6.2.5 Financial Attributes
The UK system is self-financing and does not rely on public guarantees or reinsurance. Insurance
companies are however encouraged to divert profits into capital reserves with tax breaks from the UK
government. In France and Belgium the state has a financial role to play. In France it is through
unlimited public reinsurance of private insurance company risk. In the case of Belgium the state will
cover losses above a limit. As insurers are not charged for these interventions in any of the three
countries, they are in effect subsidies and could be said to distort the operation of the markets (Faure &
Bruggeman, 2008).
A point of difference between the French and the Belgian compensation systems is that the regulator
fixes premiums in France, whereas in Belgium insurers fix the premiums on a risk-based basis. In
France, premiums do not take into account the risk policyholders face. Under the French system the
level of premium the state decides in part limits the revenues of the insurers. Competition can still occur
between insurance companies competing for new customers by offering more attractive property
insurances, but the flood premiums they can charge will be the same as their competitors. In Belgium
insurers can compete on the premiums they feel able to charge. The UK system is a total free market
and outside of the defunct Statement of Principles insurers can charge what they assess to be
appropriate and more attractive than the terms their competitors are offering.
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