Flood Re launches with help from Bermuda
Bermuda is playing a role in one of the world’s largest natural peril reinsurance deals, helping to support an ambitious programme to address flood risk insurance and reinsurance protection in Britain.
The $3 billion Flood Re programme, launched yesterday, has been hailed as a “world-first” and is an attempt to provide affordable flood protection insurance for homeowners at risk of being caught in large-scale flooding events.
Some areas of Britain have suffered costly flooding events during the past few years. An example is the city of Carlisle, where floods in 2005, 2009 and last December are estimated to have caused insured losses of $1.1 billion.
These events have resulted in many homeowners in flood-risk areas facing increasingly costly home insurance.
Flood Re is a public-private partnership arrangement between the British government and the insurance industry, primarily through the Association of British Insurers.
Many members of the Association of Bermuda Insurers and Reinsurers, including Hiscox, XL Catlin and Chubb, have British operations that are part of ABI.
Bradley Kading, president of Abir, said members had been heavily involved with designers of the new reinsurance programme.
Flood Re has been in the works for two years. Its aim is to enable an estimated 350,000 householders in high flood-risk areas to access more affordable home insurance.
The British government’s scheme to pool flood risk is supported by a yearly levy of £180 million ($257 million) from British insurers. It will offer to take the flood-risk element of home insurance from an insurer in return for a capped premium, which is based on the insured property’s tax band.
Flood Re will reimburse insurers for flood claims. In its initial years the programme will also purchase its own reinsurance, spread across 38 private-sector reinsurers, to ensure it can cover claims. Industry giants Munich Re and Swiss Re have made significant contributions to the coverage the scheme offers.
It is anticipated that Flood Re’s premiums will increasingly be ‘risk reflective’, thereby giving an incentive to homeowners, authorities, and government to take action to try to mitigate the effects of flooding.
Mr Kading said the programme was a way for the industry to put to work excess capital that has accumulated during the prolonged soft market.
“A key issue is the abundance of capital in the sector and how to use it,” explained Mr Kading.
He views Flood Re as an opportunity for insurers and reinsurers to expand and attract new business, potentially in other countries if similar schemes are introduced.
“The UK is ahead with this, but the US is also interested,” he said, mentioning the Biggert-Waters Flood Insurance Reform Act of 2012, which increased insurance rates on some subsidised policies, and a subsequent Federal Emergency Management Agency report to Congress on options to reinsure the national flood insurance programme and possibly privatise it. The report featured Britain’s Flood Re as a case study, and Mr Kading said the US is seeking to do its own pilot project.
Referring to the launch of Flood Re, he said it was good for Bermuda and would help put more reinsurance capital to work. He added: “It’s a good programme that increases access to flood insurance and will create more demand for reinsurance.”
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