A Flood Claims Pool would be established to pay the cost of flood claims over
and above the capped amount paid by the insurer. In other words, any
difference between the capped flood claim amount (eg $17,500) and the total
value of the flood claim would be paid out of the pool to the insurer.
• Insurers would manage the claim as per normal based on their policy wording
and policyholder’s preferences (eg manage re-build or cash settlement).
• An overall per-event cap would limit insurers’ exposure to a particular flood
event. This could be based on a proportion of the insurer’s annual domestic
home and contents gross written premium (eg 10%). The cost of flood-related
claims in excess of the per-event cap would be paid by the pool.
• The total annual amount of an insurers’ potential exposure would be capped
by a limit on the number of events the insurer would be liable to cover in any
year (eg two events per annum). The total cost of all flood claims relating to
events in excess of the annual event limit would be paid by the pool.
– The capping of an insurer’s potential flood exposure would limit the
capital and reinsurance implications of providing flood cover and
‘accumulating’ large concentrations of flood risk exposure.
• Capping the amount of a flood claim that an insurer is required to pay,
reduces (but doesn’t eliminate) the premium an insurer would need to charge
a homeowner to cover flood and hence provides a mechanism for subsidising
• In order to top-up the cost of flood claims from homeowners in receipt of
subsidised flood premiums, a Flood Claims Pool would need additional
funding. It is Allianz’s view that the most appropriate source of funding for a
Flood Claims Pool would be State and Local Governments.