Future broking leaders have delivered a damning verdict on part of the UK’s proposed levy-funded flood reinsurance pool for high-risk households.

Members of the Chartered Insurance Institute’s New Generation program say the flood insurance obligation in the Flood Re scheme contradicts free market principles and places too great a financial burden on the industry.

“We believe [it] will be detrimental to the insurance industry by potentially leading to a reduction in capacity and competition, which will damage its reputation as one of the best insurance markets in the world,” they say in a submission on the draft plan.

“Such imposition on a commercial market goes against the very spirit of commerce and is therefore not in the interest of the general public.”

The obligation is intended as a fallback power should Flood Re fail. It would require insurers to each cover a share of high-risk properties.

The New Generation group says insurers would not want to accept the business and would do so only to avoid a government fine.

There is even a risk insurers would take the “known” cost of a fine over the “unknown” and potentially significant exposure to flood losses.

“Furthermore, the framework does not appear to address the issues of affordable premiums, which devalues the entire proposal,” they say.

“We therefore feel its inclusion in the Water Bill is unnecessary and could damage public confidence in the industry.”

Lloyd’s has also criticised the flood insurance obligation and called for clauses relating to it to be deleted.

“We are not aware of any UK precedent for this proposal to require UK businesses to enter into particular contracts, very likely to be loss-making,” it says.