How Flood Re is making home insurance in flood risk areas affordable

As residents in Yorkshire well know, flooding is a major issue in the UK, with as many as one in six UK properties at risk of flooding from coastal, river and surface water.[1] Flooding is generally caused by extreme weather events, for example heavy rainfall can damage inland towns and stormy conditions can flood the coastline.[2]

Due to climate change, flooding is expected to become a more significant issue in the years ahead. In the next 20 years, even assuming a modest 2°C warming scenario, as many as 30% more properties may be at a high risk of flooding – increasing from 860,000 to 1.1 million properties.[3] Whilst it is important to encourage building away from flood plains and investment in appropriate infrastructure, this does not solve the issue for householders already facing the risk of flooding.

Creation of Flood Re

Flood Re is a Scheme set up by the Government and insurance industry in 2016 to help improve the affordability and availability of home insurance for householders in flood risk areas. It was also hoped that it would encourage changes in the market, leading to risk-reflective pricing within 25 years.

Before Flood Re was launched, householders living in high-flood risk areas were facing huge costs to insure their homes. This was because premiums take account of the highly variable number of flood claims each year. In 2010, there were roughly 6,000 flood-related household insurance claims, whereas in 2007, there were just under 70,000.[4] The industry was attempting to balance competitive rates for customers and the high cost of paying out flood claims. Though this is of no comfort to those who live in some of our most beautiful areas, or who want to continue living in their childhood home. For these people, flooding either left them paying high premiums or with huge excesses when forced to make a claim.

How Flood Re works

Flood Re was designed to allow insurers to pass the flood risk element of home insurance policies bought by customers to Flood Re. Flood Re receives £180m from a levy on home insurers for the first five years of operation. This has two main functions.

The first is to build a surplus of funds during average years, so that the Scheme can withstand a large loss during periods of heavy flooding. The second is to act as a subsidy, allowing Flood Re to offer a premium below the rates insurers would normally charge on properties deemed to be at high risk of flooding. Though the premium is still sufficiently high to ensure that insurers only cede policies of high-risk properties to Flood Re. This ensures that the industry retains a large portion of household flood risk that can affordably and profitably be covered in the open market. If the £180m levy is not enough for Flood Re to meet its commitments, then it can issue a compulsory call for additional funding from the industry.

When a householder who has taken out Flood Re home insurance makes a claim due to flooding, they continue to deal directly with their insurance provider. The insurer is then reimbursed by Flood Re for the cost of the claim. In return for taking the flood risk element of home insurance from an insurer, Flood Re charges the insurer a premium based on the property’s council tax band, called the Inwards Reinsurance Premium.

The infographic below shows how Flood Re works.

Basic principles of Flood Re

Flood Re is focused on households rather than businesses, as research done to date – including when Flood Re was being established - has not highlighted a specific problem for SMEs in accessing flood cover. It was also decided that it would not cover homes built after 2009, as this would risk incentivising inappropriate development in areas at risk of flooding.

The success of Flood Re

Flood Re is successfully working towards meeting its objectives and has received support from the media and politicians across all parties. After four years in operation, Flood Re has backed more than 300,000 policies. Affordability for households has improved, as four out of five (79%) householders who have made previous flood claims have seen a reduction in the price of policies available to them by more than 50%. Availability has also improved, with 97% of homeowners with prior flood claims now able to receive quotes from five or more insurers, compared to 0% before the Scheme was introduced.

Flood Re has secured widespread support from across the insurance industry, with Flood Re backed policies available from more than 94% of the home insurance market.

The Scheme has also attracted support from the media and politicians, with journalists regularly explaining how the Scheme works to their readers, and politicians understanding the benefits it has provided.

Building a better flood insurance market

Flood Re was set up from the beginning to close by 2039, with the intention of leaving behind a competitive, risk reflective home insurance market - where household flood insurance is affordable and widely available. While we can’t control flood defence investment, building regulations or climate change policy - we can, and do, can play an important part in encouraging a wider effort to tackle flooding.

Flood Re is designed to operate in the background, with consumers dealing directly with insurers and not the Scheme. However, we have regularly made active efforts to promote the Scheme to consumers and ensure they are aware of the benefit of shopping around to get the right deal for them. For example, after significant flooding events, we regularly launch local campaigns to raise awareness of the Scheme. In response to Storm Ciara and Dennis in February 2020, we launched our largest awareness raising campaign to date, across print, social media and radio, alongside Government and other stakeholders. We ensured that the campaign reached almost 3 million people in our target areas. To promote awareness of the Scheme, in addition to our regular mailshots and outreach to local flood action groups, we have also hosted roundtables in flood-prone parts of the UK and events in the House of Commons, and have a commitment to provide Flood Re representatives to speak at local flood fairs and other community events.

We have also recently proposed a number of changes to the Scheme to the Government. Two key proposals, Build Back Better and Discounted Premiums, seek to make the nation’s housing more resilient to future flooding. These changes will permit Flood Re to pay claims that include an additional amount within the repair to make a property more resilient to the next flood and offer discounted premiums to those households that have already fitted property flood resilience (PFR) measures, such as raised electrical sockets and water resilient flooring.

A unique role in tackling flooding

In its four-year lifespan, Flood Re has made a huge impact on the thousands of householders who face the risk of flooding. However, the ambition for the country shouldn’t be to just maintain the status quo of flood risk at current levels, it has to be to reduce flood risk. The devastating impact of climate change has never been clearer, and action needs to be taken now. This, alongside the demand for new house building and the phasing out of Flood Re create an urgent need for action now to protect us in the future. Flood Re plans to continue working with all stakeholders to ensure that the UK takes concrete action so that in a post-2039 world without Flood Re, households in flood-prone parts of the UK can still access the home insurance products that the Scheme’s operation has made possible today.

[1] Public Accounts Committee (2015) Strategic flood risk management report published, Parliament.uk [online]. Available at: (Accessed 27 February 2018), p.9.

[2] Environment Law (2009) ‘Causes of Flooding’ (30 May 2009), Environment Law [online]. Available at: http://www.environmentlaw.org.... (Accessed 28 February 2018).

[3] Climate Change Risk Assessment 2017 Projections of future flood risk in the UK, p.63.

[4] Flood Re (2016d) Transitioning to an affordable market for household flood insurance: The first Flood Re transition plan, Flood Re [online]. Available at: http://www.floodre.co.uk/wp-co... (Accessed 13 March 2018), p.19.