Household flood insurance: Flood Re

This briefing paper sets out the general system in place in the UK to manage the challenges to providing affordable household flood insurance – the Flood Re scheme.

What Flood Re is

Flood Re is a re-insurance scheme that began operation in 2016. It allows insurance companies to pool the potential costs of the higher risk to many properties by paying a special levy.

Because Flood Re is a re-insurance scheme, it works with insurers rather than customers.

The eligibility rules for Flood Re are however sometimes complex. The scheme excludes commercial properties as well as certain leasehold properties. It also generally excludes buildings constructed since 2009. This is to help dissuade developers from building on land at risk of flooding.

Flood Re is due to end in 2039. By that time it aims to have paved the way to a free-market approach in which policy prices reflect risk.

How it came about

There had been earlier agreements between the Government and the insurance industry to help manage the market. But more severe floods (such as in 2007) had led to large payouts and subsequent increases in prices. This situation threatened a failure of the market in many areas. Parliament set out general arrangements for Flood Re through the Water Act 2014.

Performance so far and issues for the future

Since its launch, Flood Re has been able to report strong and clear benefits for most domestic customers in areas at risk. By 2019, for instance, four out of five households with a history of flood claims had seen prices drop by 50%.

Flood Re has effectively stabilised the domestic flood insurance market. It now faces the challenge of helping to promote more sustainable approaches to flood prevention, resistance and resilience. These will ultimately be needed if the market is to be able to reflect risk. There is a paradox in this. If customers can buy cheaper flood insurance, they may be less concerned about taking wider action to manage flood risks.

In addition, Flood Re doesn’t cover commercial or all residential properties. The Government has tended to highlight industry-led solutions to those problems.

After prolonged and repeated flooding events over the winter of 2019-20, the Government announced the launch of the Blanc review, which considered the level and adequacy of flood insurance in affected areas. The report from the review, published in November 2020, found “worrying” levels of coverage in Doncaster, particularly among tenants. It has called for better information and support for both owner-occupiers and tenants, as well as better monitoring of progress.

Defra launched a consultation on amendments to the scheme in February 2021. This reiterates the importance of supporting resilience and proposes no changes for general eligibility.