Flood Re would be operated as a not-for-profit reinsurance scheme managed by the insurance industry. This means that Flood Re would allow insurers to transfer the premium they receive for the flood risk part of home insurance policies to Flood Re and, in return, Flood Re would reimburse insurers for flood claims that they pay to their customers in relation to such policies. Flood Re would not have any direct relationship with customers itself.
The insurance industry has advised the Government that lower flood-risk households are already subsidising those at higher risk of flooding, partly because of the market environment created by the current Statement of Principles. This, however, exists on a purely voluntary basis and will start to unwind over time because of the pricing pressures of a competitive market.
The RICS are concerned that the properties to be excluded from the Flood Re proposals will leave some parts of the property sector unable to access affordable flood insurance and potentially create a two-tier market. The current proposals in the Water Bill need to be expanded to bring in a broader category of residential property than are currently identified. Flood Re makes no provisions for home based micro-enterprises and smaller commercial properties. Although these have different insurance arrangements, they nevertheless form a core part of communities up and down the country that are under flooding risk. Monitoring for market changes and robust transition arrangements to protect commercial property owners must be in place. As the leading valuation experts, RICS are working closely across the industry and beyond to brief ministers, shadow ministers, peers and MPs to reach an agreement in the broader public interest. The RICS view at the present time, as flooding continues across the UK, is that there is clearly a great need to have a fair flood insurance solution that universally protects tenants and property owners, whilst being affordable and deliverable.