Homeowners living in flood-prone parts of the UK are now able to obtain substantially cheaper home insurance under a Government-backed scheme, in some cases slashing thousands off their costs. But everyone else will be expected to stump up an average of £10 a year if insurers decide to pass on associated costs.

Assuming everything goes to plan, flood victims – such as those impacted by the onslaught of Storm Katie over the Easter bank holiday weekend – will benefit from substantially reduced rates provided by their insurers over the coming months and years.

This follows today's introduction of the 'Flood Re' scheme, which is already being supported by many of the UK's major home insurers.

It's estimated that in time around 350,000 people who have previously been forced to fork out thousands of pounds for home insurance – or go without insurance altogether – will be able to get much more affordable cover from a variety of insurance providers.

But the Flood Re scheme essentially means that if insurers choose to pass on the costs of the annual £180 million levy to fund the initiative to customers, everyone not in a flood-risk area can expect to pay more on buildings and contents policies – an average of £10.50 a year. It is worth noting that this figure is described by Flood Re as a "crude average" and that those living in smaller houses with a lower council tax band are not likely to see their home insurance cost increase by more than a few pounds.

While insurers claim it is still too soon to tell how much rates will reduce for those living in flood zones, the early signs are promising.

Speaking to MoneySavingExpert.com just hours after Flood Re went live this morning, Sue Cashmore, who chairs the Cockermouth Flood Action Group and has not before been able to afford to insure her home after being hit by flooding, has managed to bag herself a huge policy reduction.

Previously Sue has been quoted more than £3,000 for insurance with an excess (the amount to be paid by the policyholder in the event of a claim before the insurance company steps in) upwards of £10,000. However, she has now managed to snap up a policy with Admiral for £400 with an excess of just £250.

Sue says: "I'm over the moon. [Flood Re] was one of those things that I thought was going to be a bit of a waste of a time but that isn't the case.

"I was flooded badly in 2015 and am facing costs of about £20,000. But now for the first time ever people like me have got options."

Martin Lewis
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How much can people living in flood zones expect to save on insurance? 

It is difficult to quantify at this early stage, as each insurer that has signed up to the scheme will calculate pricing differently.

When asked by MoneySavingExpert for a ballpark figure on potential reductions, most insurers declined to comment.

However, figures previously outlined in November 2013 by the Department for Environment, Food and Rural Affairs (Defra) showed that a pre-Flood Re combined buildings and contents policy costing £1,140 for someone in council tax band A would plummet to £650, while someone in the higher band G could expect their cost to drop from £1,850 to £1,550.

Sue Cashmore's experience in purchasing a drastically reduced policy price suggests that savings could be even more extensive than the Defra estimates.

Who exactly will benefit from Flood Re?

Whether you benefit will depend on if you live in a flood-risk area, and even then it will depend on how much you pay for the flooding part of your home insurance.

While there is no precise definition of what constitutes a flood zone and different insurers have different rules on this, those living in a high flood-risk area are likely to be aware of the potential of flooding. There are also online flood-risk maps available for England, Wales and Scotland, and your insurer or insurance broker will be able to tell you if your property is judged at risk.

Who's not covered?

  • Landlords buying building insurance for a property they don't live in (such as a buy-to-let landlord). However, if you're a tenant buying contents cover and you live in a flood-risk area, then you WILL be protected under Flood Re.
  • Owners of commercial premises (although you will be covered if you work from home).
  • Those who live in a property which was built after 2009. This is because the Government and insurers want to discourage developers from building on flood plains.

Which insurance companies have signed up to the scheme?

Right now, you'll only benefit if buying insurance from one of these firms:

  • Admiral
  • Avantia
  • Aviva
  • Bank of Scotland
  • Cherish
  • Churchill
  • Direct Line
  • First Direct
  • Halifax
  • HSBC
  • Hiscox
  • Legal & General
  • Lloyds Banking Group
  • LV
  • More Than
  • Nationwide
  • Privilege

There is no need to panic if the brand that you have a home insurance policy with is not mentioned, as the list will be updated on an hourly basis. Flood Re expects a number of other providers to join in the coming days.

For more information you can visit www.floodre.co.uk/customer-info.

Cheaper insurance available for flood risk homes
Cheaper insurance available for flood risk homes

How do I get cheaper insurance in a flood zone?

You don't actually need to do anything as everything is happening behind the scenes. So when you get a quote, if that insurer is part of the scheme, the price may have come down. See our Cheap Home Insurance guide for how to get cut-price cover.

Some insurers will be contacting customers directly to tell them how Flood Re could make a difference to them. Direct Line and Churchill, for example, will be writing to customers who will be benefiting from Flood Re.

How does Flood Re work?

Insurers will have to pay an annual £180 million levy into the fund, which is expected to add around £10.50 a year to the cost of your cover.

While that may lead to some gnashing of teeth among MoneySavers, it is important to bear in mind that weather- and environment-mapping information is now available that shows many more people are potentially at risk from flash flooding, for instance, and not just those living near a river or the sea.

Having property insurance that includes flood cover is usually crucial in getting a mortgage. So if flood insurance was to become harder to get and more expensive, this could have serious repercussions for the whole property market. 

Flood Re will charge a fixed cost per policy to insurers, relating only to the flood element of home insurance policies transferred to Flood Re.

These policies will be lower than would be the case if the flood risks were fully taken into account, as contributions to the costs will come from the annual levy.

Flood Re also offers insurers an excess per policy of £250 and most insurers are expected to pass that excess on to the policyholder. This would represent a meaty reduction on the size of excess most people living in flooding hot spots have typically been faced with in the past.

Customers will still buy their insurance from insurers or insurance brokers; they will not deal directly with Flood Re.

In the case of a customer making a claim because of a flood they will have their claim managed and repair works completed by their insurer in the usual way, but that insurer will then be able to recover costs from Flood Re.

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