draft Flood Reinsurance (Scheme and Scheme Administrator designation) regulations 2015 DRAFT FLOOD REINSURANCE (SCHEME funding and administration) REGULATIONS 2015

Lord Benyon Excerpts

Tuesday 15th September 2015 General Committees

[Richard Benyon (Newbury) (Con)]

I do not intend to detain the Committee for long. I add my congratulations to the Minister and all the others involved in getting us to the point—next April, I think—where the programme goes live. The team of officials supporting my hon. Friend have done extraordinary work over the last four or five years. They have even found success in working with the Treasury—and that, in the annals of Government, is something to be celebrated. I also include Huw Evans, the chief executive of the ABI, and his predecessor, who attended many long meetings—some in Downing Street, some at DEFRA—trying to bolt together something that would work.

It is worth, for just a few seconds, thinking about where we were. The statement of principles that so many Members on both sides clamoured for the coalition Government to continue, to roll over into the future, never could have been continued. First, it was time-limited; secondly, as my hon. Friend the Minister said, it had no limit on price. It was going to cause, as increased flood risk continued, a serious problem for constituents such as mine. In 2007, 3,000 households were flooded in west Berkshire and the stress and strain of that experience continues every time we have periods of heavy rain. Although many measures have been taken to stop such floods from taking place, we can now give people the added security of affordable, available—and it is available—flood insurance that will make an extraordinary difference.

There were those who put pressure on us to say that the market could not cope and therefore the solution had to be statist. They were asking us to go down a route rather similar to the United States flood insurance fund, which is costing the US taxpayer—unfortunately, it is a bankrupt system. The threat of a large-scale flood event has caused that scheme to be practically unaffordable in the United States; that proves that we were right to try for a hybrid solution, working with the industry, in which the Government put in a commitment and legal framework to try to set up something that works. Our scheme’s great benefit is that those with the broadest shoulders will bear the biggest burden.

The aim—this is what I want to press my hon. Friend the Minister on—is to move fast towards encouraging and incentivising households up and down the country to realise that if they take measures to secure their house against flood risk, they will benefit. They will start to be able to look at bespoke offers from insurance companies that will create great specialisms in this area. They will be able to have affordable solutions that will benefit them in the years to come. I dispute the idea that Flood Re is a waste of public money; I think it is vital spending that will be welcomed by hundreds of thousands of people up and down the country.

Flood spending has to increase, and I dispute the assertion of the hon. Member for Brent North that it does not. The Opposition amendments in Committee would have required us to go back to the Association of British Insurers and it to go back to its members and say, “Look, we have to tear up these very complex financial models that we have been working on for months and months to dance on the head of a pin.” At the end of the day, it would have failed. The Minister and his Department need to feel confident that they have brought forward the best possible solution that will be welcomed by households up and down the country.

--- Later in debate ---

[Rory Stewart]

From the insurance company’s point of view, in the case of the households that are most at risk, Flood Re provides the ability to lay off the flood component of its household and buildings insurance, which for a basic rate council tax payer is in the region of the £220 to £250 mark. There would be no reason for an individual insurance company to make the flood component of its insurance exceed that amount—that is the purpose of the £180 million pot.

I agree, however, with the hon. Gentleman on the basic questions with which he began, and we certainly need to look at this during the next 25 years: building on floodplains, climate change and increasing flood risk. That will have an impact right across the industry.

[Richard Benyon]

I agree entirely with my hon. Friend. Can I urge the hon. Member for Brent North to be careful about making bland criticisms such as those about building on floodplains? London and York are floodplains. Do the comments apply to those great cities? The issue is about how we build on floodplains and how much flood resistance there is. We can all think of buildings on floodplains that were lunacy and should never have happened—perhaps the Environment Agency was ignored—but such sweeping statements on this important issue need to be qualified carefully.

[Rory Stewart]

I am grateful to my hon. Friend, who is correct. Building on floodplains is a question of doing detailed calculations; the point is not that floodplains cannot ever be built on. Scotland provides a good example in the constraints that it has placed on building on floodplains, but Scotland has certain advantages in terms of population movements and the nature of the land.

As my hon. Friend said, there are technical solutions that allow for building on floodplains in Britain in a more sensible fashion, but most important of all is the natural capital calculation. We need to be much more realistic about looking at the social and economic costs of building on floodplains. What are the likelihoods of a risk? How much is that likely to cost the householder? How much misery and distress is that likely to cause them? What impact might that have on house prices? When all that is taken into account, someone might still, for particular reasons, decide to build on a floodplain. There could be very good reasons to go ahead, but they must ensure they have gone through the due diligence and looked at the potential costs and risks of doing so.

That brings me to my conclusion. This has been a good and testing debate, as I have come to expect from the hon. Member for Brent North, and it means that we are now one step closer to ensuring affordable insurance. I am reassured that the Opposition are not challenging the measures. I think Members across the Committee would agree that the work done over the past few months by my hon. Friend the Member for Newbury, by the insurance industry and by many of our civil servants—who must be both relieved and exhausted at reaching this stage—has brought us to a pretty impressive model.

I would like the United Kingdom to boast about and share this model with the rest of the world, so that others can see how we have addressed the issue in a pragmatic and focused way. We have done it by working with the insurance industry instead of against it. We have included a very broad sweep of universal provision and have taken into account questions of transition. We have set up a 25-year process. All that shows long-term strategic thinking and market focus, which we should be proud of.

I thank the Committee for the opportunity to set out the Government’s approach on Flood Re and the insurance industry for its hard work. This legislative framework is a good model for balancing pragmatic considerations of how a scheme can operate with public policy objectives. I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015.

Draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015

Resolved,

That the Committee has considered the draft Flood Reinsurance (Scheme Funding and Administration) Regulations 2015.—(Rory Stewart.)