New flood protections for homeowners will make the conveyancing process more complex, solicitors have been warned.
Flood Re, a national scheme to support households at the highest risk of flooding, went live today following authorisation last week by the Prudential Regulatory Authority and Financial Conduct Authority.
Search provider SearchFlow warned that not all properties would be eligible to benefit from the not-for-profit scheme, ‘and due to the detailed criteria defining whether your property qualifies, it is now a lot less clear throughout the conveyancing process as to how to proceed’.
Only ‘interpreter’ flood reports flagging potential eligibility for Flood Re would ‘sufficiently’ protect homebuyers, the search provider warned.
Managing director Greg Bryce said: ‘Whilst the Flood Re scheme will offer much-needed protection to homebuyers purchasing properties in flood-risk areas, it has certainly added another layer of complexity to the homebuying process.
‘It is now very important that we provide flood reports that define the potential to cede properties into Flood Re and outline clear guidance on what it means for the homebuyer and their insurance availability.’
A guide published by the Department for Environment, Food and Rural Affairs states that Flood Re will be a not-for-profit reinsurance body ‘run and managed by the insurance industry’.
Insurers will maintain a ‘direct relationship’ with their customers, with policyholders paying premiums and making claims directly to the insurer.
‘However, if an insurer calculates that the flood-risk element of a policy will cost more than the premium set under Flood Re, that insurer can cede the flood risk part of the policy to Flood Re,’ the guidance states.
‘In the event of a flood, the insurer would pay the claim to its customer and seek reimbursement from Flood Re.’
Paul Pugh, partner at international firm Eversheds, advised on Flood Re and served as Flood Re's interim chief counsel for seven months.
He said: 'Though not a financial contributor itself, the government has made the levy compulsory for insurers, so insurance cover will now be available for many for whom insurance cover was previously prohibitively expensive. The intention is that the fund will run for an initial 25 years, kick-starting a market that will eventually sustain itself.
'Going forward, the Flood Re model could be used to seed new markets where the understandably conservative instincts of the insurance industry are emboldened by a state-sponsored levy or other collective arrangements.
'New risks from emerging technology, such as driverless vehicles, is an example of where it could be applied.'
The Law Society has published an updated practice note for solicitors to help protect clients from flood risk as well as provide information for those looking to buy property in flood prone areas.