Westpac has withdrawn from offering home and contents insurance to people in high flood risk areas unless they have a mortgage with the bank.

The bank is aiming to reduce its flood risk exposure and “send a message about mitigation”, according to Westpac Head of General Insurance Jim Glossat.

A memo sent to the bank’s staff on Friday advised that “customers in high-risk flood areas will need to have a Westpac Group mortgage over the property to apply for cover”.

“Please note this only applies to 2.5% of properties across Australia.”

Mr Glossat told insuranceNEWS.com.au Westpac wants to protect the interests of existing policyholders while avoiding writing flood risk “with no regard to exposure”.

“I have 400,000 customers on my books and I do need to balance the risk I write with the interests of those policyholders,” he said.

“If my exposure increases beyond what is acceptable I end up having to recover losses in increased premiums. Significant flood losses can impact capital and create solvency issues.”

Half the business the bank writes in high-risk locations in Queensland already involves people who have home loans with Westpac.

“We can hardly lend money to people in flood-prone areas and then not offer them insurance,” Mr Glossat said.

The bank will consider insuring customers who have paid off mortgages with Westpac on a case-by-case basis, but he says ultimately he sees the bank’s decision as encouraging mitigation.

He compares the decision to Suncorp’s withdrawal from flood-prone Queensland towns Emerald and Roma, and to other insurers withdrawing from Far North Queensland.

“We write business right across Queensland, but in some locations with high to extreme flood risk we only offer cover with a home loan,” Mr Glossat said.

“We are very encouraged that the Queensland Government is saying that they want to make flood mitigation a priority.”