these properties or knocking them down and rebuilding in more sensible locations?