Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015

Baroness Jones of Whitchurch Excerpts

Tuesday 27th October 2015 Grand Committee

[Lord De Mauley (Con)]

My Lords, I am grateful to my noble friend the Minister for explaining the regulations. I welcome the fact that the Government are not only putting in place a system that addresses both the availability and affordability of flood insurance—the statement of principles did not do this—but delivering significant levels of investment in flood defences through their historic six-year capital settlement. They are therefore tackling the problem of flooding at both ends, providing homeowners and communities with greater certainty in the years to come.

Protecting people from the emotional and financial hardship caused by flood damage is extremely important. After years of negotiation and with Flood Re now established, we are moving towards making this a reality and protecting people from spiralling insurance premiums. The benefits will be targeted at lower-income households to promote affordability for those least able to pay. Excesses, which can often be in thousands of pounds, will be limited to £250.

The country is investing in flood protection at record levels, with an unprecedented six-year commitment of £2.3 billion following £3.2 billion of spending during the last Parliament. This will see 1,500 flood defence schemes constructed, improve protection for an additional 300,000 homes and reduce overall flood risk by 5%.

Although I have no doubt that the noble Baroness, Lady Jones, will have some questions, because that is her role, I am pleased that the large number of antagonists who faced me from all sorts of angles during the passage of the Bill are, as evidenced by their absence today, apparently satisfied.

[Baroness Jones of Whitchurch (Lab)]

My Lords, I can see that I am going to have to try to make up for them in one go.

I am grateful to the Minister for setting out so clearly the intention of the regulations. In essence, the schemes as outlined in the Water Act have our broad support. Families living in high-risk flood areas have found their lives blighted both by the flood risk and the worry of unaffordable or unobtainable insurance, so we are pleased that the Government have taken steps to work with the industry to find a solution.

However, your Lordships will not be surprised to hear that I have some remaining concerns. First, there is the timing of the regulations. The Bill was passed early in 2014 and the latest consultation on the detailed proposals took place later that year. It is now October 2015, with another winter imminent. It seems that the expected start date has slipped, with Flood Re now saying that it expects to go live next April. Is the Minister happy with this latest timetable? What does that mean for householders facing another winter of threatened floods in the coming months?

Also, from my reading of the regulations, even if we pass them today, the FR scheme administrator will need to be regulated by the relevant financial regulators, which I think that the noble Lord confirmed. This will take time to set up. Then of course Flood Re is saying that it needs to carry out extensive testing. Can the Minister guarantee that householders will be able to have the additional peace of mind that this scheme aims to offer by the April 2016 deadline? From what he was saying I understood that it was not possible to give that guarantee until the regulators have had time to scrutinise the scheme in detail.

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[The Earl of Kinnoull]

Can I make a point about something that the noble Baroness has just said? This was that modern British insurers might in some way not be using up-to-date flood maps. That is certainly not the case. We have some strict regulators in a pile of quite aggressive rating agencies to make sure that the systems that we use are robust. Our peers are pretty interested, because in the way that the mutualisation of the insurance sector works, if the next-door man goes bust, as, say, the independent insurance company does, others will end up picking up the bill. The noble Baroness’s other points are very interesting, but that point is a weak one.

[Baroness Jones of Whitchurch]

I am very pleased to hear that, but I noted that some of the evidence I looked through, which was received during the consultation period, raised that as a concern. If we can clarify that there is a standard flood map system I am more than happy to hear that. I am sure it will be of some relief. I am sure that the Minister will also clarify that.

I was talking about who was included and excluded and the designation of domestic properties. The Minister will know that there was some concern, during the course of the Water Bill, about those who were excluded from this provision, in particular the poorest and most vulnerable—those in tenanted and rented properties, which are currently excluded from the scheme. It does not seem right that the same property or adjoining properties could have access to different standards of flood insurance purely on the basis of the status of those who live in the property. Will the Minister clarify whether that is his understanding? Will he also clarify whether farmhouses are to be excluded from the scheme? As he will know, this is of some concern to the National Farmers’ Union. They are, after all, primarily residential properties, even if the farmhouse acts as a business address for the farm. I would be grateful to hear his comments on that.

Finally, we all have sympathy with the householders caught up in the major floods of recent years, but it is important that this scheme does not reinforce complacency in the sector. There is a real risk of increased flooding from the effects of climate change. This scheme needs to be combined with drivers of behaviour change among consumers, businesses and government. The Minister referred to that. It is crucial that future flood management policies take a stronger line against building homes in high-risk areas, while developing sustainable land use plans and restoring flood plains. I hope that the Minister can reassure me that Flood Re will take these responsibilities seriously as part of its brief, and that the Environment Agency will receive sufficient funding to oversee those objectives effectively. I look forward to his response.

[Lord Moynihan (Con)]

Before my noble friend the Minister responds, I rise as one of the gently scrutinising antagonists in Committee and further stages on the original Bill. We are now reviewing the regulations that derive from it. I really do congratulate the Minister, his predecessor and Defra officials on the remarkable work undertaken on this. I hear what the noble Baroness says about timing, but this is a very short timescale to have made the progress that we have—to move from Royal Assent to today. We should place on record our thanks to all those who worked exceptionally hard to achieve that objective.

I simply want to echo a point the noble Baroness raised. When it comes to the first review it is very important that the scope of application of these regulations and the Flood Re scheme should be fully considered. During our earlier debates there were concerns. The noble Baroness alluded to one, about people living in similar buildings, or, indeed, the same building in different circumstances, being in different receipt of the Flood Re provisions. When it comes to the review we need to assess the impact of that on local communities and on those affected. I hope that the Minister will echo that that will be possible.

Finally, on flood maps, given the important work done by the Environment Agency and the insurance industry on those maps, it is vital that the water companies are also party to those discussions. I understand that government is already actively engaged, for the first time, with water companies on potential contributions to coastal flooding schemes and to the impact of flooding in their designated areas. It is important that the water companies are party to those discussions.

I conclude by thanking the Minister and the team again. I congratulate him on bringing forward these regulations in a timely fashion, and on the work that has been done to ensure that what looks like an outstandingly good scheme is now being implemented—but which will always be, I hope, subject to review and improvement in future.

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As for Environment Agency maintenance spending, we have covered so much of the capital spending but I hope that the noble Baroness, Lady Jones of Whitchurch, will forgive me as we are currently in the midst of the spending review. I hope that your Lordships will understand that I am limited in what I can say at this juncture—but it is fair and important to say that flooding is a critical matter for the Government and that we want to ensure a high standard of flood protection over this Parliament. We need only see the impact that the floods have had on families and communities across the land to see its importance to us all.

[Baroness Jones of Whitchurch]

Can I push the Minister a little more on that? If it is of critical importance, as I am sure everyone around the Room would agree, surely it is within the department’s powers to ring-fence the maintenance element of the Environment Agency’s budget. That would be the sensible thing to do, regardless of whether or not a spending review is taking place, to give that security and guarantee.

[Lord Gardiner of Kimble]

The noble Baroness puts this matter in an extremely tempting way but I am afraid that I am not in a position to talk about ring-fencing today. That is why I emphasised that we all agree that, wherever we can, we would wish to deal with flooding at both ends.

The noble Earl, Lord Kinnoull, helped me enormously on the issue of mapping because the Environment Agency has published a set of national maps so that people can now check for their flood risks from rivers, sea, reservoirs and surface water. Insurance companies have access to the Environment Agency’s mapping but it is of course for each insurer to determine the flood-risk element of the premiums that it charges. Flood Re and the Environment Agency will certainly be working together, so I am confident that in this area we are seeing the sort of co-operation that I think is extremely important and desirable.

On the exclusion of leaseholders and tenants—an entirely legitimate issue to ask about—from the briefings I have had, first, Flood Re is designed to cover only domestic properties. Secondly, policies for landlords who own leasehold properties and some farmhouses will be considered as commercial. The insurance companies will be determining this but we have been assured by the industry—and I hope that this will also be of interest to the noble Baroness—that there is no evidence of a problem with commercial insurance. If evidence did emerge, we would of course consider it.

Another point which may be of interest to the noble Baroness is that contents insurance, which obviously affects everyone including leaseholders and tenants, will be available through Flood Re for tenants of rented properties. However, landlords will not be able to purchase landlord insurance for the building through Flood Re because that comes through the commercial sector of the insurance industry.

Another important point to make, one which was referred to by noble Lords, is that the arrival of Flood Re, as I said in my opening remarks, is not seen as the only tool in the box. It is important that Flood Re should develop plans to incentivise the take-up of resilience measures. As Flood Re’s experience of the market develops over time, the transition plan will include more detail of how the scheme will support the transition towards risk-reflective pricing over its 25-year life. Indeed, Flood Re has a duty to pass on information to insurers about the withdrawal of the subsidy over time, and how householders can access information about their flood risk and then manage it. Insurers have agreed with Flood Re that they will pass that information on to their customers, who will benefit from the Flood Re scheme.

Another issue arises on planning, where I think some advances have been made in terms of much smaller percentages of housebuilding in areas of risk. The National Planning Policy Framework local plans are designed to develop policies to manage flood risk from all sources and seek to use opportunities offered by new development to reduce the causes and impacts of flooding. In terms of where we need to go from here, it is important that planning for new developments is much more conscious than perhaps it was in previous times of this aspect, particularly as we see the effects of potential climate change and all that goes with “adverse weather events”—which I am told is the jargon for what I call bad weather.

I thank all noble Lords and I want to reiterate what was said by my noble friend Lord Moynihan. We are here today because a great deal of work has been done and there has been a lot of good will. It is important that I should place on record my thanks not only to the insurance sector but to everyone involved, in particular the Defra officials who have been dealing with this knotty problem. I am grateful for the opportunity to set out the Government’s approach and I commend the regulations.