17:17 - Division on Amendment 89A - Ayes: 175 / Noes: 223 - Amendment 89A disagreed.
18:04 - Division on Amendment 89B - Ayes: 190 / Noes: 209 - Amendment 89B disagreed.
Baroness Parminter (LD)
My Lords, ensuring we have the right regulatory framework and the financial means to deal with the potential environmental impacts of fracking are important issues and therefore I most sincerely thank the noble Lord, Lord Whitty, for raising this matter again.
In Committee, the Minister outlined the steps being taken to address the low-probability, but high-risk, scenario of a pollution incident. My noble friend Lord Shipley referred to the Minister’s response, which was that the Government and the industry are looking to put a scheme in place, and I am sure that we all look forward to hearing further news about that in the Minister’s remarks this afternoon.
We need tight regulation of fracking by the Environment Agency, the HSE and local planning authorities, but of all the impacts of fracking, not just the impacts resulting from increased pressure on water supplies or their potential contamination. In Committee, the Minister confirmed that the regulatory framework will be,
“reviewed and refined as appropriate as we move towards the production phase”.—[Official Report, 11/2/14; col. 543.]
We need a holistic view of the environmental impacts of fracking, not just of its impacts on water supplies, important though they are, and I therefore cannot support this amendment. I certainly hope the Minister will give assurances that there will be full parliamentary scrutiny of any proposed changes to the existing regulatory framework for fracking.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, Amendment 88ZA, which was moved by the noble Lord, Lord Whitty, would require onshore oil and gas operators to provide financial security when applying for an environmental permit so that funds would be available to deal with any water pollution incidents caused by the operator. The amendment relates to both the conventional and so-called unconventional, or alternative, oil and gas sectors. It would address any pollution that an operator might cause to the water environment but not, I stress, any other damage that might be caused by their activities. The same amendment was raised in Committee by the noble Lord, Lord Whitty, and was withdrawn in the light of information that I provided on our plans to address any wider environmental risks by developing a scheme to ensure that the polluter will be liable in the event of a pollution incident and that there will be sufficient funds available to cover the costs.
I reiterate that the proposed amendment would also apply to, and have implications for, our well established UK conventional onshore oil and gas industry, an industry which, over many years, has maintained a good record of environmental responsibility and competence that has enabled it to co-exist with, and provide employment for, many. Our existing regulatory framework and the application of good operational practice have served us well to prevent pollution from onshore oil and gas activities and to tackle any problems that emerge in an appropriate way. These same controls will provide the basis for the regulatory framework for any new developments in the oil and gas sector to ensure that the environment continues to be appropriately protected. I shall come back to that in a moment.
As part of the licensing process, and prior to awarding a licence, the Department of Energy and Climate Change assesses whether a company has sufficient funding for its planned operations. DECC also checks at the drilling and, where relevant, production stage that the company has appropriate insurance. Similar financial competence checks are carried out by the Environment Agency as part of the permitting process. In this way, we ensure that the companies have the necessary resources needed to back their operations.
Our regulatory framework is underpinned by a robust range of enforcement powers, which are available to the Environment Agency. This includes powers under the Environmental Damage (Prevention and Remediation) Regulations 2009, which in the event of serious damage to surface waters or ground-water will enable it to require the polluter to pay to clear up the pollution. Ultimately, if a significant environmental risk becomes apparent, the Environment Agency has the authority to stop the activity. These powers apply to a wide range of activities undertaken by different industries, so I do not think that it would be justified to create any specific provisions for the onshore oil and gas industry.
However, the Government are very aware of the public’s concerns about the capacity of companies exploring for shale gas to address any liabilities that may arise. As I mentioned in Committee, this issue is being looked at as part of a wider review. DECC and the shale gas industry are working together to put in place a robust scheme that would cover environmental liabilities, even if the relevant operator is no longer in business. They are discussing with leading insurers to build expertise and capacity in the insurance market. The aim is to facilitate the development of products appropriate for shale gas and similar operations, which, in turn, could facilitate the development of an industry-wide scheme. As I explained, these discussions will take time, as we need to ensure that we get this right first time.
The amendment proposed by the noble Lord, Lord Whitty, is quite specific, but perhaps I could just talk more broadly for a moment. As I have just mentioned, and noble Lords have mentioned in their speeches, there are understandable concerns about this whole area of exploration and production. The noble Lord, Lord Cameron, referred to the need to bring the public with us—and he is absolutely right. The Government are clear that we must take all appropriate measures to ensure human safety and protection of the environment. The United Kingdom has more than 50 years’ experience of regulating the onshore oil and gas industry, and we have a robust regulatory system in place to ensure that operations are carried out to high standards of safety and environmental protection.
I can assure noble Lords that the Government will allow production of shale gas to proceed only where it can be done without compromising human health or the environment. We are therefore undertaking a very careful assessment of our existing policy and regulatory framework to ensure that it is fit for purpose, as we move towards the production phase. It is not just about fracking—a process used to extract oil and gas from rock—which has been safely employed in the United Kingdom and elsewhere for many years.
Any changes to regulations that we believe are necessary following this consideration would of course be subject to parliamentary scrutiny. Parliament is also using its other mechanisms of scrutiny, including the significant inquiry into the potential impacts of shale gas being conducted by your Lordships’ Committee on Economic Affairs, which I understand is due to report soon and whose conclusions we will of course consider carefully. A couple of weeks ago, on 17 March, my noble friend Lady Verma spoke for the Government in a short debate on shale gas initiated by my noble friend Lord Borwick. Noble Lords may wish to note also that this debate is occurring simultaneously at EU level, as the noble Lord, Lord Cameron, said, and that debate will reach its own conclusions in due course.
Baroness Northover
Baroness Northover (LD)
My Lords, in moving government Amendment 88A, I wish to speak also to the rest of the government amendments in the group.
This group of amendments includes the government response to the Delegated Powers Committee on the flood insurance clauses. There are also a few minor changes, including some further transitional measures, to improve the Bill.
The first set of these amendments—Amendment 88D and Amendments 90C to 90G—is in response to the Delegated Powers Committee’s recommendations on the flood insurance measures. The Government take these points very seriously and have tabled amendments to take them into account. This includes using the affirmative resolution procedure for all regulations and placing some of the definitions in the Bill. Following the committee’s report on the amendments, we nevertheless take the view that Clauses 58 and 61 should remain affirmative on the first exercise only. The amendments also provide for some of the definitions to be amended by regulations.
We agree with the committee that the definitions are important and we take its point about defining them in the Bill. However, we remain of the view that the definitions of “flood”, “household premises” and “relevant insurer” are best set out in regulations, which are more flexible, should we need to change them over the lifetime of the measures. We hope that, by defining these terms in regulations that will be subject to the affirmative procedure, we have reassured noble Lords of our intention that Parliament is able to scrutinise these definitions fully in due course.
We thank the committee for recommending that the powers to share information on council tax data are subject to the affirmative procedure. However, to meet the commitment to establish Flood Re in 2015, we need to release the information immediately after Royal Assent, and have therefore decided to address the committee’s concerns by placing the powers in the Bill to ensure that Parliament can scrutinise them now. We hope that noble Lords understand the rationale for this, due to the challenging timetable to deliver Flood Re.
Although Amendments 90CA to 90CD provide for rather than mandate the release of council tax data in the Bill, I should make it clear that the Government are committed to doing so, and to do so swiftly following Royal Assent.
Insurers will be required to have in place appropriate but proportionate security measures for the protection of the data disclosed pursuant to this clause. As much of the data to be disclosed at this stage are already in the public domain, it has been agreed that the controls are sufficiently robust for additional criminal sanctions not to be required. However, the amendment also allows for the application of a criminal sanction at a later stage, should the Government need to regulate for the release of additional information. It is right that we have the powers to protect the release of further information in future, but the criminal sanction is not automatic and we will consider whether one is necessary, following consultation.
On Amendment 90A on Flood Re’s reserves, we have previously discussed amendments to the rules surrounding the scheme’s reserves, and will come on to discuss reserves later in this debate. Having consulted further, and to ensure that this power in Clause 53 cannot compromise the sound operation of Flood Re and its orderly management, we are tabling this small change to make clear that the scheme administrator’s consent is sought before making regulations in this area. This consent means that the scheme administrator is able to object to any prudentially unsound proposals, as well as to make representations as to the retention of some or all of the reserve. Consequently, there is no longer a need for a requirement to consult the Prudential Regulation Authority as well. I reassure noble Lords that both the Prudential Regulation Authority and the Financial Conduct Authority will continue to be closely consulted on this and all other regulations made in relation to the Flood Re scheme.
Amendment 88B covers the eligibility threshold and is intended to ensure that the legislation properly reflects the operation of the Flood Re scheme, and the way the insurance industry operates.
Amendment 90T addresses the risk that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. We have every intention of carrying out a full consultation before making that secondary legislation to ensure that any private interests are properly considered.
Amendment 90L is intended to ensure that employment contracts within the scheme are transferrable, where they otherwise might not be. I reassure noble Lords that this amendment is not intended to enable the transfer of reserves required to be retained for prudential regulatory purposes.
In addition, the Government have also tabled a small set of minor and technical amendments to the Bill. We have also corrected an error in Schedule 3 to the Flood and Water Management Act 2010 to ensure that unused bond funds, called in by a SuDS approving body, can be returned to the right person.
Finally, Amendments 91B to 91D provide the Secretary of State with powers to introduce provisions to allow Ofwat to revoke existing water supply licences as part of the transition to the new water supply licensing regime. The power provides flexibility for Ofwat to allow existing licences to continue until new licences are available or until they are revoked on a specified day.
Amendment 91B enables the licence modification powers to work in such circumstances. The order can provide for more detailed arrangements to be set out in a scheme produced by Ofwat, subject to the requirements of the Secretary of State’s order. The order also provides for compensation to be payable to the holders of revoked licences. The measure of compensation may depend on various factors, including, for example, whether the licence holder qualifies to hold a new licence in the reformed water supply market.
The amendments also make transitional provisions for existing sewerage arrangements with incumbents that become licensable arrangements under the new sewerage licence. Compensation is payable if it is no longer possible for some sewerage arrangements to continue because a licence is required. Again, the qualification of the operator for a licence would be a relevant factor. Amendment 91C corrects a small error in paragraph 6 of the schedule. I hope that noble Lords will be happy to support these amendments.
Earl Cathcart (Con)
My Lords, this is the first time that I have spoken on this Bill on Report, so I should declare that I live in a band H property on my farm in Norfolk, I have a bore hole and I have spent about 30 years working and underwriting in the insurance industry. I am happy with these government amendments, but will the Minister clarify government Amendment 90L to Clause 70? I am afraid that I did not quite catch the Minister’s assurance about capital, so I am asking her to say it again, please. The current wording is far from ideal, in that it could potentially raise the possibility that Ministers could access Flood Re’s funds when the scheme is wound up, irrespective of their being needed for, for example, meeting regulatory run-off requirements.
I understand that Defra has said that an override to access Flood Re reserves is not the intention of the amendment to Clause 70. However, the concern is that in 20 or 25 years it could easily be interpreted as an opportunity to grab funds from Flood Re. Will the Minister make clear that the amendment is not intended to apply to Flood Re’s reserves or capital? That would be most useful.
The Earl of Lytton (CB)
My Lords, this is the first time that I have spoken at this stage of the Bill and I, too, must declare that I live in a band H property. However, I also have a professional interest in parts of the Bill by virtue of being a chartered surveyor. I certainly welcome the proposals for the affirmative resolution procedures outlined by the noble Baroness and agree that the disclosure of council tax information is necessary. However, I have one query, which relates to Amendment 90CD. Could the noble Baroness confirm that the normal process of disclosure will generally relate to the identity of the property and its council tax band rather than the identity of the chargepayer, the latter being something that is normally held by the billing authority? If I have missed some point about the disclosure, and where the identity of the individual can be discovered, perhaps she would put me out of my misery.
Baroness Northover
I hope I can put everybody out of their misery, which probably reflects the fact that I rattled through this in six minutes. First, I will take up the points made by my noble friend Lord Cathcart. We will come to a further discussion of reserves later, in which I am sure he will be interested. I make it clear that Amendment 90L is intended to ensure that employment contracts within the scheme are transferable, where otherwise they might not be. I reassure him that the amendment that he mentioned is not intended to enable the transfer of reserves that are required to be retained for prudential regulatory purposes. I hope that reassures the noble Earl on that particular point. I probably just went too fast on that one.
I am very grateful to the noble Lord, Lord Whitty, for his general support for these amendments. In response to the points he raised, I recognise fully, as a member of the Government, that the best thing to do when the Delegated Powers Committee comes forward with recommendations is to agree. However, he will also be aware that there are times when the affirmative procedure is used in the first instance and not thereafter because it is not anticipated that there will be significant changes later. I am sure that the noble Lord, Lord Whitty, will be very familiar with that pattern.
The noble Lord asked about hybridity. I will just go back to my original comments on that and then come to what I have been handed by way of inspiration. Amendment 90T addresses the risks that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. The noble Lord thought that we had indicated in some way that we were just sweeping that aside—at least, I understood him to indicate that. I repeat that at the end of Flood Re we have every intention of carrying out a full consultation before making secondary legislation to ensure that any private interests are properly considered. I hope that the noble Lord is reassured on that point.
Perhaps I may write to the noble Earl, Lord Lytton, with further details on the point that he raised. I am sure that we can reassure him.
I am just checking to see whether I have covered everything. I trust that I have and am sure that noble Lords will make it very clear if I have not. I hope that, on that basis, they will accept the government amendments that I laid out at such speed.
Baroness Northover
“(3) The Secretary of State may by regulations make provision as to levels of reinsurance premiums payable by relevant insurers under the FR Scheme, and may make different provision for different purposes.”
Lord Whitty
My Lords, we are grateful to the noble Earl for tabling this amendment, and particularly for the way in which he outlined the dilemmas of this proposition. I think we all have a problem here. I hope that I do not need to make it clear that we on this side strongly support the basic concept of Flood Re and the reassurance that it will give to a lot of people who are currently worried about their future cover.
We have to recognise that the Government are not entirely on a free position on this; indeed, I congratulated the Government—that is quite rare for me—not long ago on reaching an agreement with the ABI, which I know is an incredibly difficult negotiator. Therefore, I do not think that any of us want to unnecessarily unravel the arithmetic that lies behind the Flood Re proposition as it now is. However, the wide-ranging nature of the noble Earl’s amendment means that we would be unravelling it quite substantially.
On the other hand, as noble Lords have made clear, this is not entirely a matter for the insurance industry. The structure of the project is an agreement between insurance companies but it has to be backed by Parliament and it therefore has a statutory base. Parliament has to be concerned about fairness, equity and proportionality. We therefore have to query whether the exclusion of certain properties, and such a large number of them in aggregate, is fair and equitable.
To some extent, I go along the same lines as the noble Baroness, Lady Parminter: there are different arguments relating to the different categories. Some exclusions were in the previous statement of principle and are therefore in a changed position as a direct result of the demarcation of Flood Re. Small businesses were covered by the previous arrangements, as were tenants in leasehold premises—although there have been some concessions of late, which I will come on to in the next amendment—and band H properties. The exclusion of post-2009 properties is not a new position; it was the position under the old scheme.
I shall comment on my view on each of those. First, I accept that small businesses have a different way of meeting their insurance requirements. I also accept, on the other hand, that many small businesses, boarding houses, shops and small premises were seriously affected by those floods and, under their understanding of the previous settlement, would probably expect to be covered by the replacement scheme. It is therefore quite important that we bear in mind the position of small businesses. The insurance industry claims that there is not a market failure in this area, and the Government seem to have accepted that. Maybe we ought to put businesses in a different channel because they are not dealt with in the same way as residential properties under Flood Re. The Government should not lose sight of the fact that many small businesses are under serious risk and do not feel well protected by the current situation. I hope, therefore, that the Government will be able to come back to this.
The noble Earl, Lord Lytton, the noble Lords, Lord Cameron and Lord Moynihan, and others referred to band H properties. It is a slightly odd move by the Government to exclude band H—an unusually populist, progressive move, to avoid cross-subsidy from the poor to the rich. It may be a welcome indication of things to come. However, it still leaves a number of people in difficulty. I think that the Government may have to look again at band H, but it does not make a lot of difference to the arithmetic. The number of people who are asset-rich but income-poor is relatively small and, therefore, it could not make a priority social case for re-including band H.
That leaves me with the subject matter of a subsequent group. Almost the whole of the tenanted sector and the private rented sector, even with the Government’s new concessions, are excluded from this. They all regard themselves as residencies, they all have domestic insurance in one form or another and they are all lived in by households and families. I think it is unfortunate that they are excluded. I would give my priority to that and I will come back with a further amendment. As it stands I cannot fully support the broad sweep of the noble Earl’s amendments. Nevertheless I thank him for the debate and the wide range of issues which, one way or another, the Government will have to explain to various sectors of the public.
Lord De Mauley
My Lords, I thank the noble Earl, Lord Lytton, for his Amendments 89 and 90. He raises issues which I know are of concern to people and I thank all noble Lords who have spoken on all sides of the argument.
Amendment 89 to Clause 51 would require that all properties included in the calculation of the levy are eligible for the scheme. It is important to remember that while many homes in the United Kingdom are at some risk of flooding, Flood Re is designed to address an affordability issue for the 1% to 2% at the highest risk of flooding. The levy will provide Flood Re with a funding pool which will be combined with the premium income from those policies which are to be ceded to Flood Re. This will be used for the purposes of the Flood Re scheme, including the purchase of reinsurance and payment of claims. The purpose of having a pool, as is the case for much of our taxation, is that costs are shared by many so that those most in need can benefit. If everybody who paid the Flood Re levy stood to gain, there would be fundamental implications for the required amount of the levy. Alternatively, if the levy was limited to flood-prone households, the pool would not be large enough to have a significant impact on prices and therefore on the affordability of flood insurance.
The insurance industry has been clear that low-risk and no-risk householders have historically subsidised flood insurance for those at a higher risk of flooding and that the move to risk-reflective pricing will over time remove this cross-subsidy from the market. The levy simply replicates and formalises this existing cross-subsidy. Indeed, the ABI has assured us that the levy can be introduced without having an impact on bills in general for householders at a low risk and no risk of flooding, for those in band H or for those with properties built after 1 January 2009—that is, those outside the pool.
If I understand the noble Earl’s intention correctly, I think he is particularly concerned to ensure that those properties which are not eligible for the scheme—such as band H properties, properties built after 1 January 2009 and certain leaseholders on commercial policies—either stand to benefit from Flood Re or do not pay the levy. While I understand that cross-subsidising something from which you will receive no benefit might be perceived as unfair, I have explained why there always have to be some net contributors to make a pooling system work, and this includes the overwhelming majority of households at low risk or no risk of flooding. We discussed the rationale for the scope of Flood Re at length in Committee, and I explained that we think that we have got the balance right. The Government’s approach was widely supported in the response to the 2013 consultation. This approach means that those who are most in need of support will receive it to enable a smooth transition to the free market.
The noble Earl commented on the complexity of the scope of Flood Re. The proposed criteria reflect the current situation for purchasing a domestic insurance policy. We are not seeking to change the circumstances under which insurance is purchased through Flood Re. We must remember that Flood Re is designed to help those people at the highest flood risk, which we estimate could be around 500,000 households. I have heard some very fanciful numbers being bandied around, and they all miss this point. I am not saying that the Government are not still listening to the debate. We will monitor the market, as will the ABI, and we will publish our findings. Should the evidence point to specific issues with insurance for particular sectors, we will discuss with the insurance industry what might be possible.
Lord Campbell-Savours
The Minister referred to fanciful figures. The figures I produced on behalf of the lady in Thirsk were real figures showing a five-times increase. She and the 11 other people in flats in the same block are not covered. How can the Minister give an assurance that it will have very little impact on these sorts of people?
Lord De Mauley
My Lords, I was not for a moment suggesting that the lady to whom the noble Lord referred was one of those bandying around that sort of figure—by no means. It is difficult for me to speak about a very specific instance but, if I can, I will come back to that later. I was referring to estimates of the number of households involved. I hope the noble Lord understands that.
Several noble Lords referred to band H properties. In designing Flood Re, we have been very clear that we want to target the benefits where they are most needed while not increasing the costs for those not at flood risk. On that basis, we believe that it would not be justified for band H and equivalent properties to be included. The progressive nature of Flood Re received wide support in the public consultation.
Let us be clear that the exclusion of band H properties was set out explicitly as part of the June 2013 memorandum of understanding. This document reflects the needs of both parties and was agreed by the Government and the ABI on behalf of its members. In designing the scheme, the Government and the industry needed to ensure that the pool was viable and affordable. Including band H properties would increase the costs of Flood Re overall, which could result in a reduction in the benefits to households in lower council tax bands or an increase in the levy for all households. We stand by the decision to target support to those in lower council tax bands, as reflected in the memorandum of understanding.
Responding to the points raised about affordability for those in this council tax band, our analysis suggests that relative to other bands, a move to risk-reflective pricing would have limited impact on the affordability of a combined insurance policy for band H households. The noble Lord, Lord Whitty, referred to concerns that those households, which might be asset-rich but income-poor, would be at risk though this approach. We looked closely at this. According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in band H properties and hold a combined insurance policy are in the top 30% of earners with 48% in the top 10%. More significantly, perhaps, only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas. I think my noble friend Lady Parminter mentioned that.
The noble Earl, Lord Lytton, the noble Lord, Lord Whitty, and others referred to small businesses. As I said in Committee, we gave careful thought to the scope of the Flood Re scheme and consulted on the proposed figures on the domestic insurance market, which received broad support. The consultation responses did not provide evidence of widespread problems for small businesses with secure and affordable cover, although anecdotal examples of problems in some specific geographical areas were put forward. A government survey of more than 9,000 small businesses in England found that less than 1% of businesses had experienced difficulty getting property insurance in the past year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.
Earl Cathcart
My Lords, when a similar amendment was debated in Committee, I took it to be only a probing amendment. Now it has been tabled again today, I am bemused, or perhaps confused, about what the Committee on Climate Change can add to the work already being done. The insurance industry, together with the Government and their agencies, has already assessed the number of properties in known flood-risk areas, particularly the number of properties that might struggle to afford flood insurance in the open market. They have also assessed the level of premiums required by council tax band, and the contribution needed from every householder—£10.50—to ensure that Flood Re has sufficient funds net of reinsurance costs from year 1.
I have no doubt that Flood Re will continually assess and reassess its assumptions, but in any event a five-year review is built into the scheme to assess whether its assumptions still hold true. This five-year review will allow Flood Re, with the agreement of the Government, to make adjustments to the levies and contributions accordingly, and I am quite sure that different areas of flood risk will be added to the pot.
I cannot understand why the noble Lord, Lord Grantchester, is moving this amendment, which will require the Committee on Climate Change to duplicate the work already done by Flood Re and by the Government and their agencies. Where will the Committee on Climate Change get its information from? The noble Lord, Lord Krebs, says that the committee does some work in this area, but it would need access to data from Flood Re, the insurance industry and the Government and their agencies, such as the Environment Agency. I do not believe that getting the Committee on Climate Change involved will add anything but will be double-handling, expensive and unnecessary.
Lord De Mauley
My Lords, I am grateful to the noble Lord, Lord Grantchester, for his amendment, which would give a formal advisory role to the Committee on Climate Change. I am also grateful to the noble Lord, Lord Krebs, for his offer of help. I absolutely agree with them on the importance of having impartial advice on the latest science, and we of course look to the committee to inform the debate on climate change.
It might be appropriate at this stage to say that I welcome the latest report from the Intergovernmental Panel on Climate Change, which is a valuable addition to the international understanding of climate change impacts and which underlines the need to adapt to changing global weather patterns. Adapting sooner will reduce the future costs of doing so. I should emphasise that, although the IPCC report did not focus on individual countries, it did identify three key risks from climate change for Europe, of which flooding was one and water security another. These findings align well with the United Kingdom’s own Climate Change Risk Assessment, published in 2012, which identified that the biggest challenges that the United Kingdom faces will be flooding and water shortage.
As I explained in Committee, I am not clear what the noble Lord, Lord Grantchester, thinks could be gained by requiring the Committee on Climate Change to assess the data provided by insurers, which will be primarily on the pricing of risk, based on the industry’s own sophisticated catastrophe modelling. The numbers of policies eligible for Flood Re will be based solely on the cost of the flood risk component of any policy, which is set by the insurers based on their assessment of the risk. This assessment will change over time and it would not be possible for the committee to provide any estimates without detailed knowledge of industry pricing models. Similarly, the value of the levy and the likelihood of any additional contribution by insurers is based on a number of financial parameters, such as the cost of reinsurance and the amount of levy collected, which will change year on year.
Given their extensive knowledge of the flood risk profile down to the local level, the Environment Agency and its equivalents in the devolved Administrations are the key advisers to government on flood risk and changing levels of risk over time. In England, the Environment Agency leads a dedicated climate-ready support service, conducts the long-term assessment of future investment needs and provides the national assessment of flood risk and flood mapping, which takes account of all types of risk.
If I understand the intention of the amendment correctly, the nub of the concern seems to be that the modelling used to assess the size of the Flood Re pool and the numbers supported needs to be robust and take into account changing risk. Flood Re’s finances also need to be resilient to the inherent variability of annual flood claims and to factor in changing risk over time. The core of this is making sure that Flood Re holds enough capital to be able to cover claims up to the limit of its liabilities. Under European Solvency II legislation, which governs the insurance sector and will be in force from 1 January 2016, all insurance firms will be required to hold enough capital to cover a one-in-200-year level of claims. Therefore, Flood Re will be required under EU law to hold capital reserves at a level equivalent to its liability.
To assess what level of capital is needed, insurers have detailed catastrophe models. The modelling to assess such events must be kept up to date and will reflect any changes in levels of insured risk. This will include changes as a result of climate change. As an authorised reinsurer operating under the requirements of Solvency II, Flood Re will be bound by these same requirements.
Lord Hunt of Chesterton (Lab)
When the Minister refers to one in 200 years, that assumes that the next 200 years will not be the same as the previous 200. Things are changing very rapidly. Is this estimate really based on the rapid changes of climate that we are seeing? That is the purpose of referring the matter to the Committee on Climate Change. The committee is much more aware of the dynamical changes than the industry, which is essentially using past, rather static data.
Lord De Mauley
My Lords, I agree with the objective that the noble Lord refers to. Floor Re will need to take account of climate change as part of its regulatory obligations in ensuring that it remains solvent over time. We would expect Flood Re to seek the best available advice on climate change and seeking external verification of its assumptions will form part of Flood Re’s operations.
It seems that one of the other concerns underlying this amendment is whether Flood Re is based on the best available evidence, including on climate change. I assure noble Lords that the data and actuarial assumptions underlying the scheme have been independently assessed by Professor Stephen Diacon. In addition, extensive modelling, using a model that was quality-assured by the Government Actuary’s Department, has been carried out by the Government using these data. Flood Re’s modelling will be updated on an ongoing basis.
I again put on the record that Flood Re has been designed to be flexible and will be able to adapt to changing levels of risk over the 25-year lifespan of the scheme. Climate change projections were considered, alongside other risk factors, during the design of the policy, and the effects of climate change will continue to be considered during future levy-setting discussions. The insurance industry, with its expertise in risk assessment and forecasting, is at the forefront of assessing the impacts of climate change, because assessing risk accurately is an essential tenet of its business.
Baroness Jones of Moulsecoomb (GP)
My Lords, I noticed that the Minister spoke of adaptation but he has not spoken about mitigation. Quite honestly, if you concern yourself only with adaptation, you simply will not be able to keep up with the changes. Are the Government thinking about mitigation in these circumstances as well?
Lord De Mauley
Of course, my Lords. If the noble Baroness will forgive me, I have to deal with the amendment before me, which goes primarily to the issue of adaptation. Of course we are working on mitigation as much as we can. The noble Baroness will have seen quite a lot of publicity over the weekend on that very matter. She indicates that she has not but she will believe me if I show her that there was such publicity from the Department of Energy and Climate Change.
The Association of British Insurers and a number of leading insurers have signed up to the ClimateWise principles for insurers. The six principles include a commitment to publish an annual statement of action taken and to:
“Support Government action, including regulation, that will enhance the resilience and reduce the environmental impact of infrastructure and communities”.
While, for the reasons I have set out, I feel strongly that the amendment is unnecessary, I state categorically that this in no way reflects a lack of commitment from the Government on the vital matter of flood risk and climate change. During this Parliament we will be spending record amounts on managing flood risk and our new funding approach is set to attract more contributions from local partners than ever before. We have also made an unprecedented six-year commitment to record levels of capital investment in improving defences up until 2021.
The Earl of Lytton
My Lords, I too would have put my name to the amendment had I known about it in time. I apologise to the House and to the noble Lord, Lord Whitty, for not being in my place when he introduced it, but I understand a great deal about the background to it from previous discussions with him. Whatever we do with the cut-off point between what is in Flood Re and what is outside it, it is important that it is reliable, consistent, transparent and fair. The outcome must not be capricious or so asymmetric that people lose trust in it, because I am a believer that credibility is at the centre of Flood Re’s success.
One thing in particular stands in stark contrast with that. The commonhold units’ owners do not themselves own the fabric of the building: it is owned by the commonhold association. I asked myself, if there is a difference in personality, in legal entity, why is it that long leaseholders of the conventional sort in a similar building—with the freehold being the common parts and the fabric of the building owned by someone else—should not benefit? Why is there a blanket inclusion of commonhold but a blanket exclusion of leasehold? I find that difficult to understand, particularly because, under the Leasehold Reform, Housing and Urban Development Act, the intention was to try to get leasehold nearer to freehold, to remove the segregation between the freehold interest and the leasehold interest which for years has dogged the sector and allowed all sorts of abuses to occur and produced all sorts of disadvantage in funding, growth and reward for that investment.
It seems to me that the convenience of insurers is being put ahead of the public interest. There probably has to be a cut-off point somewhere in the system. It is not for me to speculate on what the actuarial approach would be to that, but it seems that where it is being placed at the moment defies objective analysis on the points of consistency and transparency that I mentioned. I am very inclined to support the amendment.
Lord De Mauley
My Lords, I am grateful for the opportunity provided by the noble Lord, Lord Whitty, to discuss the eligibility of leasehold and tenanted properties for Flood Re. In Committee, I said that we would take more time to look at the issue for lease- holders with the ABI and that we would provide further information on the scope of Flood Re.
We have developed with the ABI a briefing note that sets out the scope of Flood Re and covers proposed new subsection (1) in the noble Lord’s Amendment 89B. In summary, the note, which is available online, confirms that domestic contents policies will be available to all under Flood Re, regardless of whether properties are leasehold or freehold, rented or owner-occupied, except those properties in band H and those built from 1 January 2009.
Leasehold houses will also be in scope of Flood Re, provided that the leaseholder lives in the property and purchases the buildings insurance in his or her own name. Flats will be eligible, provided that there are not more than three flats in the building and that the freeholder, or one of those with a share of the freehold, lives in the building and takes out the cover. Setting the eligibility to a maximum of three flats reflects the general limit that the insurance market is willing to cover under a domestic or personal lines policy. There is already a competitive market for insurance for properties with four or more units, which we expect to continue. As I have already said, we and the ABI will monitor the market to ensure that that remains the case. We believe that a significant proportion of the leasehold sector will be in scope of Flood Re, but I should emphasise here that we expect most properties will not need to be in Flood Re and will find better prices through normal routes.
The noble Lord, Lord Whitty, suggests that that is all very complicated and does not go far enough. We have looked carefully at that with the ABI. Flood Re should be available only to those who need it. Indeed, in an earlier debate the noble Lord to some extent agreed with that. The ABI has assured us that the same systemic issues relating to availability and affordability do not exist for larger-scale leaseholders and commercial managing agents as in the domestic home insurance market.
The insurance industry has recently written to assure the Government that it does not expect there to be widespread issues over access to the insurance market for those parts of the leasehold sector which will be out of scope of Flood Re, which I am sure that noble Lords will agree is very welcome reassurance. The industry is clear that there is plenty of capacity to continue to provide insurance on a competitive basis.
I turn to the tenanted sector. As we discussed at some length in Committee, landlord insurance is out of scope for Flood Re for buildings cover. Landlord insurance is classified by the insurance industry as commercial. However, again, we have been assured by the industry that the majority of landlords will be able to find a more competitive rate outside Flood Re.
I emphasise that the proposed scope was not developed on the basis of cost: it is the nature of the policy which is key. The Government are clear that it would not be appropriate for landlords, who gain commercially from renting properties, to benefit from a subsidy on other households.
Lord Campbell-Savours
The Minister referred to the fact that the ABI has given assurances that that insurance will be available at competitive rates. Were they oral or written assurances? If they were written, is it possible for those assurances in writing to be put into the public domain so that interested parties can examine the assurances that the ABI has given to the Government?
Lord De Mauley
That is a very good point, my Lords, and I will see what I can do.
The Government collect certain information and data as part of the English housing survey. However, the granularity of data on the different parts of the sector sought under the amendment is not currently available. Data are collected from owner-occupied homes on whether the home is owned leasehold or freehold, but not from homes that are let in the private rented sector or from the social rented sector. In the past, those partial data have been used to estimate the total number of leasehold domestic properties in England across all tenures, although I understand that the methodology used is currently under review.
The 2011 census provides some information about whether people live in a flat or a house and whether they own it or rent it, but did not collect data on the number of leasehold domestic properties. There are also no data sets that would distinguish between smaller landlords and large multisite commercial operators, as far as we are aware.
The insurance industry could provide information which would help with a general estimate of the cost of including additional properties to Flood Re. However, the value of that would be limited without the numbers in each of the categories specified in the amendment and how many of those are at sufficient flood risk to be ceded to Flood Re. We have looked at a range of potential address-level data sets to try to map their records to flood risk, but again the data are unsuitable.
The conclusion has to be that what is specified in the amendment is unachievable to any degree of accuracy. It would also be only a snapshot in time and would quickly become out of date. The Government and the ABI have committed to monitoring the market—including for both domestic and business premises.
The noble Lord, Lord Whitty, suggested that there had been no direct engagement with the property sector. We consulted publicly on our proposals and received representations from the property sector. Indeed, I met representatives of the leasehold sector and asked them to come forward with evidence that the same problems exist in the commercial insurance market. I must say that evidence received to date is very limited, but that offer remains.
I therefore argue that reporting as set out under the amendment is not needed, as the market monitoring already planned will provide data on how the market is operating. I assure noble Lords that we will keep this matter under careful review. As I said, the Government also plan to publish the findings and make them available to Parliament.
The noble Lord, Lord Cameron, asked why we cannot treat landlords of just one or two properties differently from the more large-scale landlords. We have not heard evidence of widespread problems for smaller landlords in securing affordable insurance and there is therefore no apparent need to extend the scope of Flood Re to include them. Furthermore, it would not be practical to ask insurers to try to distinguish between different types of landlord. With the exception of policies purchased in a block or those purchased under a business name, many insurers would find it difficult to tell whether landlords have a large or a small property portfolio. This is not just about pricing policies: it would also make it more difficult for insurers to work out the market share when paying their share of the levy.
Turning back to the point made by the noble Lord, Lord Campbell-Savours, I understand that it was made in a letter to the Secretary of State, and I can provide a copy of that to noble Lords who have participated in this debate. That might be helpful.
For the reasons that I have set out, I hope that the noble Lord will be prepared to withdraw his amendment.
Lord Whitty
My Lords, I have some slight difficulties with this amendment. I understand the concept and, in a sense, I want the outcome. The role of the insurance companies’ relationship with householders—whoever they may be, in the light of the previous debate—in improving the resilience of their properties is an important dimension of this scheme. Some of it is deliverable through the normal relationship between insurance companies and their premium payers, in the sense that a condition of the insurance or of the level of excess on the insurance can be that they put in such-and-such a resilience measure or that they meet certain standards in the property. The insurance companies can in some circumstances go further than this and make a grant towards them. The problem with the amendment is that it feels too open-ended.
To answer the question about whose money it is, the money is contributed by the rest of us. It is the £10.50, or whatever it turns out to be, that the rest of the population puts into looking after high-risk properties. There is therefore a need for due diligence that that money does not go to diffuse purposes. If this amendment would lead to significant sums of money in surplus years being used in a different way, then issues of accountability arise. A more tightly worded amendment would probably meet with my approval, but people reading this could think that, if you have a surplus of £500 million after 10 years, you should be spending it directly on grants to householders in risk-prone areas to improve individual or communal flood defences. I do not think that is what is meant, but the wording could be susceptible to that meaning. I therefore support the general concept, but I do not think this amendment achieves it in a way that is easily defensible to home owners who are contributing to the financing of this scheme.
Lord De Mauley
My Lords, I thank my noble friend Lady Parminter for her amendment, which deals with a very important subject. I thank all other noble Lords who spoke to it.
Actions taken by government, communities, individuals and businesses to reduce levels of flood risk are indeed the best and most cost-effective way to secure affordable insurance and value for money from Flood Re in the long term. In addition to the substantial levels of investment in flood defences that I referred to in an earlier debate today, we are also taking action to ensure that households are supported to improve their property-level resilience. For example, grants of up to £5,000 are available for households and businesses that have flooded this winter, and applications open tomorrow. In addition, there are community projects in which we are investing more than £4 million over two years in order to learn about the most effective strategies to drive community resilience to flooding. Nevertheless, I recognise my noble friend’s intention to see Flood Re’s role reflected in the Bill.
Reserves that build up during the lifetime of Flood Re will primarily be used to pay flood claims in the bad years. Flood events are by their nature unpredictable, so while it may be possible that Flood Re would have a number of good years in which it built up reserves, it is equally possible that a run of bad years with heavy flooding could wipe out any reserves built up within Flood Re. As such, it is not easy to identify surplus funds, and any decision about Flood Re’s reserves will need to involve judgment about the level of cover needed for the unpredictable risks it bears.
Added to this, as an authorised re-insurer, Flood Re will be required by the Prudential Regulation Authority to hold certain minimum levels of capital. Any commitment by Flood Re to spend a certain portion of reserves in a certain way—for example, on betterment or resilience—would necessarily increase the amount of capital it is required to hold on an ongoing basis, having an impact on the cost of the scheme and ultimately the levy.
It may well be that, in due course, the Flood Re administrator decides that investments of the sort my noble friend would like to see present the best way of Flood Re fulfilling its obligations to manage the transition and act in the public interest. However, these are choices that are difficult to make before the scheme is established or has any sort of track record. Nothing in the Bill precludes this.
Alternatively, in due course, Flood Re may decide, in consultation with government, that the best use of any surplus is to reduce the level of the levy, thereby helping to deliver affordability for all policyholders, not just those in Flood Re. We would not, at this stage, wish to see Flood Re’s hands tied in legislation that could have an unpredictable and undesirable effect.
We have always been clear that there should be a gradual transition to more risk-reflective prices. We expect the transition plan to set out how Flood Re intends to support households to adapt to the withdrawal of support from Flood Re over time. We will not designate Flood Re unless we are satisfied with the industry’s proposals for the scheme, including the transition plan.
It is important for Flood Re to retain flexibility in the way it discharges its public interest duty and plans for transition in order to ensure that it is in a position to balance these requirements against its core financial obligations. However, my noble friend’s amendment draws attention to the need to offer more clarity about what might happen in the event that a surplus is accumulated, particularly in relation to managing the transition.
I should say that I have considerable sympathy for the points made by the noble Lord, Lord Campbell-Savours. I have first-hand experience of where exactly the type of sensible resilience measures he has suggested cost no more than putting things back exactly as they were before the flood so the insurance claim could cover them. He also referred to advice, which is clearly an important part of that. A number of sources of independent advice are available today. The National Flood Forum can direct flood victims to appropriate measures. Furthermore, we are continuing to discuss with the industry whether any of the reserves could be used to fund surveys.
As I have said, I am very grateful to my noble friend and the noble Lord, Lord Krebs, for bringing this to my attention. I would like to take the opportunity to discuss their proposals with them further before Third Reading. Although I cannot of course guarantee that I shall be able to bring something back, I may be able to clarify the Government’s position further. I hope that I can persuade my noble friend to withdraw her amendment.
Baroness Parminter
I thank the noble Lord, Lord Krebs, the noble Lord, Lord Campbell-Savours, and my noble friend Lord Shipley, for their support for this amendment. My noble friend Lord Cathcart suggested that I may have misunderstood the insurance industry. We all have our dirty secrets, and many noble Lords may think of me as a squeaky-clean campaigner, but I have to say that I have been employed in the City by Lloyd’s of London, so I do know a thing or two about insurance.
I accept the point made by the noble Lord, Lord Whitty, that the wording of the amendment may not be as clear as we would all hope to achieve to ensure that any surplus funds are used to manage down flood risk and help people to transition to a better place at the end of this temporary scheme. I hoped that it would be seen to be not prescriptive and unhelpful and I am very grateful again for the comments of my noble friend the Minister and for his kind offer of discussions with myself and the noble Lord, Lord Krebs, which we are both delighted to accept. We will return to this matter at Third Reading. On that basis, I beg leave to withdraw the amendment.
Baroness Northover
Baroness Northover
“( ) Regulations under subsection (1) may require the FR Scheme administrator to provide the following information to relevant insurers who have issued insurance policies that are reinsured under the FR Scheme, so that those insurers may supply the information to holders of those policies—
(a) information about how to find out about the levels of flood risk to which an area in which household premises are situated is subject and how any flood risk may be managed;(b) information about the FR Scheme, including information about the effect of section 51(2)(b) (transition to risk-reflective pricing of flood insurance for household premises).”
Baroness Northover
My Lords, in Committee, the noble Lord, Lord Krebs, tabled an amendment which sought to require the Flood Re scheme administrator to increase awareness among the beneficiaries of Flood Re about their local flood risk. We are very grateful to the noble Lord, Lord Krebs, for highlighting this important matter. In Committee, we explained that we agreed with the intention behind the noble Lord’s amendment and agreed to consider this further and return to it on Report. We think it is important that policyholders whose buildings, contents or combined insurance policies are ceded to Flood Re know about their flood risk so they can take simple measures such as signing up to free flood warnings as well as investigating longer-term options for managing their flood risk.
To plan for the future, these households also need to understand the likely impact of the transitional nature of the Flood Re scheme, which is subsidising their premiums. I am therefore today bringing forward Amendment 90B, which would allow the Secretary of State to require Flood Re, through regulations, to provide information for relevant insurers to pass on to their policyholders who will benefit from Flood Re. The information would cover the Flood Re scheme, flood risk and actions that householders can take to reduce the risk and impact of flooding. Our expectation is that standardised information will be sent to the customer by the relevant insurer that is ceding the policy to Flood Re. This makes sense because it maintains the relationship between insurers and their customers. Flood Re will need to work with the flood risk management authorities in the UK to ensure the information about flood risk is accurate and appropriate.
As a consequence of this amendment we are also making three other minor amendments, Amendments 90H, 90J and 90K, which affect Clause 69 and give the Secretary of State powers to make regulations defining “flood” and “flood risk” in the context of Flood Re and not just in the context of the flood insurance obligation, as was the case previously. I beg to move.
Lord Grantchester
My Lords, I rise to speak to Amendment 90CE, which is grouped with these amendments. I was slightly confused as to whether the Government were putting their name to our amendment, because I noticed that we have a little “g” in front of our Amendment 90CE. But I will take that as a misprint and that I must still convince the Government of the merit of the case.
The amendment would put in place regulations that would add clarity to set the date of commencement for Flood Re. It would also create a database of properties at risk of flooding and indicate whether the property is covered by the flood scheme. The amendment will insist that the database must be set up before Flood Re starts, as that would be logically helpful.
I begin by welcoming the Government’s helpful concession, particularly in Amendment 90B, which sets out regulations to allow insurers to provide information to policyholders in the scheme. We are glad that the Government have listened and acted on our concerns expressed in Committee with the introduction of their amendment, but we still feel that it does not go far enough. Delivering information to those already in the scheme—that is, policyholders—is helpful as far as it goes. Although it is important that insurance companies are well equipped and able to deliver information to policyholders in relation to the flood scheme and how they can protect their properties adequately, we believe that the database proposed by our amendment would be a lot more useful, primarily for potential homeowners but also for mortgage lenders. It has become much more difficult of late for people to get mortgages and it is even more difficult to get a mortgage if the mortgage lender is at all concerned about damage from flooding. As such, information should be provided to homebuyers at the start of their journey of finding a home rather than further along the process, after they have agreed with the vendor on a purchase or when they are at the stage of consulting mortgage companies after engaging solicitors. The database must be accessible to everyone and allow them to check whether a property for sale or rent is covered by the scheme and highlight its risk to flooding. This would prevent the all too recognisable reality experienced by people in the recent flooding whereby home owners were blindsided by their properties flooding and then found themselves caught when their insurance companies reassessed their policy terms. The database would also avoid the scenario whereby a home owner may believe that they are covered by Flood Re when in reality they are not.
It is a very straightforward amendment, which brings the whole subject of the database and properties into the public domain. It would add transparency and clarity to the scheme. At present, with the complicated nature of the scheme, especially in terms of eligibility, we should do all that we can to assist those potentially affected by the scheme by making them all the more aware of where they stand with regard to flood insurance on the property that they are inquiring about, not just once they become policyholders. We have already heard today of the complexities behind the scheme as regards leaseholders, as well as the exclusions for small businesses and other aspects.
Baroness Northover
My Lords, I thank the noble Lord, Lord Grantchester, for tabling Amendment 90CE, which proposes a publicly searchable database of flood risk. I am desolate that I must disappoint him as we cannot accept the amendment even though it does have a little “g” in front of it. Nevertheless, we agree with the intention behind the amendment that households that are ceded to Flood Re should be made aware of their flood risk. Knowing about flood risk is essential to helping affected households to manage their flood risk effectively, both in the short and long term. That is why we have recently published a note entitled Homebuyers and Their Flood Risk, in which we have explained the information currently available to prospective homebuyers.
It is a well established principle of the conveyancing process that the onus is on the buyer of a property to conduct their own searches and investigations into the potential risks to that property. In England, the Environment Agency provides a freely accessible resource of flood risk information for any area. Anyone may use this service to identify whether their post code is at risk of flooding from rivers, the sea or surface water. Similar resources are available to households in other parts of the UK. Should a household wish to identify flood risks specific to their property, commissioning a flood risk survey from a suitably experienced professional would identify the ways in which water can enter a property and what measures could be taken to prevent or limit possible damage. We believe that requiring Flood Re to help insurers guide their customers to information about flood risk and how to manage it will add significantly to public awareness of flood risk. That is why I moved Amendment 90B and I thank the noble Lord, Lord Grantchester, for his welcome of it. I hope therefore that noble Lords are willing to accept the government amendments in this group and that the noble Lord will be content not to move his amendment.
Baroness Northover
Baroness Northover
“(1) The Commissioners for Her Majesty’s Revenue and Customs may disclose relevant HMRC council tax information to any person who requires that information for either of the following descriptions of purposes—
(a) purposes connected with such scheme as may be established and designated in accordance with section 51 (in any case arising before any scheme is so designated);(b) purposes connected with the FR Scheme (in any case arising after the designation of a scheme in accordance with section 51).(1A) A person to whom information is disclosed under subsection (1)(a) or (b)—
(a) may use the information only for the purposes mentioned in subsection (1)(a) or (b), as the case may be;(b) may not further disclose the information except with the consent of the Commissioners.”
Baroness Northover
Lord Whitty
My Lords, Amendment 90DA is relatively straightforward. Clause 63 provides for reviews and appeals against premises being deemed not eligible to be entered in the register of those covered by Flood Re. As it is written, Clause 63 indicates that when the register is drawn up there is a list of which households are either in or out, according to the risk assessment at the time.
This is a 25-year scheme and things will change over 25 years. My amendment is designed to add to the provisions of Clause 63 and appeal against the removal from that list at a later stage. It is really a tidying-up. However, removal from the list could arise for a number of different reasons. It could be because the insurance sector had decided that the risk had changed; but that could be because the Committee on Climate Change—the noble Lord, Lord Krebs, is no longer in his place—had advised of a change and that there was less risk in that particular area. It could be that the Environment Agency’s map had changed. It could be that the aggregated data from the insurance companies showed that that type of property was at less of a risk than it was assumed to be at the beginning of the scheme, bearing in mind that we are potentially 25 years on. It could be that resilience had been provided on some other basis—for instance, a flood defence scheme may have been built down the road—or that the catchment management in that area had significantly improved and diverted the flood away from that property to somewhere else. In an urban area, it could be that there had been major investment in the drainage system, which meant that the property was significantly less susceptible to surface flooding. There are all sorts of reasons why, objectively, the flood risk might diminish. Regrettably, in the light of the macro information from the Committee on Climate Change, it is more likely that a property will be drawn into the list than drawn out of it; but there will be such exclusions.
There could also be exclusions that are more esoteric to the insurance industry, in the sense that if insurance companies were insisting, as a condition of continued insurance, that that resilience measure should be introduced at the expense of the householder, one way or another, and the householders were not prepared to provide for that level of resilience expenditure, then either the offer, or renewal, of insurance would be taken away or the excess would be put at a level which the premium payer was not prepared to pay.
There are all sorts of reasons why a property might end up being removed from that list. If that is the case, there has to be the equivalent appeal against that in a situation where one is excluded from the list from the word go. As I read it, Clause 63 provides only for exclusion from the register in the first place; it does not provide for removal from the register. My amendment seeks to correct that gap. I beg to move.
Baroness Northover
My Lords, I thank the noble Lord, Lord Whitty, for this amendment. As we have previously discussed, a rigorous regulatory and dispute resolution regime for the insurance industry already exists, to ensure that insurers treat their customers fairly. Flood Re will not change the direct relationship between the insurer and the householder. Where households do not feel that a complaint has been treated fairly, they can contact the Financial Ombudsman Service, which offers a free dispute resolution service for people who wish to complain about how their insurance company has treated them. While the Financial Ombudsman Service is equipped to deal with individual complaints, the Financial Conduct Authority has a statutory objective to protect the wider interests of consumers and ensure that firms are giving a fair deal to their customers.
We need to remember that Flood Re is a voluntary scheme: insurers are not obliged to use it. We therefore maintain that there is no need for a specific appeal mechanism for Flood Re per se. Flood Re is not based on a register of properties; it is a voluntary scheme and so there are no grounds for an appeal mechanism.
However, the noble Lord is emphasising concern about who might be excluded from Flood Re over time. As was said in the other place, the memorandum of understanding agreed between the Association of British Insurers and the Government last year talked about genuinely uninsurable properties. As my honourable friend the Parliamentary Under-Secretary of State for Water, Forestry, Rural Affairs and Resource Management said, there will be no such thing as a genuinely uninsurable property at the start of Flood Re. However, there might be a case that over time, if householders choose to take no action to tackle their flood risk, Flood Re might seek to find a mechanism whereby they no longer benefit from the public subsidy. We have reflected further on that issue, working closely with the ABI. I can reassure noble Lords that our focus is on supporting households to become more resilient, not on excluding them from the Flood Re scheme.
As householders with policies ceded to Flood Re will be benefiting from subsidised insurance, important signals to them about flood risk—for example, the price of insurance and the levels of excess charged—will be lost. We have therefore agreed with the industry that Flood Re will provide information to insurers to pass to householders about flood risk, Flood Re itself and how to reduce the likelihood and impact of flooding. An amendment to that effect has been tabled.
We are continuing to explore with industry how people could be incentivised, perhaps, for example, by Flood Re paying for a survey after a property has flooded a number of times. My noble friend mentioned that. This would depend on Flood Re having sufficient reserves. Another incentive could be to increase the excess after repeated flooding.
There are a number of practical considerations to work through. However, there is a clear commitment between the Government and the insurance industry to putting in place an incentive-based approach rather than an exclusionary approach. I hope that noble Lords will also agree that the approach we have outlined strikes a fair and appropriate balance between supporting householders at high flood risk and the affordability of the scheme as a whole, and that the amendment will therefore be withdrawn, bearing in mind what I said at the beginning about the direct relationship between the insurance company and the householder and the means of redress that they can avail themselves of.
Lord Whitty
My Lords, I thank the noble Baroness for that reply but I am not sure that it entirely meets the point. As a former chair of Consumer Focus, I am very familiar with the steps that people can take to obtain redress from financial services agencies, including the insurance industry. I am perhaps slightly less sanguine about the effectiveness of it but that is a different matter. However, the fact is that the Bill provides for a register and, in Clause 63, provides for people to appeal against a body being excluded from that register in the first place. Unless I am completely misunderstanding the issue and what the noble Baroness said, I took it she accepted that there was a possibility of someone being excluded in one of the situations that I described—namely, when the insurance company’s request that the householder introduced some resilience measures at their own expense as a condition of continuing to have that insurance could lead to their exclusion from the list. All I am saying is that if there is an appeals process at the beginning, why is there not one all the way through? I may have misunderstood something that the noble Baroness said and the purpose of Clause 63.
Baroness Northover
Perhaps I can clarify at least one point in relation to Clause 63 and the register. Clause 63 relates to the flood insurance obligation. It is not relevant to Flood Re. However, I am happy to write to the noble Lord to clarify this area.
Lord Whitty
That would be useful for all concerned, so I will shut up. I am very grateful for the Minister’s offer to write to me. I beg leave to withdraw the amendment.
Lord De Mauley
“(A1) In this Part “insurer” means—
(a) a person who—(i) is authorised for the purposes of the Financial Services and Markets Act 2000 (see section 31 of that Act), and(ii) has permission to carry on the activities specified in Article 10 of the Financial Services and Markets (Regulated Activities) Order 2001 (S.I. 2001/544), or(b) a member of the Society (within the meaning of the Lloyd’s Act 1982).“(A2) The Secretary of State may by regulations amend the definition of “insurer” in subsection (A1).”
Lord De Mauley
Lord De Mauley
“(1A) Subsection (1) does not apply in relation to an order under section 70(3) if the only provision made by the order is provision for, or in connection with, the transfer of property, rights and liabilities.”
Baroness Northover
My Lords, I thank my noble friend for raising this issue again and other noble Lords for contributing their expertise. As we previously explained in Committee, the Government value and support the important work that internal drainage boards, IDBs, undertake to manage water levels, reduce flood risk and protect critical infrastructure. We want to ensure that they can carry out their work without unnecessary hindrance. Defra has also developed a close and constructive working relationship with the Association of Drainage Authorities, ADA. Defra officials meet with ADA on a regular basis, including through a technical advisory group, which meets quarterly, to discuss a wide range of issues relating to IDBs. It is helpful that my noble friends have raised this issue with us, as ADA had not highlighted this previously as a potentially significant or widespread problem.
We have since sought information on this issue from ADA, as my noble friend indicated, and are in continuing discussion with them. ADA has written to all 120 IDB clerks to gather their views on this issue. Responses have been received within the past month and I can update the numbers. From a small number of IDBs, five say that they have access to rating lists, while six have said that they foresee a possible need for an amendment such as this. We do not therefore yet have the evidence to demonstrate that the unavailability of rating lists poses a widespread practical problem for IDBs.
Lord De Mauley
“Sustainable drainage systems: non-performance bonds
In Schedule 3 to the Flood and Water Management Act 2010 (sustainable drainage), in paragraph 12 (non-performance bonds), in sub-paragraph (4)(c)—(a) after “sums received” there is inserted “from a person”;(b) for “the developer” there is substituted “that person”.”
Lord De Mauley
“Changes in water supply licensing1A (1) A section 77 order may make provision in connection with the introduction of new water supply licences.
(2) A section 77 order may in particular—
(a) make provision for old water supply licences to continue in effect, subject to provision made by a qualifying scheme;(b) make provision about the granting of a new water supply licence on application made by the holder of an old water supply licence.(3) A qualifying scheme is a scheme that—
(a) is made by the Water Services Regulation Authority, and(b) contains such provision as is described in sub-paragraph (4).(4) The provision mentioned in sub-paragraph (3)(b) is—
(a) provision for the revocation of all old water supply licences—(i) on the first day on which it would be possible for a new water supply licence to come into effect, or(ii) in accordance with arrangements in the scheme and before a day specified in or determined under the scheme,(b) provision for compensation to be paid by the Water Services Regulation Authority in connection with the revocation under the scheme of an old water supply licence,(c) provision, in a case where the scheme allows a holder’s old water supply licence and new water supply licence to have effect at the same time, for preventing the holder supplying water to premises in reliance on the old water supply licence where—(i) the premises supplied are the premises of a person who was not a customer of the holder immediately before the grant of the new licence, and(ii) the premises could be supplied with water in reliance on the new water supply licence,(d) provision for compensation to be paid by the Water Services Regulation Authority in connection with the restriction imposed on an old water supply licence under paragraph (c),(e) provision about the determination of—(i) claims for compensation payable under the scheme, and(ii) appeals from the determination of such claims, and(f) provision satisfying such other requirements as may be specified in a section 77 order, including requirements about the persons who may claim compensation, the measure of compensation and matters by reference to which compensation may be reduced.(5) Requirements imposed under sub-paragraph (4)(f) may allow the scheme to make provision by virtue of which the compensation payable in a particular case may be nil.
(6) A qualifying scheme may include provision about—
(a) the making of claims for compensation;(b) the matters to be proved by a claimant.(7) Sub-paragraphs (4) to (6) are not exhaustive of what may be included in a qualifying scheme.
(8) A section 77 order may make provision for a relevant person specified in the order, or appointed by the Secretary of State, to determine—
(a) claims for compensation payable under a qualifying scheme;(b) appeals from the determinations of such claims.(9) In sub-paragraph (8) “relevant person” means—
(a) the Water Services Regulation Authority, except in relation to appeals from the determination of claims for compensation,(b) the Competition and Markets Authority, or(c) any other public authority (within the meaning of section 6 of the Human Rights Act 1998). (10) A section 77 order may provide for functions of the Competition and Markets Authority (“the CMA”) relating to compensation payable under a qualifying scheme to be carried out on behalf of the CMA by a group constituted for the purpose by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
Modification of conditions of old water supply licences1B (1) Where a section 77 order makes provision for old water supply licences to continue in effect, that provision may include provision for applying new sections 17I to 17R to old water supply licences, with such modifications as appear to the Secretary of State to be appropriate.
(2) Provision under sub-paragraph (1) may include provision for treating a reference to a new water supply licence as including a reference to an old water supply licence.
(3) Provision under sub-paragraph (1) may include provision for treating—
(a) a reference to a standard condition of a new water supply licence as including a reference to a standard condition of an old water supply licence, if the two conditions are in, or as nearly as may be are in, the same terms;(b) a reference to a standard condition of a new water supply licence giving the holder a new retail authorisation as including a reference to a standard condition of an old water supply licence giving the holder a retail authorisation, if the two conditions are in, or as nearly as may be are in, the same terms;(c) a reference to a standard condition of a new water supply licence giving the holder a new restricted retail authorisation as including a reference to a standard condition of an old water supply licence giving the holder a retail authorisation, if the two conditions are in, or as nearly as may be are in, the same terms;(d) a reference to a standard condition of a new water supply licence giving the holder a new wholesale authorisation as including a reference to a standard condition of an old water supply licence giving the holder a supplementary authorisation, if the two conditions are in, or as nearly as may be are in, the same terms.(e) a reference to a standard condition of a new water supply licence giving the holder a new supplementary authorisation as including a reference to a standard condition of an old water supply licence giving the holder a supplementary authorisation, if the two conditions are in, or as nearly as may be are in, the same terms.Changes in water supply licensing: Wales1C (1) A section 77 order may make provision in connection with the extension of new retail authorisations and new wholesale authorisations to the use of supply systems of water undertakers whose areas are wholly or mainly in Wales, where that extension takes place after the introduction of new water supply licences.
(2) A section 77 order may in particular include provision for or in relation to the payment by the Water Services Regulation Authority of compensation to any person holding a new water supply licence who—
(a) following the coming into force of any provision of this Act, is unable to carry on activities that had previously been authorised by a new restricted retail authorisation, or a new restricted retail authorisation and a new supplementary authorisation, given by the licence as a result of—(i) a new retail authorisation or a new wholesale authorisation or both having been required in respect of them, and(ii) the person’s licence not having been varied to add a new retail authorisation or a new wholesale authorisation or both, because the person did not apply to vary the licence, or did not apply to add the appropriate authorisation or authorisations, or because the person’s application to vary the licence was refused or granted only as to one authorisation, and(b) has suffered loss or damage as a result of not having a licence that enables the person to carry on all those activities.Introduction of sewerage licensing1D (1) A section 77 order may make provision in connection with the introduction of sewerage licences.
(2) A section 77 order may in particular include provision for or in relation to the payment by the Water Services Regulation Authority of compensation to any person who—
(a) before 31 March 2014 was carrying on any activities in relation to the sewerage system of a sewerage undertaker,(b) following the coming into force of any provision of this Act—(i) is unable to continue to carry on those activities as a result of their having been prohibited,(ii) is unable to continue to carry on those activities as a result of a sewerage licence having been required in respect of them, and the person’s not having applied for, or the person’s having been refused, a sewerage licence, or(iii) is unable to continue to carry on those activities in the same manner as a result of the person’s having been granted a sewerage licence the effect of which is to restrict the carrying on of the activities, and(c) has suffered loss or damage as a result of—(i) those activities having been prohibited,(ii) a sewerage licence not having been granted, or(iii) those activities having been restricted.”
Lord De Mauley
Lord De Mauley