Why Flood Re must change before it becomes unfit for purpose

Despite its success, Flood Re is in danger of becoming unfit for purpose. 

And while it may sound unusual for a company CEO to call out the limitations of his own organisation, Flood Re is not your usual company.

Set up 10 years ago by the insurance industry and the government, its remit was, and is, to address the growing problem of affordability and access to flood insurance for properties at high risk of flooding and, importantly, to help the market transition back to risk-based underwriting by its exit in 2039.

And in its first decade the scheme has certainly delivered on its first goal, transforming access to flood insurance in the UK, and ensuring that households at the highest risk of flooding can obtain affordable cover. 

In fact, over 742,000 households have already benefited from the Scheme, helping families recover from flooding and providing confidence to homeowners, buyers and lenders in flood-prone areas.

Growing imbalance

But the world has changed since 2016, and the scheme has become unbalanced. The majority of claims funds, for example, now go to the haves, rather than the have-nots. 

By reducing premiums, reviewing the scheme’s mechanics and making wider changes to drive forward the take up and recognition of flood resilience, the aim is for flood insurance to remain affordable, fair, and sustainable.

Perry Thomas, Flood Re

Rising claims costs have meant that in three of the last four years, Flood Re spent more repairing homes in Bands G and H – less than 4% of UK homes – than in repairing homes in Bands A and B – around 45% of UK homes.

This is not helping those that need it most. It is also not where the market was failing in the first place.

The result is that a disproportionate share of claims are now supporting high-value properties, creating a growing imbalance that needs to be addressed. 

Which is just one of the reasons why reform is needed, and, why, working with the wider insurance market, industry partners and the government, change is coming.

New measures

After consultation with government and the insurance market, Flood Re last month announced a raft of new measures, including halving premiums for some lower-income households, and strengthening flood resilience.

National and trade press headlines unsurprisingly focused on the significant reduction in the premium that Flood Re will charge insurers for contents cover in council tax bands A and B from April 2027, addressing directly the present imbalance. 

Insurers will be expected to pass on these savings to the benefit of lower-income households and renters.

That is only the first step in an overall rethink of Flood Re, as the government looks to work with the insurance market to reform the overall premium structure and claims arrangements, and ensure that support is fairer, more targeted and sustainable over the long term.

Beyond affordability

Those changes aside, perhaps of even greater importance are new measures focused on strengthening incentives for property-level flood resilience, boosting adaptation, and helping create a smoother transition towards a sustainable, risk reflective, flood insurance market by 2039. 

The reality is that climate change means Flood Re must go further than affordability alone.

Central to this future vision is Flood Re’s plan – with the support of insurers and lenders – to introduce Flood Performance Certificates. 

Akin to Energy Performance Certificates, they will provide a trusted assessment of a property’s flood resilience, not only helping homeowners to better understand and manage their flood risk but enabling insurance pricing to recognise appropriate investments in resilience measures.

The piloting of FPCs is on track for launch later this year, paving the way for their eventual roll out on a voluntary basis. Importantly, these first pilots will also include social housing and lower income communities.

The ambition is that in due course Flood Re will introduce premium discounts for those households that obtain an FPC or complete an equivalent self-assessment, helping reward those who take practical steps to protect their homes.

Build Back Better

The Build Back Better programme, which provides up to £10,000 of property resilience measures as part of flood repairs to help households recover stronger and more resilient than before – is also being given a boost. 

Insurers will be incentivised to offer it to households affected by floods through the placing of a lower cap on claims when the initiative is not offered.

Flood Re will also now collect additional information about claims to increase industry wide insight and understanding, looking, for example, at drying times and lengths of relocation to identify and address any causes for delays. 

These findings will be supported by investment in innovation, knowledge and training to help insurers rectify any issues.

Time for change

For those involved the first decade of Flood Re’s existence feels like it has flown by, and as it heads towards 2039, now is the perfect time for change. 

By reducing premiums, reviewing the scheme’s mechanics and making wider changes to drive forward the take up and recognition of flood resilience, the aim is for flood insurance to remain affordable, fair, and sustainable, whilst accelerating action to improve flood resilience across the UK.