Hundreds of thousands of households in flood-prone areas will be guaranteed affordable flood insurance after the Government and insurance industry agreed a deal today.
After negotiations with the Association of British Insurers (ABI), this new agreement replaces the current ‘Statement of Principles’ that runs out at the end of July and will bring peace of mind to people who will soon need to renew their insurance.
The new agreement will cap flood insurance premiums, linking them to council tax bands so that people will know the maximum they will have to pay.
To fund this, a new industry-backed levy will enable insurance companies to cover those at most risk of flooding. All UK household insurers will have to pay into this pool, creating a fund that can be used to pay claims for people in high-risk homes.
Environment Secretary Owen Paterson said:
“Flooding is terrible for anyone affected by it. We have worked extremely hard with the industry to reach an agreement on the future of flood insurance. There are still areas to work through but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future.”
Otto Thoresen, the ABI’s Director General, said:
“Insurers’ priority has always been to ensure that flood insurance remains affordable and available for everyone who needs it. Today’s announcement is the start of a process that aims to deliver affordable flood insurance to high flood risk households.
“Getting to this stage has required compromise by both sides and there remain issues that need to be overcome. For Flood Re to be established successfully there needs to be an unprecedented level of partnership between the Government and the industry. But insurers and the Government are now working towards a shared vision, with Flood Re as the Government’s preferred choice.
“Flood Re would be a major undertaking for UK insurers and the work insurers have undertaken to get here reflects the industry’s desire to cover flood risk at an affordable price in the face of the increasing flood threat in the UK. The hard work now begins for both sides if we are to make this vision a reality”
The proposals will be given legal backing through the Water Bill, published later today, and will last for at least the next 20 years. Until the Water Bill has passed through Parliament and Flood Re is set up, the industry will continue the current agreement – the Statement of Principles.
In addition, to help keep flood insurance affordable in the long-term, Defra will continue to invest in flood defences and has provided a six-year long-term commitment to provide £370m of capital investment in 2015/16 rising with inflation until 2020/21.
The investment means that over 300,000 more households will be better protected by 2021, bringing the overall risk down and helping to secure affordable insurance for people long-term.
The Government is currently spending £2.3bn on flood defences meaning that 165,000 homes will be better protected by 2015.
New measures will also be added to the Water Bill that will be published later today to give Government legal powers to regulate the insurance industry, if needed, to keep flood insurance affordable.