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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
FLOOD RE
157-197 Buckingham Palace Road, Victoria, London SW1W
9SP 020 7798 7000
www.nao.org.uk 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.
https://www.floodre.co.uk/can-flood-re-help-me/eligibility-criteria/
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: information@floodre.co.uk
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
2
https://www.floodre.co.uk/wp-content/uploads/Flood-Re-Annual-Report-2019.pdf
3 https://www.floodre.co.uk/wp-content/uploads/QQR_FINAL.pdf
4 https://www.floodre.co.uk/about-us/