Increased premiums expected over Flood re Scheme

The government has recently announced a plan to build up a fund, with the help of the risk sector, to cover the costs of flood damage.

The scheme, called Flood Re, is intended to be up and running by summer 2015. It has been created in order to counter increasing difficulties in obtaining cover for damage caused by flood risk.

Flood Re is to be run and financed by insurers as a not-for- profit fund which aims to cover the uninsured cost of flood claims from high risk homes. The scheme, however, will not cover commercial property and so commercial occupiers can continue to expect higher premiums or difficulties when attempting to arrange insurance for higher risk flooding properties and for business interruption caused by flood.

Businesses could find additional conditions included on insurance policies which may have significant impact when negotiating rents or purchase prices in the future.

The new scheme will replace the voluntary Statement of Principles, which has been in place since 2000 and ensures that flood cover is provided by insurers for as long as the government continue to invest in flood defences. It is understood that the scheme is expected to run for 20-25 years.

To help fund the scheme, all UK households will pay an additional sum on their insurance premiums to cover the risk of flood. The Association of British Insurers has however agreed a flood insurance premium cap, linked to council tax bands, so that people will know the maximum they will have to pay.

However, many homes could, nevertheless, be left without affordable flood insurance after Environment Minister Owen Paterson has confirmed that there will be two exceptions to the types of homes which are covered. Homes built after 2009 or within Council Tax band H in England will not be covered by the scheme.

At Palmers, our expertise in commercial property means that we can advise on the latest changes in legislation that affect this area.

For more information, please visit our website or contact Carey Jacobs.