Flood Re could deny cover to homeowners who fail to protect homes from flooding, chief executive suggests

Speaking to The Times (registration required), Brendan McCafferty of Flood Re said that the company planned to gather information on how often homes flooded over its first two to four years of operation. It may then consider excluding those that had made three claims without investing in waterproof floors, walls and other flood prevention measures, the newspaper reported.

McCafferty also told the newspaper that some very high-risk properties would have to be excluded from the scheme if it turned out that they were "just totally literally uninsurable because they will flood every year or two years".

A spokesperson for Flood Re said that the company was not currently planning any changes to the scheme, which is due to accept its first policy in April 2016. However, he pointed out that the scheme was under "a statutory requirement to move towards risk reflective pricing" over its 25 years of operation.

"Over that period modifications to the scheme may be recommended, but any future changes will involve consultation with interested parties before being introduced and will be based on data and evidence collected over a number of years," the spokesperson said.

Insurers are expected to pay out around £1.3 billion to customers affected by severe floods in northern England and Scotland over the Christmas and New Year period, according to figures published this week by the Association of British Insurers (ABI). ABI members have already made £24 million of emergency payments to both private individuals and businesses to cover the cost of their immediate needs, such as food, clothing and staff salaries, the member body said.

The government has announced that it will provide grants of up to £5,000 to enable individuals to install new flood barriers, replace doors and windows with water resistant alternatives or to take safety measures, such as moving electricity sockets to a higher level. It is also providing local authorities with funding equivalent to £2,500 for each business in their area affected by flooding, as part of plans to suspend council tax and business rate bills for flood-affected communities for as long as they are out of their properties.

Flood Re is a joint initiative between the UK government and the ABI, which is due to replace the ABI's existing voluntary 'Statement of Principles' on affordable flood insurance once in force. The scheme will cap flood insurance premiums for householders at a level based on the council tax band of domestic properties. Claims made by people in homes at high risk of flooding would instead be funded through an industry levy, which will be passed back to consumers at an estimated cost of £10.50 on annual premiums - effectively, a cross-subsidy of high-risk properties by low risk properties.

As Flood Re will only be available to domestic policyholders, small businesses in particular have called for the scheme to be extended to cover commercial policyholders that are otherwise struggling to obtain affordable flood insurance cover. Research by the Federation of Small Businesses (FSB) in July 2015 found that 75,000 smaller businesses in flood risk areas were finding it difficult to access affordable cover, while a further 50,000 were refused cover altogether.

Reuters reported this week that UK insurance brokers were working on a flood insurance product for small and medium-sized businesses excluded from the scope of Flood Re. Graeme Trudgill, executive director of the British Insurance Brokers' Association (BIBA), told the news service that the plans would involve large insurance brokers and would not require a Flood Re-style industry levy.