Lenders still waiting for clarity on flood insurance scheme
Published: 5 December 2013 | Author: Bernard Clarke
Three months after lenders publicly called for more information about how the government’s scheme to provide affordable flooding insurance will work in practice, the industry is still in the dark about many key details of the scheme.
We welcome the government’s intention to introduce Flood Re, a scheme funded by a levy on insurers of £10.50 per year per customer. The funds this provides will create a pool intended to cover homes at a higher risk of flooding.
But lenders remain concerned about clauses in the proposed Water Bill, which are still very "high level" and leave too many details to be filled in by regulations. Lenders need more information so that they can assess the costs and impacts of the proposals, understand how policy excesses will be monitored and controlled, and be assured that it will still be possible to obtain affordable insurance – and therefore a mortgage – on all properties affected by flooding.
The proposed scheme uses council tax bands to determine eligibility for the scheme, which is a practical but simplistic. Currently, it is intended to exclude properties in band H, so as to target protection where it is most needed. This could mean that many homes in London and the south east would not benefit from Flood Re, with owners having to pay the full market price for insurance.
Businesses are also excluded, which means that landlords operating small buy-to-let portfolios would not be protected. They would have to take out commercial insurance policies, which would increase the cost for them and for their tenants. We would like to see Flood Re protection apply to all homes, including those owned by private and buy-to-let landlords.
Lenders need more details about how Flood Re will be funded, how the levy will work and whether it will cover large losses in exceptional flooding emergencies. The government’s aim is that Flood Re will provide a solution for up to 25 years, but lenders need to know more about how the insurance industry will develop a longer term solution to provide adequate and affordable cover.
On behalf of lenders, we are continuing to work with the government and the insurance industry on the scheme’s details, so that it provides an acceptable and workable solution.