Draft Flood Reinsurance (Amendment) Regulations 2022
(2 years, 9 months ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Rebecca Pow)
I beg to move,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2022.
It is a pleasure as ever to have you in the Chair, Mr Robertson. This statutory instrument makes important changes to the Flood Re scheme, which is a joint Government and industry initiative, launched in 2016, designed to improve the availability and affordability of UK household flood insurance.
In 2019, Flood Re, the scheme administrator, published its first quinquennial review of the scheme. This is a statutory requirement. Flood Re made a number of recommendations to Government. We have since considered and consulted on proposals, leading to the changes set out in this statutory instrument.
Since its launch, Flood Re has helped to provide cover for flood insurance to over 350,000 households at risk of flooding across the UK. Before Flood Re, only 9% of policy holders with a prior flood claim could get flood insurance quotes from two or more insurers and none could get quotes from five or more insurance companies. Following the scheme’s launch in 2016, availability of flood insurance policies for those with prior flood claims has increased; around 96% of customers can now get five or more quotes, and four out of five householders with a prior flood claim see price reductions of over 50% since the scheme’s launch. Building on this success, the statutory instrument makes technical changes to the scheme to improve its efficiency and effectiveness and changes to drive the uptake of property flood resilience measures, helping the United Kingdom to become more resilient to future flooding and the changing climate. I will set those changes out in turn.
First, there are several technical changes. The statutory instrument designates a revised scheme, as described in the new scheme document dated 19 January 2022. This provides the framework within which the scheme administrator, Flood Re, will administer the scheme. The new scheme document will allow Flood Re to propose a revision to levy 1 every three years instead of every five, and reflects the Government’s assurance process. The levy is the scheme’s primary source of income, raised from UK household insurers based on their market share. The revised levy amount will be subject to parliamentary approval every three years. The change will allow Flood Re to obtain better value for money when purchasing reinsurance and to be more dynamic to the potentially changing risk profile. The statutory instrument amends the figure for the levy from £180 million to £135 million per year for the next three years. That ensures the amount of levy being raised is not higher than it needs to be.
The new scheme document will allow Flood Re to set the liability limit, which sets the maximum amount of claims Flood Re is liable to pay to insurers in any one financial year, every three years instead of every five. This will align it with the levy setting cycle and afford Flood Re greater flexibility to respond to the scheme’s changing income needs and risk profile.
The new scheme document also makes a technical clarification to make it clear that surplus levy 1 funds will be returned to Government when the scheme ends, in line with the agreed position between the Government and Flood Re when the scheme was established.
Recently, we saw the devastation that can be caused by flooding and the impact it can have on the lives of those affected. We are making important changes to help to drive the uptake of property flood resilience. Property flood resilience gives households the tools to manage the impact that flooding has on their property and their lives, enabling them to respond and recover more quickly and reducing the cost of damage and, in turn, the cost of insurance claims. The new scheme document will allow Flood Re to pay claims from insurers ceding to the scheme that include an amount of resilient repair up to a value of £10,000 over and above the cost of like-for-like reinstatement of actual flood damage. That will allow UK householders to build back better after a flood, making their homes more resilient to future flooding. That involves using products such as air brick covers, flood doors, water-resistant kitchens and plasterboard. I have seen lots of things being used, and the people who had them put in are generally pleased that they did so. That is what the new claim will enable. Resilient repair will enable homeowners to get back into their houses more quickly following a flood and reduce the cost of future claims.
The Build Back Better scheme is being introduced on a voluntary basis. Insurance companies who cede to the scheme can choose whether to offer it to their customers. Participating insurers will be able to start offering Build Back Better as soon as the draft regulations come into force. Flood Re will require insurers choosing to participate in the Build Back Better scheme to offer it across all their home insurance offerings, rather than just on insurance policies ceded to Flood Re, to ensure consistency and fairness for all customers. By providing Flood Re with the power to pay claims to fund resilient repair over and above—what has largely been happening at the moment—normal reinstatement, Government and Flood Re aim to drive a cultural shift across the insurance market and positive changes in supply chains, to raise awareness and demand for property flood resilience, and to help capture the evidence on the benefits of property flood resilience to support future changes in the market.
The Government will publish a property flood resilience road map at the end of this year to identify the action that Government and industry need to take to accelerate uptake of property flood resilience measures and to underpin the market successfully. That will ensure that all relevant bodies play their part and that consumers can have assurance about the quality of products and their installation.
Any future regulations proposed to make further changes to the Flood Re scheme would receive parliamentary scrutiny through the affirmative procedure, as required under the Water Act 2014. Flood risk management policy is devolved, but insurance policy, including the operation and application of the Flood Re scheme, is a reserved policy. Any changes to the Flood Re scheme, including those in the draft instrument, take effect across the UK. Government have engaged extensively with the devolved Administrations throughout the development of the changes, and they have given their full support for their implementation.
No impact assessment has been prepared for the draft instrument. That is because it has no significant impact on business, charities or voluntary bodies. Most impacts on business are anticipated to be neutral or positive. There is also no impact on the public sector. On those grounds, I commend the draft regulations to the Committee.
Alex Sobel (Leeds North West) (Lab/Co-op)
It is a pleasure to serve with you in the Chair, Mr Robertson. I thank the Minister for introducing the draft regulations.
In recent years, we have seen a sharp increase in extreme weather events all over the world. In the UK, storms and increased rainfall have destroyed homes and claimed lives. We are now at a point where communities are faced with flooding on a semi-regular basis. For those communities, flooding brings misery and huge inconvenience. It can also be financially devastating, which is why people living in flood-risk areas must have access to good, affordable insurance.
In my constituency, that happened on Boxing Day 2015, when the River Wharfe flooded parts of Otley. Since being elected in 2017, I have had to support flooding victims on the difficulties of getting reinsured due to the increased risks. Flood Re has been useful to my constituents, so I am particularly pleased to be responding to the draft legislation. Independent research shows that the availability of insurance for householders at risk of flooding is improving, so I am pleased that Flood Re has been successful in that respect. I am also glad that the scheme is financially secure—it has met its initial liquidity and capital requirements, and has a high solvency ratio.
For those reasons, I agree that reducing the levy on insurance companies from £180 million to £135 million a year makes sense. The figure needs to be kept under review, as climate risk will mean that insurance risk will vary. I will continue to monitor that and hold the Minister to account in future years if more support is needed for flooding victims.
Her Majesty’s Opposition have some questions, which I would be thankful if the Minister will help to address. Flood Re proposes to reimburse insurers up to £10,000 for the Build Back Better scheme in order to reduce the future risk of the property flooding and/or the cost of repair. That will mean that property owners can pay for repair after a flood, which makes the home more resilient to flood damage than before. I was pleased that the Minister mentioned air brick covers and other such innovations in her introduction.
I am very much in favour of the support, but I am concerned that, under the proposals, insurers are not obligated to participate in the Build Back Better scheme. Does the Minister not agree that it should be compulsory for all Flood Re policies to participate in the scheme, when we consider the increased threat of flooding and subsequent need to make buildings more flood resilient? Has she considered making the measure compulsory and, if so, what are the reasons for her rejection of that?
In addition, I will express concerns that I know have been raised in the past, but that I am not convinced have yet been adequately resolved. The existing proposals protect only homeowners. Will the Minister consider widening access to the scheme to protect those in tenanted and rented properties? Renters are likely to be more vulnerable to the financial impact of flooding and yet, under the proposals, they are the least protected. Renters are also less likely to realise the flood risk of their property and many renters are in precarious employment that might be dependent on equipment which could be destroyed in flooding, leaving them without income. Insurance becomes the difference between them working and not.
I have also been in contact with farmers, who are concerned that their homes are not protected under the scheme. Will the Minister clarify the status of farmhouses, which fall into a grey area between residential and business premises?
The scheme is targeted towards households at high risk of flooding across the UK. If recent years and the extreme weather events that have defined them are anything to go by, however, we know that high risk—risk in general—is broadening its scope, and areas previously deemed to be safe now experience flooding events never seen before. Therefore, how is “high risk” defined by the Environment Agency, and how are areas reassessed in a way that keeps up with the impact of extreme weather events? I want to know whether the Minister has had discussions with the Environment Agency about risk. I am interested to hear what assessments were made about the changes that might be needed.
Finally, I draw attention to the fact that more than 5,000 new homes in flood-risk areas of England were granted planning permission last year, despite the Environment Agency advising against such developments. Does the Minister agree that the Environment Agency should be given power to ensure that homes are not built against its advice? In my view, that is a crucial change to avoid unnecessary future flooding and the devastation that comes with it. I hope that the Minister will address my concerns.
I can see the Minister desperately looking for her papers, so I will talk for a few more seconds to give her time.
Alex Sobel
The Minister is doing very well. I am sure she will give a full response to all my queries. People up and down the country, whether homeowners, renters or farmers, are all keen to get clarification on those points. She shares my concerns about the increased number of flooding events and the impact of climate change on our rivers. We need to be constantly mindful of the risks involved in potential flooding events. If she does not need more time, I will conclude.
The Chair
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairmanship, Mr Robertson.
Sadly, I can speak with some personal experience of how much of a violation it can feel like when people’s properties are flooded. In many ways, it is worse than a burglary: all the stuff is still there, but it is damaged beyond repair. People have the heartache of throwing it out themselves and seeing everything done to their home to improve it damaged beyond recovery.
The often tortuous process that one has to go through when it comes to making insurance claims—getting the works done, reacquiring the goods that are replaceable and trying to forget about what is not replaceable—is as absolutely nothing compared to the agonies people have gone through in years past, when they were unable to get insured because of the risk that the properties were felt to be in. We therefore very much welcomed the flood reinsurance scheme when it was introduced. It has been a vital intervention in the market to ensure that insurers are able to serve the public in the manner that we would all hope they are able to. Also, the operation has successfully managed to increase the uptake of flood protection measures for those covered under its auspices.
Clearly, the draft regulations are designed to improve the efficiency and effectiveness of the existing scheme, and to create greater opportunities to improve quality so that what goes back in structural repairs to properties is better than that which was damaged and required replacing.
We hope and believe that that will be the effect of the measures. On that basis, the regulations enjoy the support of my party. I look forward to hearing the Minister’s answers to the questions posed by the Labour spokesperson, the hon. Member for Leeds North West.
Jesse Norman (Hereford and South Herefordshire) (Con)
I thank my hon. Friend the Minister for her comments, as well as for the work she has done on this legislation and on the related area of the cleanliness of the River Wye, which is itself a function, in part, of flooding and the sweep of phosphates into the river. I thank her and her Department very much for the work that they have done on that.
In relation to flooding, the Minister may recall that in early 2020 there was some serious flooding in Herefordshire that resulted in the sweeping away of an entire causeway, and the undermining of the road down to Fownhope. For various different reasons, no support—or very little support—was forthcoming from central Government for the restitution of the causeway and that road. They did not fall under the Department for Transport funding for local road restoration, and as Herefordshire is a county of 190,000 people—fewer than even small London boroughs—it was entirely struggling to pay for the costs of those roads. Nor were the costs paid for by the Bellwin funding, which extends only to surface impediments and other disturbances to the use of a road, and is quite narrowly interpreted even for that.
May I ask the Minister to take back to her Department the question of whether there is a gap in the legislation and in the provision, and whether counties such as Herefordshire, which are completely dependent on their roads because they are so rural and have very small populations, should be asked to bear the extremely large costs of such floods? Indeed, they may in some sense require reinsurance, because that is a serious concern. Of course, this greatly affects the question of levelling up, with which the Government are widely and properly concerned.
Daniel Kawczynski
I know that the River Severn flows through your constituency, Mr Robertson. I am the chairman of the caucus of 45 Conservative Members of Parliament through whose constituencies the River Severn flows. We represent 12% of the Conservative parliamentary party. Unfortunately, flooding is now an annual disaster for our constituencies. The sheer damage and economic chaos for places such as Shrewsbury following the annual flooding of the River Severn is wholly unsustainable for our communities.
I am extremely grateful to the Minister for taking the time to visit Shrewsbury last year, when she had the opportunity to meet the River Severn Partnership, a consortium of councils that represent communities across the whole of the River Severn, Britain’s longest river. Let us not forget that we are the communities that live by the River Severn. I am particularly pleased that the Minister has spoken about her interaction with devolved Assemblies and, following my discussions with her earlier this week, I am grateful to her for visiting the source of the River Severn and for initiating dialogue with her counterparts at the Welsh Assembly.
Will the Minister give the assurance that she will continue to work with the River Severn Partnership and with me, in my role as chair of the caucus of 45 Conservative Members of Parliament who have the River Severn flowing through their constituencies? I can tell her unequivocally that this is the single biggest detrimental economic barrier to the development of our constituencies.
My hon. Friend is a very effective Minister, if I may say so. I look forward to her ongoing negotiations with the Treasury and other parts of Government, and with the Welsh Government, to ensure that we find a long-term, holistic solution to managing Britain’s longest river.
Rebecca Pow
I thank Members for all their comments on the statutory instrument. Of course, flooding affects so many of us. I come from Somerset, and we have had to deal with very serious flooding over the years, including just before I arrived in Parliament. It has to be said that the Government, with their funding, have really helped us to address that down in Somerset.
I thank the shadow Minister, the hon. Member for Leeds North West, for his support for the SI. I know that he has some knowledge of flooding in his constituency. He raised some very valid questions. He asked whether the scheme should not be made compulsory for all insurers. In the approach that we are taking, we are trying to encourage a cultural shift in the insurance industry. We have done a huge amount of engagement. Insurance companies are very pro what we have brought forward, and many are already taking the scheme on board; they are either getting it in writing or just about to start offering it anyway once the SI goes through.
We are optimistic that the scheme will be very widely picked up, and that it will have a really positive impact on supply chains, awareness and demand. Once one lot of insurance companies start offering it, we anticipate that the majority will take it up. That is why we are confident that introducing it on a voluntary basis is what we need to achieve what we are hoping to achieve, which is basically more people being more sure of their property’s flood resilience and being able to get hold of the right money to build back better—to put their houses back in a better state than they were.
At the moment, as I said, houses are often just reinstated as they were. It is awful to think that one might flood again, but in some areas people have to be mindful of that. Therefore, putting down tiles or waterproof plasterboard—you can get that now, Mr Robertson—rather than carpets might make full sense, but it might cost more; that is why this extra bit of funding will be really helpful. We are fully optimistic that we have the necessary measures in place. I hope that gives the hon. Member some reassurance.
The hon. Member also asked about landlords and tenants. All types of landlord insurance are classified by the insurance industry as commercial business insurance, since such insurance, including for larger leasehold premises, is often bespoke. However, leasehold properties consisting of three or fewer blocks, where the freeholder him or herself lives in the block, are eligible for Flood Re, and tenants and leaseholders are able to obtain contents insurance supported by Flood Re regardless of the size of the block. A number of insurers also offer solutions to those struggling to access flood insurance, including parametric insurance and a scheme that amends a lease for the remaining lifetime of Flood Re to allow the individual leaseholders in a block to insure their individual flats. Quite a lot of thinking has gone into that, and quite a number of tenants and leaseholders are covered.
Following the 2019 flooding, the Government commissioned an independent review of flood insurance in Doncaster, which the hon. Member might remember. Following that report, we are taking forward action, which includes repeating some research into the availability and affordability of flood insurance, because there was a small group of people, which included some tenants, that still fell out of getting cover. Work is continuing on that.
We have also been working with the insurance industry to set up a new flood insurance directory, to which customers can be signposted by insurers and brokers when they themselves cannot offer flood cover. The directory, which has recently been launched, aims to reduce the number of policies sold with flood exclusions and drive uptake of suitable flood cover. The directory can be found on the British Insurance Brokers’ Association website. I hope that gives some reassurance.
The hon. Member mentioned farming and farmers. What happens to farmers when their land gets flooded has been raised with me many times. Farmers have to work with temporary flooding in many areas—that probably applies to your area around Tewkesbury, Mr Robertson—but there are issues when the water stays longer on the land. A lot of new schemes, particularly the environmental land management scheme, give particular mention to working with farmers to take water in flood-risk areas. It is a changing landscape for farmers, but we are very aware of that particular issue, especially as we are going to get more extreme weather events. Whatever we do about climate change—and we have to do everything we can to tackle it—we still have to adapt, and many of our policies are working towards that.
I thank all hon. Members for their comments. I thank the Scottish shadow Minister, the hon. Member for Gordon, for welcoming the policies. We were very pleased to work with the devolveds on this, because there was all-round support.
My right hon. Friend the Member for Hereford and South Herefordshire is a great advocate for the River Wye. As he knows, I made a visit to look at what is going on there. We are doing so much work now to tackle the issue of pollution in his area, but, as he says, there have also been flooding issues. I will write to him on his point about the road, as it comes under the remit of the Department for Transport and is linked to its road investment strategy.
It is important to address how we tackle the flooding of wider infrastructure. We are at pains to work even more closely on flooding with all other Departments. When we allocate our flood funding money—it is a huge budget worth £5.2 billion of investment—we can get an awful lot of wider spin-offs if we work with other Departments. There are benefits if we tackle the issue effectively. There are huge benefits for the economy from sorting out the flood risk for businesses.
Jesse Norman
I perfectly understand that the Minister will write to me, including in relation to DFT, and I am of course happy with that. This bears on DEFRA because there is a hole in the Bellwin approach that has the effect of not providing funding to address the catastrophic destruction of roads, and that cannot be remedied by small authorities that simply do not have the funds to address such large-scale devastation. That is the problem. I would be grateful if the Minister could look at that in her response.
Rebecca Pow
The Bellwin scheme comes under the Department for Levelling Up, Housing and Communities. Although I am the floods Minister, there is only one significant fund that comes under DEFRA, and that is for farmland. That is why we have to work with other Departments. The Bellwin fund is very much for local authorities to cover the urgent and drastic clean-up required after a flood. I will write to my right hon. Friend on the issue of flooding on the roads, but I take his point.
I thank my hon. Friend the Member for Shrewsbury and Atcham, who talks to me regularly and is a massive advocate for his constituency. I am sorry that it has had flooding recently. He knows that there are schemes under way, and we are going to have a meeting about some additional ones. I welcome his work chairing the partnership of 45 MPs who represent constituencies up and down our enormous and important River Severn. He will know that we have recently given funding to do some much wider, innovative and creative thinking about how to tackle flooding right up and down the whole catchment. Some pilots have already started. A lot of that involves nature-based solutions, as well as hard flood defences and so on. It also involves speaking with our devolved colleagues in Wales. I am really working hard on that, because the river does of course have two sides—in England and in Wales.
Daniel Kawczynski
My hon. Friend is doing a very good job. I am grateful to her for visiting Shropshire and the River Severn. Bearing in mind that we are seeing an increased frequency in flooding and the devastation it is causing to our communities, does she agree that £5.3 billion of extra funding for DEFRA is not sufficient and that we need to lobby the Treasury for even more money for flood defences?
Rebecca Pow
I would say that my hon. Friend is being a bit cheeky, actually. It is £5.2 billion—an extraordinary amount of investment in flood defences and coastal erosion, covering up to 2,000 defences, and an awful lot of other schemes and projects. It is not the only money, either. That is why I say it is so important to work with other Departments to attract levelling-up funds and so on.
I will give an example. I recently launched flood defences in Hull; £42 million was spent on eight different schemes along the Humber estuary. Because that has made people feel more secure and businesses now know they are not at risk of flooding, they are flooding into Hull and setting up. One of the big manufacturers of safety equipment that businesses use, including covid safety equipment, moved there. It was encouraged to go because it knew that it could now get insurance and that it would be safe. There are so many things in addition to that money, but we have to make sure that it is well spent. Of course, the money has to come from somewhere, and the Government have to be very mindful of how we spend our funds.
I hope that I have covered all the questions. This SI will improve the efficiency and effectiveness of the Flood Re scheme and help to build a nation more resilient to future flooding, which is what we need, and that is better able to cope with the changing climate. Once again, I thank everyone for their contributions, and I thank you, Mr Robertson.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2022.