Flood Re regulations in force

Practical Law UK Legal Update 0-620-4265 (Approx. 4 pages)

Flood Re regulations in force

by Practical Law Property

The regulations to establish the Flood Reinsurance scheme (Flood Re) and the accompanying Scheme Document were made on 10 November 2015 and came into force on 11 November 2015. Flood Re is likely to commence business in April 2016.

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The Flood Reinsurance scheme (Flood Re) is the system preferred by both the government and the Association of British Insurers (ABI) to secure available and affordable insurance against flood risk for homeowners whose properties are considered to be at high risk of flooding.

The regulations to establish Flood Re were made on 10 November 2015 and came into force on 11 November 2015. Flood Re is likely to commence business in April 2016.

Flood Re reinsurance is not available for many types of property. These properties will instead be subject to market-driven premiums and excesses for flood cover. It would be prudent for prospective buyers or tenants of property to establish whether their target property is at risk of flooding and, if so, whether it will fall within the scope of Flood Re. If not, then they may wish to check what flood insurance cover would be available, so as to ensure that its terms and cost will be acceptable.

The Flood Reinsurance (Scheme Funding and Administration) Regulations 2015 (SI 2015/1902) and the Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015 (SI 2015/1875) were made on 10 November 2015 and came into force on 11 November 2015. These regulations establish Flood Re and are fleshed out by the Scheme Document issued by Flood Re (dated 22 June 2015). For more information, see Legal update, Flood Re Regulations and Scheme Document republished.

Approval from the Prudential Regulation Authority (PRA) is still required before Flood Re can offer flood cover and the timeframe for this approval process has not been set out. However, the Department of Environment, Food and Rural Affairs (Defra) has indicated that it expects Flood Re to be operating by April 2016, provided the necessary approval is in place. Insurers are already trialling the system internally.

Flood Re is a reinsurance scheme with an intended life span of 25 years. It will provide commercial insurers with the opportunity to purchase subsidised reinsurance against flood risk where they are not prepared to underwrite that flood risk themselves. Flood Re will offer:

Capped premiums (set by reference to the Council Tax band of the property and rising broadly in line with inflation). The details of these are set out in the Schedule to the Flood Reinsurance (Scheme Funding and Administration) Regulations 2015 (SI 2015/1902).
An initial maximum excess of £250 (or, if higher, the excess which the commercial insurer chooses to apply to the policy). The details of the excess arrangement are not set out either in the regulations or the Scheme Document, but in a confidential document between Flood Re and the commercial insurers.

Flood Re reinsurance is not available for many types of property. Properties which are not covered by Flood Re are:

All commercial property.
All residential property built since 1 January 2009.
All mixed use property.
All purpose built blocks of flats.
Buy-to-let properties where the landlord arranges the buildings insurance.
Most houses that have been converted into flats.

These properties will instead be subject to market-driven premiums and excesses for flood cover. For this reason it would be prudent for prospective buyers or tenants of property to establish whether their target property is at risk of flooding and, if so, whether it will fall within the scope of Flood Re. If not, then they may wish to check what flood insurance cover would be available, so as to ensure that its terms and cost will be acceptable.

Sources:

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Resource ID 0-620-4265

Published on 23-Nov-2015

Resource Type Legal update: archive

Jurisdictions

England
Wales