Policymakers and the insurance industry have reached agreement on a new system that means flood insurance will continue to be available and affordable.
The government has been negotiating with the Association of British Insurers (ABI) for some time on a replacement for the Statement of Principles, to ensure households in flood risk areas can still get cover at a reasonable price.
Flood Re will see insurers pay into a fund that can be used to pay claims from those in vulnerable locations, while flood insurance premiums will be capped and linked to council tax bands, so people have greater certainty over how much they will be expected to pay.
Owen Paterson, the environment secretary, commented: “There are still areas to work through, but this announcement means that people no longer need to live in fear of being uninsurable and that those at most risk can get protection, now and in the future.”
Otto Thoresen, director-general of the ABI, insisted that the priority of the insurance industry has always been to make sure affordable cover remains available to all those who need it.
He acknowledged that implementing Flood Re will be a “major undertaking” for the sector and that a few issues still need to be resolved.
However, Mr Thoresen said both parties have been prepared to make compromises and are “now working towards a shared vision”.
“For Flood Re to be established successfully, there needs to be an unprecedented level of partnership between the government and the industry,” he stated.
The announcement has been welcomed by the National Flood Forum, which said the levy and pool system that has been proposed is the best outcome for communities and households across the country.
Paul Cobbing, chief executive of the organisation, said it is particularly good news given that the government has also pledged to put £340 million towards upgrading flood defences, as part of a wider programme of infrastructure improvements.
He added that the National Flood Forum is looking forward to working with both the ABI and the government to ensure those who are most at risk get adequate protection and the fairest possible deal.