Last week the European Commission approved Flood Re, the reinsurance scheme designed to ensure the availability of flood insurance for homes and small businesses at high risk of flooding.
The Government sought approval from the Commission because there is a risk that the scheme could amount to a form of state aid which would confer a competitive advantage on the participating insurers. However, the Commission found that:
- The aid was proportionate to the goal of facilitating the availability of flood insurance at affordable prices in high risk areas;
- Flood Re is open on the same terms to all domestic insurers in the UK market so the distortions of competition will be minimised; and
- Flood Re is intended to be a transitional scheme with a life of 20-25 years during which time the Government has committed to invest in infrastructure to improve flood risk management.
The decision has been lauded by the Commission as “a great illustration of how the Commission and Member States can work together to design effective aid measures that contribute to important public policy goals“, but the story is unlikely to end there.
Barely a week later Flood Re is back in the headlines facing more criticism, this time from the Committee on Climate Change. They contend that the scheme breaks normal government spending rules because it offers negative value for money and will never be a long term solution to flood risk. They also warn that it could act as a disincentive to property owners to manage flood risk as it removes the financial impetus to do so. They claim that the money would be better spent on bolstering flood defences for properties at high risk.
The Environment Agency predicts that by 2035 the number of properties at significant flood risk will rise by 350,000. Most commercial properties will not benefit from Flood Re anyway, but all property owners have a vested interest in ensuring that flood risk management remains front of mind even if it does not remain on the front page of the newspapers.