Flood Re is starting to secure £2.1bn reinsurance cover, aiming to boost flood coverage for UK homeowners by April 2016.
The programme will require cover up to £2.1bn per year for between three and five years, making it one of the five largest natural peril reinsurance deals globally, and the second biggest in Europe.
Others worldwide include Florida’s hurricane fund, and an earthquake protection scheme in Turkey.
The flood pool, set to spend about £100m a year on reinsurance protection, is being brokered by Guy Carpenter who is also running the procurement process.
Recent developments include: a business plan has recently been submitted to the UK’s financial regulators; the details of the testing process with insurers, on course to be released soon; and the regulations to establish Flood Re, which have been approved by government ministers for parliamentary scrutiny to begin.
Ministers have given approvals, despite some concerns in the property industry that several categories of real estate are excluded from the scheme.
Bronek Masojada, CEO of Hiscox, was one of those last year who called for changes to Flood Re:
"There are many exclusions from those who will benefit. If your house was built after 2009, if you are an H band council taxpayer, if you are a buy-to-let landlord or if you live in leasehold property you won't be able to access Flood Re subsidised insurance," said Masojada, speaking to BBC Radio 4 in February 2014.
Flood Re is on track to accept its first policy in April 2016.
“Flood Re is a complex scheme and we are pleased with the progress which is being made. Flood Re has plans in place and is on course to accept its first policy, but there is still a lot to do,” Brendan McCafferty, chief executive of Flood Re, said.
“The systems we are creating need to be tested thoroughly if we are to get it right first time for UK home insurance customers at risk of flooding, regardless of how they buy their cover. This means testing with potentially hundreds of companies in the insurance market.
“While this is an on-going process, the start of our reinsurance procurement and the submission of our application to the financial regulators represent two huge steps towards Flood Re becoming a reality,” he said.
Regulations are now ready to progress through parliament, and Flood Re staff will be working closely with the Secretary of State, as well as relevant MPs and peers, to ensure the remaining legislation to launch Flood Re is agreed as soon as possible, Cafferty said.
Russell Higginbottom, CEO of Swiss Re UK, said: “Swiss Re is very supportive of this type of initiative, which aims to ensure the provision of affordable flood cover to individuals.
“We are pleased to see that the UK is tackling the issue in this country and strengthening people’s ability to recover from the financial impact of flood losses. The cooperation between Government and the insurance industry is an excellent model for closing the flood protection gap.”
Until Flood Re accepts its first policy the existing "statement of principles" agreement between members of the Association of British Insurers and the government will remain in place for at risk UK properties.
Flood Re is expected to cover 350,000 homes in the UK’s most flood prone areas, designed to make the costs of flood insurance less prohibitive.
The scheme will be funded by a £10.50 levy on every home insurance policyholder in the UK, subsidising insurance for those households especially vulnerable to floods.