The government has launched a scheme giving households in high-risk areas access to affordable flood insurance. An agreement on the scheme was first reached between government and the insurance industry in 2013, but its implementation has been subject to delays.

According to Defra, which announced the launch of the scheme on Monday following the final green light from the Prudential Regulatory Authority (PRA), this means up to half a million households will benefit from better flood protection. The scheme is not available to businesses in at-risk areas. The Association of British Insurers has explained that Flood Re is a not-for-profit reinsurance company, which basically enables insurance companies to insure themselves against losses caused by flooding.

Under the scheme, the public will continue to buy their insurance from established companies, and won’t deal with Flood Re directly. The scheme sets a ceiling price for insurance policies, which can currently see customers charged thousands of pounds for flood insurance, and allows insurance companies to claim back funds spent on flood repairs after flood events from Flood Re.

Through the Scheme, flood insurance for those at the highest risk of flooding starts at £210 per year (for Council Tax Band A), and rises to £1,200 in a band H house.

According to ABI, the initial cost of setting up Flood Re was covered by the insurance industry, and the pool of money used to cover claims made on the reinsurance scheme will come from the charge for each policy passed on to Flood Re and a levy on the insurance industry (expected to collect £180m).

Defra assured that other home insurance customers will not see their bills rise as a result of the new scheme.

In January, ABI estimated that flooding in December 2015 and January this year would lead to insurance claims in excess of £1bn. The average claim made on domestic properties damaged by flooding at the start of the year was £50,000 the insurers’ association said. The impact of flooding, which primarily affected the North-West of England, led the Environment Agency to recommend a "complete rethink" of the UK's flood defence policy.

The Flood Re scheme has proven controversial, as riverside mansions can benefit from caps on insurance coverage, but the scheme isn’t open to more modest properties, including small businesses or let houses.

On Monday, Floods Minister Rory Stewart said,  “Flooding is devastating. Nothing can take away the distress it causes. But affordable flood insurance will help people get back on their feet more quickly and secure their futures. So the government and the insurance industry have worked together to establish Flood Re to provide affordable excesses and premiums for people in flood effected homes.”