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UK insurers would resist any attempt to expand Flood Re, trade body chief warns

U.K. insurers will resist attempts to expand the remit of the country's government-backed flood reinsurer, their trade body has said.

The U.K. government announced Dec. 27, 2019, that it would investigate the availability of flood insurance following reports that it had been lacking during recent heavy flooding, and that it would probe "issues facing communities and small businesses." It said it would publish further information in 2020.

Flood Re Ltd., a joint scheme of the U.K. government and insurance industry, was set up to provide affordable insurance to residential properties at the highest risk of flooding. But the scheme excludes homes built after Jan. 1, 2009, to avoid incentivizing house-building on flood plains. It also does not cover businesses, on the grounds that they do not suffer the same lack of affordable flood cover as private households.

Huw Evans, director general of the Association of British Insurers, or ABI, said in an emailed statement responding to the review: "U.K. insurers, who set up Flood Re, and pay £180 million per year to support it, will resist any attempts to widen the scheme to cover recent floodplain development."

Evans said insurers have responded "promptly and effectively" to the recent floods, referring back to a recent ABI announcement that it expects insurers to pay up to £110 million in claims for the flooding that hit South Yorkshire in November 2019. As a result, he said, any review of flood insurance "should focus on how to improve under-insurance, where the government itself has an important role to build awareness."

However, an ABI spokesman told S&P Global Market Intelligence that the association believed that the review "is going to be an information-gathering exercise, so we stand by to react on that basis." He added that the provisions specifying the 2009 cutoff date and the exclusion of businesses from Flood Re cover "are ones we continue to support and continue to think should apply."

Andy Bord, CEO of Flood Re, said in an emailed statement that he welcomed the government's inquiry into flood insurance. He added: "Flooding has a huge emotional and financial impact on householders and it is our aim that they — together with all those who live in areas at risk of flooding — can continue to benefit from affordable home insurance in the future."

Flood Re declined to comment further because the details of the government's review have yet to be published.

Flood Re wrote 164,480 policies in the year to March 31, 2019, and has benefited nearly 250,000 properties since its launch in April 2016, according to the company's annual report.

The company's five-year review document, published in July 2019, shows that it had initially estimated it would be writing 350,000 policies by year three, although it added that the volume of contracts that would be written "was always a key source of uncertainty."

According to the U.K.'s Environment Agency, more than 5.2 million homes and businesses in the country are at risk of flooding.