A new scheme called Flood Re has been designed to cut bills for those whose homes are in danger of flooding, reports The BBC.
Up to now, thousands of householders have been paying large additional premiums to make sure their homes and possessions are protected.
About 350,000 homes could benefit – although thousands will be excluded.
The cost will ultimately fall on ordinary policy-holders, who will pay an extra £10.50 on their premiums on average.
As many as 15,000 homeowners made insurance claims for storm and flood damage last winter.
Insurance companies should now be able to lower premiums, as they can pass on the flood risk element of policies to the reinsurer Flood Re.
Householders who are eligible will also see their policy excesses – the amount they have to pay towards a claim – capped at £250. Previously, some people had to pay several thousand pounds towards repairs.
However, houses built since 2009 will not be covered by the scheme. This was done to discourage developers from building on land at risk of flooding.
Businesses are also excluded, as are landlords who take out insurance policies on homes they do not occupy themselves.
The scheme has also been criticised by a group of MPs, who said it did not offer good value for money.
Initially 17 insurance companies are taking part in the scheme. If necessary, they can pass on any flood risk to Flood Re, which has been funded by the insurance industry as a whole.
Its costs will be covered by an industry levy of £180m a year. Most insurance companies are expected to pass on that cost to their customers, raising average bills by around 2%.
But Brendan McCafferty, chief executive of Flood Re, said flood-risk consumers should benefit from greater choice and more competition.
“This should make flood cover more affordable and accessible to those in high flood risk areas over time,” he said.
However, consumers will not need to contact Flood Re directly, as this will be done by existing insurance companies.