Flood Re Insurance Scheme

Andrew Smith Excerpts

Tuesday 6th December 2016 Westminster Hall

[John Stevenson]

I agree wholeheartedly with my hon. Friend. Flood Re has been a success. I have seen that in my constituency, where people now have confidence that their house will be insured. What I am trying to get at is a small group of people. In the setting I mentioned earlier, 29 houses were involved and in another scheme in Carlisle there are, I think, 68, but there will not be many other than those. I suspect that there will not be too many in such circumstances in the flood areas up and down the country, so most people will be able to get the appropriate cover, which, as she rightly says, is a positive.

[Mr Andrew Smith (Oxford East) (Lab)]

The hon. Gentleman is being generous in giving way. I, too, congratulate him on this important debate, which will be welcomed by his constituents and by everybody who has been seriously affected by flooding. Has he examined the proposal recently launched by the British Insurance Brokers Association that is intended for commercial properties and which I understand will also cover long lets? Is there not a danger, though, that because premiums are calculated on specifically targeted risk, they might end up as unaffordable for people in long-lease properties?

[John Stevenson]

The right hon. Gentleman raises an interesting point. I am aware of the proposal with regards to commercial properties, which may be a way forward for them. I have concentrated on a narrow point with regards to the circumstances surrounding Flood Re.

To conclude, will the Minister bring forward a constructive review of Flood Re? Will she consult Flood Re and the insurance industry? Will she listen to the concerns of homeowners in my constituency who genuinely feel that they are being let down by the legislation and are unable to get that security and insurance for flood? It is an ongoing concern for them that if we get another Storm Desmond, they will not necessarily have the money to refurbish their properties. I do not think that is the intention of the legislation. I hope the Minister will take on board the arguments that I have set out about the legislation and will acknowledge that there was an oversight, or that something was missed when it was considered, and that it would be appropriate to bring forward primary or secondary legislation to expand Flood Re to cover that small group. That would assist a small group of people in my constituency, but it would be hugely beneficial and give them confidence for the future.

--- Later in debate ---

[Dr Coffey]

I intend to address that issue towards the end of my contribution. If I do not manage to do so in sufficient detail for my hon. Friend, I will be happy to have further discussions.

I stress that Floor Re is a transitional measure. It was designed with a 25-year lifetime to help householders at high flood risk to adapt to risk-reflective pricing. That sets the challenge of how collectively as a country we can bring down the risk and impact of flooding over the next 23 years. The Government are spending record amounts on flood defences, with a £2.5 billion six-year capital floods programme, which will provide better protection for at least 300,000 homes. My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) will be aware of some of the protections, and I know that he is pressing for more for his constituents.

There is a growing understanding that, regardless of our significant investment in flood defences, a residual risk of flooding remains. Flood defences are not always appropriate, and where they are we have seen that they can be overtopped in extreme events, as happened a year ago. We need to work across the whole catchment area to slow the flow of water through natural flood management and to prepare for any flooding that does occur. As well as ensuring we have a first-class emergency response to flood events, there is much we can do to adapt our homes and businesses to become more resilient.

Only last week, I visited Warrington and saw at first hand a new flood defence scheme at Victoria park where work is still in progress. Back in 2013 and within two weeks of the first phase being built, the scheme prevented 200 properties from being flooded. That was fantastic for the residents, but reminds me of the need to help people to understand the residual flood risk that inevitably remains. It is important to take measures to try to stop water entering a property and to speed recovery. Returning home is increasingly important and relatively simple steps can make a big difference—for example, flood resistant air-bricks; raising sockets; and using tiles instead of carpet. Property-level resilience can play a significant role in making people and their property less vulnerable to the physical and mental impacts of flooding.

A few months ago, we published the Bonfield property flood resilience action plan in collaboration with the commercial sector. It explores how collectively business and Government can best enable and encourage better uptake of such measures for properties, including businesses, at high flood risk.

Turning to leaseholds, particularly long leaseholds, I have commissioned my officials to look at the nature and extent of the problems that my hon. Friend the Member for Carlisle described, as we need to look at them in more detail. He will be aware of the wider issue of small leasehold property, to which he referred. The insurance industry regularly informs us that for, the most part, affordable commercial insurance and contents insurance for individual leaseholders is available through Flood Re, but there are examples of individuals and leasehold properties with more than three residential units struggling to access affordable business insurance. Likewise, there are examples of residential buy-to-let properties not being covered and owners finding it difficult to obtain insurance.

Evidence is building and the challenge is not easy. Much consideration was given during the creation of Flood Re to whether to include leasehold properties. From a practical perspective, insurers determine whether an individual property is at high flood risk on a household-by-household basis and can allocate the cost using a simple domestic insurance model. For leasehold properties, buildings insurance will often cover numerous dwellings, which may well have different levels of flood risk. It would be difficult to establish a consistently fair approach to how lessees should cover that risk.

There are also considerations of principle. With Flood Re, when the insurer has a direct relationship with the homeowner, the competitive market gives us confidence that the benefits provided by the scheme will reach the households for which it is intended. It is not clear that a similar scheme for leasehold properties would achieve this.

I have been saying for some time that there is good news. I am very pleased that yesterday the British Insurance Brokers Association announced the launch of a new commercial product designed to help small businesses at high flood risk to access affordable insurance. The scheme will also be open to leasehold properties. It will no doubt help some, and I hope it will help the vast majority of those who are struggling. On tenement housing in Scotland I was not aware of the difference in application, and I will certainly ask my officials to add to that. Should there prove to be a need for additional action, I remain open to exploring what can and should be done.

I have great sympathy with what my hon. Friend the Member for South Ribble (Seema Kennedy) said and I am happy to explore it further. There is a similar challenge, in that that is not quite as straightforward as individuals’ domestic dwellings, but let us look at it and see.

Flood Re is not a panacea. There is no evidence of a systemic problem, but I recognise that there is a real problem for the individuals, businesses and communities involved. I am particularly concerned about smaller businesses that cannot easily move premises. I hope that using granular postcode data and recognising the benefit of property level resilience measures, the new products from insurers—as of next week, I believe—will enable more small businesses to obtain affordable insurance.

In parallel, the Department for Environment, Food and Rural Affairs is working to understand the nature and extent of the problem. I thank the hon. Members who have shared examples with me and encourage businesses to work with us to help the Government to have a more comprehensive picture of the challenges that they face. Where there is a clear need for further action, the solutions are varied. Extending Flood Re to cover businesses is not possible, because the scheme is predicated on a domestic rather than commercial insurance model. Equally significant is the question of who pays to subsidise profit-making businesses, which are often more able to move premises than households.

My hon. Friend the Member for Carlisle asked about Flood Re and the ongoing concern. Flood Re will be reviewed every five years. It needs to be given time to work, but there are separate policy questions that we need to look at with regard to scope. Flood Re will continue to interpret legislation and I assure hon. Members that we are in regular contact on it.

People should be aware that Flood Re does not extend to properties built during or after 2009. Planning law means that properties built in a high flood-risk area should already be resilient to flooding. Extending Flood Re to cover these properties would only incentivise unsuitable development. That is why we have not done that.

[Mr Andrew Smith]

Will the Minister, as part of her ongoing review, review the level of premiums that are charged under the British Insurance Brokers Association scheme in relation both to leasehold properties and to those of small businesses? The danger of a finely targeted, granular approach is that some may find the risk premium unaffordable.