The Association of British Insurers says that more than 350,000 UK homes will benefit from the Flood Re scheme, which launched today.
Flood Re is a not-for-profit reinsurer designed to cover UK homeowners against the risk of flood damage.
The body will build up a pool of money to cover flood claims. This will come from a levy on home insurance policies and an annual £180m levy on UK home insurers.
When an insurer judges that the flood risk element of a home insurance policy exceeds its risk appetite, that part of the policy is hived off to Flood Re.
Flood Re is managed by the insurance industry, with the Treasury as the ultimate backstop.
ABI director of general insurance policy James Dalton says: “People in flood risk areas not being able to access affordable cover was a major concern, and why the insurance industry went to great lengths to design and create this world-first solution along with government.”
Flood Re will be in place for 25 years and is designed to ensure affordable flood insurance on the open market.
More than half of the home insurance market has signed up to Flood Re already, with more to come.
Before Flood Re, flood insurance could be too expensive for many homeowners due to insurers charging a premium for assuming the high cost of flooding.