Draft legislation has been published for Flood Re, a national insurance fund that would be paid for by a small levy on insurance premiums. Insurance firms will become Flood Re ‘members’ and pay the fund an annual charge totalling £180m, equating to a £10.50 levy on annual household premiums.
A Government impact assessment on the proposals has found that the levy would be classified as a tax, potentially causing controversy. Under European Union laws the levy is likely to be deemed as ‘state aid’, meaning that the Government will be required to seek approval from the European Commission before the levy can be introduced. This will take up to 24 months. If the proposals are rejected by the EC, then ministers will be forced to rethink the system. The EC is also consulting on proposals to introduce a mandatory European insurance fund to protect against natural disasters. It is unclear how Flood Re would sit alongside this.
The draft legislation introduces reserve powers known as the Flood Insurance Obligation policy, which would regulate the insurance industry by requiring insurers to cover a certain share of the UK’s high risk flood properties in case free-market pricing becomes unsustainable.
Aquobex maintain that this is far from certain and businesses, homes, communities and infrastructure owners should be looking at protecting their properties and assets rather than relying on flood insurance.