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Flood Re - February 2020

Flood Re is a Government scheme introduced to facilitate affordable household flood insurance

In response to queries from flood victims about flood insurance I submitted some questions about Flood Re to the National Audit Office.

Prompt and precise answers were received as detailed below:

From Peter Morland Director of Financial Audit Department for Environment, Food and Rural Affairs

17th February 2020

Dear Mr Larcombe

  157-197 Buckingham Palace Road, Victoria, London SW1W 9SP    020 7798 7000     Cert No. 8835 ISO 14001
Thank you for your correspondence; this has been passed to me as the Director responsible for the financial audit of the Department for Environment, Food and Rural Affairs Group (Defra). Whilst the National Audit Office (NAO) has access rights to Flood Re for the purposes of conducting value for money studies and related enquiries, we do not perform the statutory audit of Flood Re’s annual report and accounts; this is performed by Ernst and Young LLP. However, Flood Re’s financial information consolidates into the Defra Group.
It may be useful if I first explain the remit of the Comptroller and Auditor General and the National Audit Office, of which he is head. It is to audit and express an opinion on the accounts of government departments and other central government bodies and to carry out examinations into the economy, efficiency and effectiveness with which government departments and other public sector bodies have used their resources. In each case the results are reported to Parliament. In your correspondence you raised several questions regarding Flood Re, its purpose and operations.
Flood Re was established as a result of the Water Act 2014 with the aim of making the flood cover part of household insurance policies more affordable. Flood Re does not provide insurance to customers directly. When an eligible home insurance customer takes out insurance cover, the insurer can choose to pass the flood risk element of this insurance to Flood Re in exchange for a fee. In the event that the customer makes a claim against their insurance for flooding, the insurer will pay the customer and Flood Re will subsequently reimburse the insurer, provided that the insurer had previously chosen to pass on the flood risk to Flood Re. In providing this service, Flood Re aims to keep home insurance premiums for those affected by flood risk lower than they otherwise would be.
Currently the scheme Flood Re only covers homes that were built and had a Council Tax Band prior to 2009. This includes, houses, single flats, mobile homes and some blocks of flats. The full eligibility criteria can be found on Flood Re’s website.

Flood Re became fully operational on April 1st 2016. Flood Re has two main sources of income. • Its primary source of funding is a levy charged to insurance companies, which totals £180 million per year. This is in line with the requirements of The Flood Reinsurance (Scheme Funding and Administration) Regulations 2015. • It also receives income from insurance companies for each home insurance policy on which they are asked to provide reinsurance. This is a fixed premium based on the council tax band of the home being insured, not a fixed £10 per household.
The income collected by Flood Re is used primarily for two purposes: 
    • Running costs for the organisation itself (around £16m per year); and,
    • The costs of meeting re-insurance claims, which is much more volatile as it depends on the level of flood-related incidents that occur in areas covered by the scheme in any given year.
Flood Re seeks to mitigate the volatility and risk by paying to take out re-insurance of its own. If a flood event occurs, it would still need its own reserves to be able to make payments to insurance companies, to reimburse them for paying insurance claims to customers in addition to any money from its own reinsurance policy. Since Flood Re was established, there have not been any catastrophic flood events of the kind that had occurred in the late 2000s/early 2010s. As a result Flood Re has built up reserves of cash, with £358 million of such balances being reported in the 2018-19 annual report and accounts (note 20)2. These reserves are invested as short-term deposits with HM Treasury’s Debt Management Office.
It is not within the NAO’s remit to comment on policy design or legislation. There are governance processes in place between Flood Re and Defra to ensure that Flood Re continues to perform against its statutory objectives and make recommendations for any required changes. Flood Re, as Scheme Administrator, must formally review the Scheme at least every five years and make any such necessary recommendations to the Secretary of State. The latest review can be found here (3). If you have specific concerns around the policy design or legislation, these are best directed to Flood Re or Defra directly.
You also mentioned that you had struggled to find contact details for Flood Re themselves – these are published on their website (4):
Address: Flood Re Limited   75 King William Street   London, EC4N 7BE     Email:
Thank you for taking the time to write to us. I hope that you have found the information and explanations provided within this letter useful. If there is anything you would like to clarify further, please do let us know.
Yours sincerely

Peter Morland Director of Financial Audit Department for Environment, Food and Rural Affairs