European Commission approves UK flood reinsurance scheme

January 2015


A UK reinsurance scheme aimed at ensuring the availability of domestic insurance at affordable prices for flood-related damage is in line with EU state aid rules, according to the European Commission. The 'Flood Re' scheme, providing reinsurance for the flood risk element from those households deemed at high risk of flooding, will be partially funded by an industry-wide levy, possibly conferring an economic advantage to the pool over its competitors and involve state aid. However, the Commission concluded the scheme is compatible with EU state aid rules because such insurance cover might not otherwise be sufficiently available on the private market, and the scheme remedies the market failure without unduly distorting competition.


The UK notified to the Commission plans to set up Flood Re in November 2014. Flood Re is a non-profit flood risk reinsurance pool, which will be run and financed by insurers.

The terms of the scheme allow insurers to compound risk, as they will pay claims to policy holders as usual on flood risks transferred to the pool and then recover those costs from the scheme.

It also ensures affordable prices for the policy holder, namely the end consumer, given that their premiums are capped for insurers participating in the scheme.

Participation in the scheme is voluntary and insurers also retain the possibility to reinsure such risks in the general reinsurance market.

The scheme

The pool will be funded entirely by the UK domestic property insurance industry, through premiums passed on by the insurers as well as a levy charged to all insurance companies active in the market.

The Commission concluded:

• the scheme facilitates provision of flood insurance cover at affordable prices in areas where no or insufficient cover would otherwise be available

• the aid is appropriate and proportional for achieving this goal

• the scheme is open on the same terms to all companies providing domestic property insurance in the UK, ensuring the distortions of competition are minimised

• as the scheme is a transitional measure, to be phased out after around 20 to 25 years, market conditions after that time should enable insurers to price flood insurance depending on risk but at affordable levels. During this period, the UK authorities have committed to invest in infrastructure to improve flood risk management in the UK. A standard flood risk report template will also be provided to insurers with information on the effects of the measures implemented in terms of resistance and resilience to facilitate the reflection of flood risk management in insurance contracts.

The non-confidential version of the decision is available under case number SA.38535.

Source: Press Release: State aid—European Commission approves UK flood reinsurance scheme

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