BBC News

Flooding deal 'to cap insurance premiums'

image captionMany hundreds of homes have been hit by flooding in recent years

A flood insurance fund will be created to ensure that people who live in homes with a high risk of flooding will have affordable premiums.

The industry has been in talks with the government for months, searching for a deal to avoid 200,000 homes being left without flood cover.

Now they have announced a plan to build up a fund, using a levy on insurers, to cover the cost if flooding occurs.

Householders in high-risk areas will have the cost of insurance capped.

This limit on premiums, for all but the most expensive homes, will be based on council tax bands.

Compromise solution

Homes at significant flood risk are defined as those with a greater than one in 75 chance of flooding in any given year.

An existing agreement, reached in 2008, obliges insurers to provide cover for high-risk properties while the government continues to improve flood defences. This arrangement was due to finish at the end of June, but had been extended for a month.

The Association of British Insurers (ABI) said that this arrangement was unsustainable and there was a risk of premiums going up for all householders if no solution was found.

The government said it was determined to come up with an affordable solution that did not put an unjustifiable burden on the taxpayer.

Now the two sides have struck a deal that means a not-for-profit fund - called Flood Re - will be built up from a levy charged on insurers to cover the cost of insuring these homes. In the meantime the current arrangements will remain in place.

Under the new plans, the flooding element of the household insurance premiums will be capped at £210 a year for those living in homes in council tax bands A and B. This cap will rise for bigger homes to £540 a year for homes in band G. Homes in band H will not be covered. Homes in band H, and homes built after January 2009, will not have a cap.

Householders will still be able to shop around for insurance.

Some details need to be resolved on the deal, but the plan is for it to be in place by summer 2015.

"Getting to this stage has required compromise by both sides and there remain issues that need to be overcome," said ABI director general Otto Thoresen.

"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."

Richard Benyon, a minister at the Department for Environment, said: "The ABI has assured ministers that their proposal can be introduced without impacting customer bills in general."

The government announced that it would spend £344m in 2015-15, following extra £85m announced last year, on flood defences and prevention schemes. This will rise to £370m in 2015-16 and rise with inflation to 2020-21.

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