In April, the UK government will enforce a new fee on all home insurance customers that will require them to subsidise the insurance bills of people who continue to live in flood-risk areas.
Perhaps the most frustrating part of the new levy — which functions like a tax on home insurance sales — is that poorer people, or those who choose to live in more modest houses on drier land, will subsidise the insurance for the largest mansions in the riskiest areas near lakes and rivers.
On its face, this sounds completely bonkers. People should be incentivised to move out of flood zones, not given insurance protection to stay there.
Britain has just been through the wettest December in recorded history, and at least 16,000 homes have been flooded. More than 100 bridges in Yorkshire alone now require constant monitoring because of the recent floods, and five bridges have been lost or damaged in Invercauld, Elland, Tadcaster, Copley, and Linton.
Christmas in Yorkshire and Scotland looked like this for many in the North, after Storm Desmond:
The Conservative government has been criticised by Labour leader Jeremy Corbyn for not spending enough money on flood defences.
Yet in April, a new insurance law will go into effect that launches “Flood Re,” a reinsurance company that will act as an insurer of last resort for consumer insurance companies that want to spread the risk of continuing to offer insurance to people in flood-risk areas. Those people would not be able to get insurance, or the insurance would be much more expensive, without Flood Re.
Flood Re will help cover the 1-2% of homes — about 350,000 houses — that are at greatest risk of flooding, according to the Association of British Insurers. The extra coverage will be paid for through a Flood Re levy on all home flood insurance policies, which will cost policyholders about £10.50 each, according to The Telegraph.
Initially, homeowners with houses in Band H and Band I of the council tax (i.e. the very largest houses at the high-end of the annual council tax charge), were not going to be covered by Flood Re. It was felt that rich people are rich enough to take their own risks. But that decision was reversed and now mansions near rivers will be covered by the universal levy on all homeowners with insurance. Flood Re says on its web site:
The decision to exclude Band H homes was originally taken by Ministers who felt it unfair that lower income flood risk households should subsidise higher income households. However, of course, the impact of a flood can be no less devastating for Band H and I homes and we welcome their inclusion in Flood Re.
The initial intent of Flood Re was a good one. It was supposed to provide temporary coverage for people while the market — and local government — figures out how to discourage people from living in houses near volatile bodies of water. To that end, the Flood Re plan will only last 25 years and it will not cover new houses, or houses built after 2009.
But the vast, vast majority of houses in the UK were built before 2009 and Flood Re will do nothing to stop people buying and selling property way too close the water for the next two decades.
Flood Re was criticised in 2015, when it was first making its way through Parliament, by the Committee for Climate Change, because it rewards people with insurance payouts if they stay in flood zones and suffer water damage:
Flood Re is set to provide too much subsidy to too many people, largely removing the financial incentive for flood damage to be avoided by high risk households. The decision to extend subsidies to the most expensive 1% of homes was a retrograde step, increasing costs and reducing further the scheme’s already poor value for money.
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