Flood Re, the recently established Government scheme to make home insurance more affordable in flood-prone areas of the UK, is poor value for money, according to the Government’s own advisers, writes Garry Booth.
The Committee on Climate Change (CCC), the Government’s independent statutory advisor, says the costs of the scheme are three times greater than its benefits and is calling for the tax on premiums to be reduced.
In a letter to Flood Re chief executive Brendan McAfferty, Lord Krebs who is chairman of the CCC’s sub-committee on adaptation, says that Flood Re is set to subsidise many hundreds of thousands of households more than the estimated number that might struggle to afford cover in a free market.
He adds that cash should help prevent flood damage rather than be paid to people to clean up after a flood.
He also argues that the scheme, which subsidises insurance premiums for homes on flood plains through a £180m tax on everyone else’s home insurance, is too generous.
The CCC reiterated five suggestions on how to improve Flood Re’s effectiveness:
- · Insurers should be forced to pass on information about flood risk to their insureds as a condition of being able to cede policies to Flood Re;
- · There should be firm proposals about Flood Re’s role in promoting flood risk reduction among high risk households;
- · Flood Re should help high risk homeowners become more resilient so that they can access reasonable terms without Flood Re’s help – otherwise Flood Re simply postpones the problem;
- · The scheme should be narrowed and the levy should be reduced - including council tax band H homes (the highest) is a retrograde step;
- · Insurers should be required to retain some risk to help preserve some incentives for claims costs to be managed. There is a risk that claims costs may spiral because Flood Re will compensate in full for any and all claims.
Lord Krebs’ committee reports to Parliament in June with its first statutory assessment of the progress being made to prepare for climate change.