A simples guide

Flood Re

You might have seen Flood Re in the newspapers or mentioned on TV earlier in the year. It was created in April 2016 with the purpose of ensuring that homeowners in areas susceptible to flooding could still obtain affordable home and contents insurance.

Here, we’ll explain to you what Flood Re is all about. How it works, how it should help and what if anything you need to do differently now it exists.

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A word on reinsurance

Before we talk about Flood Re, a quick mention of reinsurance in general because that’s what the Re in Flood Re stands for, reinsurance.

All insurers exist to take risk. They use a combination of clever people and financial models to predict the level of claims they’ll get from insuring us for various risks, be it to our cars, our homes or our holidays.

We rely on our insurers to be able to pay out on claims when we need them. In return, the insurer makes money from us by taking premiums and only paying anything back when there’s actually a claim.

Sometimes, an insurer decides that they don’t want to take on any more of a particular type of risk. They have the option to simply decline further business which sometimes they will do or they can sell that risk on to another insurer. This process of selling on risk is called reinsurance.

Reinsurance has been around as long as insurance itself and in fact, most of the big insurers in the world are actually insurers and reinsurers.

So put it simply… reinsurers, insure insurers!

So what’s Flood Re and how does it work?

Okay, now you’re an expert on reinsurance, let’s look at Flood Re.

Flood Re is simply a new reinsurer.

Rather than taking on all types of different risks like most reinsurance companies would however, Flood Re, will only take on home related flood risks from other insurance companies.

Flood Re works invisibly as far as you are concerned.

You will deal with your insurance provider  as usual. You will pay your premium to your chosen insurance provider and you will receive payouts of claims from the same insurance provider

Behind the scenes though, your insurance provider is paying Flood Re a part of your household insurance premiums. Flood Re takes this money from a number of different insurers and in doing so, spreads the risk away from any single insurer.

Flood Re is managed by executives from the insurance industry with many years of experience. In order to manage its own affairs, it is free to further pass on some of this risk to other reinsurers if it so wishes.

Flood Re will also benefit from a new annual tax levied on all home insurers in the UK. This is expected to raise £180m annually for Flood Re. This will give it further security to meet any flood-related claims.

In the event that you claim on your home insurance policy for flood related damage, your insurance provider will pay you as usual and then reclaim the payment from Flood Re.

Is Flood Re different to other reinsurance companies?

In some ways, Flood Re is no different from any other reinsurance company in the world.

It receives premiums from insurers and it pays claims back to them. It is unusual in that it only covers one specific type of risk as we’ve noted. However, there is another key difference.

Left to their own devices, insurance companies might have decided that they simply couldn’t afford to offer insurance to people living in flood zones and this could have left many without any protection. The government worried about this and got involved.

They worked closely with the insurance industry to set up Flood Re as a “not-for-profit” scheme. In other words, it doesn’t try to make money from the other insurers.

This is important to us. Because there is no profit element, affected households should see lower premiums than would otherwise have been the case.

How does it help homeowners?

  • With Flood Re’s support, insurance providers should be able to offer more competitive pricing on their policies to affected homeowners
  • In extreme cases it means those who feared being left without cover, can still obtain cover.

It’s estimated that Flood Re will benefit around 350,000 eligible households in the UK.

flood re insurance scheme

Which insurers use it?

The number of insurers signing up to use Flood Re is growing all the time. As of June 2016, there are over 30 insurers using Flood Re. Why not have a look at the full list? http://www.floodre.co.uk/homeowner/find-an-insurer/


flood re insurance providers

What do homeowners need to do differently?

Here’s the best bit, nothing.

As Flood Re points out, they have no control over the prices or terms of cover that you are offered by your insurance provider. The insurance provider for their part are not offering any fixed reduction to premiums as a result of Flood Re existing.

All that is hoped, is that Flood Re will help relieve the financial pain of flooding to insurers, and that they in turn will pass on those benefits to us, the customers.

What’s the long term look like?

Flood Re has initially been set up with a fixed life, taking it through to 2039. If we were guessing, we’d say that it would be probable, assuming the system is a success, that it would continue in some shape or form after that.

The more insurers that use it, the better the financial standing of Flood Re, the more robust the overall system, and the greater the impact on reducing premiums for those beleaguered families affected in homes prone to flooding.

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