We last reported on the Flood Re scheme on 17 July 2013 and commented that this was a new scheme aimed at providing affordable insurance for homeowners whose properties are considered to be at high risk of flooding. It was designed to replace the ABI Statement of Principles which expired on 31 July 2013 and which provided the previous means of flood insurance for high risk properties. Flood Re has however remained fraught with questions over scope of coverage, funding and viability and still fails to provide any definitive answers.
To try and address some of these issues, DEFRA launched a new consultation on 22 July 2014. The consultation responses will be vital to ascertaining whether Flood Re is genuinely viable and which properties it will cover. Responses to the consultation must be submitted by 16 September 2014.
The consultation largely splits into 4 key areas:
• The governance of Flood Re;
• The funding of Flood Re;
• The properties to be covered by Flood Re:
• What should go in the Scheme Document (which provides much of the as yet unpublished detail on how Flood Re will operate – including some key definitions).
Current Exclusions from Flood Re
Of particular interest will be which properties are eligible for cover. The properties currently excluded from Flood Re are the following:
• All new properties built since 2009;
• All commercial property regardless of size, age or occupant;
• Council Tax Band H homes;
• “Buy to Let” residential properties where the landlord arranges for buildings insurance;
• Buildings insurance on purpose built blocks of flats, even if the tenants of each flat have long leases and pay insurance premiums via the service charge;
• Buildings insurance on flats in converted houses (except under particular circumstances).
The exclusion of commercial properties, new homes and Council Tax Band H properties is now fairly set in stone. However, the consultation will look in more detail about the other categories, including whether long leaseholders should be covered or excluded by Flood Re.
As a recent Practical Law Company article comments (Practical Law – detailed analysis of Flood Re Consultation dated 31 July 2014) these long leasehold properties have to date been excluded because it is expected that owners/occupiers of these types of property will be able to find flood insurance at acceptable prices without any additional assistance. They were also excluded as it was felt by the government that there were too many of these types of property which may distort the flood risk profile figures used to model Flood Re.
However, many argue that long lease holders should be included in Flood Re as those with long leasehold interests who occupy their flat are just as much homeowners as freehold owners. They usually have long tenures, live on the premises and their interest has capital value, all of which should allow them to be treated in the same way as freehold owners under Flood Re. They also have a council tax band by which Flood Re costs could be worked out, as for freehold owners. In addition, allowing long leaseholders to be covered should not inevitably mean a significant increase in the numbers of properties falling within Flood Re than was originally estimated but, if it does, then this demonstrates sufficient evidence in support of including this category within Flood Re as requiring additional flood insurance assistance.
Other key issues relate to the detail of how Flood Re will operate, which will be in the Flood Re “Scheme Document” which will be endorsed by the Secretary of State but not be subject to any public comment before publication. Key concerns which the Scheme Document will need to clarify and which the consultation will cover relate to definitions such as the definition of “Dwelling”, “Home Insurance”, “Flood” and “Relevant Insurer” as well as how excesses will be controlled by Flood Re and what the Flood Re policy conditions will be in relation to limitations.
In summary, the current consultation will give crucial feedback regarding many key issues which ultimately affect the operation of Flood Re and its workability. Any homeowners at high risk of flooding who require reinsurance flood coverage should be looking carefully at and responding to this latest consultation by the deadline, in order to have some input as to whether this flood reinsurance scheme is actually viable.