State aid: UK flood insurance scheme gets Commission green light

State aid: UK flood insurance scheme gets Commission green light


Author: Sarah Livestro

The European Commission has given State aid approval to a UK scheme designed to make sure that owners of properties at risk of flooding can obtain affordable insurance.

The scheme, known as 'Flood Re' will establish an insurance pool for the benefit of those households deemed at high risk of flooding.

According to the Commission, the purpose of the Flood Re scheme is to prevent a market failure for domestic property in areas at risk of flooding. Under the scheme, insurers can transfer the highest flood risk elements to the pool at a set premium. At the same time, customers will benefit from capped premiums from insurers participating in the scheme, which should ensure that the price of insurance does not exceed what customers can afford. So the scheme should reduce the risk of customers living in areas at the highest risk of flooding being left without insurance for their properties.

The European Commission found that the scheme furthered an objective of common interest (the provision of insurance cover) and that it did not distort competition to an unacceptable extent. It therefore gave the scheme the green light.

It is interesting to note that although the source of funding for the Flood Re scheme is reportedly entirely private - a combination of premiums passed on to customers and a compulsory industry-wide levy - the UK government nevertheless sought (and obtained) State aid clearance for the scheme. This is likely to have been because private funds - such as compulsory levies - may be caught by the rules if they are under State control, with the degree of government control over the funds, and the way that control is applied, being relevant factors. The case therefore is a useful reminder that State aid rules may apply even to 'private' funds, where these are under State control.


This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.