Flood Re ‘won’t work in the real world’ says Hiscox chief executive

Defence secretary Philip Hammond has blamed insurers for the exclusion of small businesses from the Flood Re scheme.

The comments come as Lloyd’s insurer Hiscox has called for a rethink of Flood Re because it “actively excludes one in six households” and “won’t work in the real world”.

Speaking on the BBC’s Newsnight programme on Wednesday evening, Hammond said: “Let’s be clear why we are in this position. The insurers have said they are not prepared to continue with the scheme that has existed for a number of years. That is why the government has had to negotiate a new solution with the insurers.”

Retrograde step

Hammond was responding to a question from Biba executive director Graeme Trudgill about the exclusion of small businesses from Flood Re. Trudgill described the exclusion as a “retrograde step”.

Small businesses were covered under the statement of principles, which Flood Re will replace in 2015. Under the statement, insurers agreed to provide affordable cover to properties at the highest risk of flooding in return for flood defence spending by the government.

Trudgill added: “We want to know that the government is going to listen and they will look to get a solution in place for small businesses as well.”

Hammond said the process of implementing Flood Re was “underway”, but added: “It hasn’t happened because the government decided one morning: let’s do it differently. It happened because the insurers decided one morning that they were not prepared to carry on with the system that had operated in the past.”

A spokesman for the ABI said that insurers had to develop an alternative to the statement of principles with the government because it contained a ‘sunset’ clause and was due to expire.

He added that the new Flood Re scheme was not intended to cover commercial properties, and that adding them into the mix would change the scheme “considerably”.

Hiscox challenge

However one insurer is keen to challenge Flood Re’s exclusions. Hiscox claims that Flood Re excludes one in six households, including many properties that are currently underwater in Somerset and the Thames Valley.

Flood Re excludes new homes built after 2009, leaseholders, buy-to-let properties and properties in the ‘H’ and ‘I’ Council Tax bands.

The insurer is calling for an “urgent meeting” with government ministers to find a solution before the Water Bill, which contains the legislation for Flood Re, concludes its passage through parliament.

Hiscox chief executive Bronek Masojada said: “This week’s events show that the government’s proposed flood insurance scheme would leave many homeowners in a desperate situation.

“As things stand one in six households, including many that are under water right now, would be excluded from access to Flood Re. That cannot be right. What made sense in the heat of negotiation just won’t work in the real world.”

He added: “Flood Re is great for Britain in concept, but the Government’s proposals fall short in practice. An urgent rethink is needed. It is unreasonable to exclude new homes, buy-to-let properties, and higher value properties from Flood Re protection.

“We absolutely support a sustainable, mutualised solution to the problem of insurance, but the government must listen to growing concern from insurers and the public.”