Flood Insurance
Debate between Andrew Smith and Dominic Raab(11 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Raab
I will not, because I need to make progress and, under the strictures of Mr Deputy Speaker, I will need to give way later.
The “Flood Re” insurance scheme would create a non-profit fund to ensure that cover is available for the 2% of homes that are at significant risk of flooding. Like the current system, the model would be based on cross-subsidisation. High-risk home owners would pay higher premiums, subject to a cap, and benefit from a subsidy levied on lower risk properties. Today that subsidy costs the average property owner about £8 a year—that is the proportion of the insurance premium that they pay. Under “Flood Re” that would rise by an estimated £1. Those owning a band A property at significant risk of flooding would see a 15% increase in their premium, rising to 43% for more expensive homes. The point of the scheme, therefore, is to cushion the most vulnerable. In return, the insurance industry wants the Government to strengthen flood defences, provide access to flood risk assessments and enforce planning regulation on floodplains more rigorously.
The parameters of a balanced deal are emerging. Ministers have, understandably, refused to sign any blank cheques, including for bankrolling “Flood Re” or for providing a temporary overdraft facility underwritten by the taxpayer. That would be difficult to justify at any time, but especially with our public finances under such acute strain.
Mr Smith
I am grateful to the hon. Gentleman for giving way. I strongly support the motion and congratulate him on securing the debate. Is it not important to bear it in mind that the insurance companies do not have a completely free hand in this, because they are required by state regulators to secure reinsurance on the risk that they take on? Unless there is some Government participation to cap that risk, it will be impossible to get it at an affordable price and the disaster that our constituents are threatened with will happen.
Mr Raab
I thank the right hon. Gentleman for his intervention. He has touched on some of the technical aspects, to which I am sure the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Newbury (Richard Benyon), will respond. It is clear that the state needs to be involved in this. This cannot be left solely to a free market. Even a free-market MP like me would accept that.
It would be useful if Ministers could today explain their position on the gist of the “Flood Re” proposal, and any concerns they have now that the taxpayer is not being asked to underwrite the overdraft facility. One key issue is the balance of contributions by those owning properties at higher risk and ordinary insurance holders. Have Ministers considered the composition of the board of governors of the fund, and in particular the number and character of members who are independent of both the Government and the industry? How will the Government retain control and accountability over future increases in either the levy or ordinary premiums? Both aspects are important; it is a question of balance.
The “Flood Re” scheme inevitably invites comparison with models used elsewhere. In the United States, the national flood insurance programme is not funded on the basis of cross-subsidisation, but as a result was left $17 billion in the red after Hurricane Katrina. “Flood Re” as a model would avoid a situation in which the British taxpayer covers all losses the market will not insure—the Dutch Government have such a commitment. The “Flood Re” model is somewhere between the US and Dutch models.
Alternative models have been proposed but are not in the negotiating mix between the ABI and the Government at this stage. One alternative presented by Marsh, the insurance broker, would involve mutualisation of 50% of flood claims among all home owners. That would pass back to home owners or the Government the risk of paying the remaining 50% of flood claims. What view have Ministers taken on that alternative?
More broadly, the negotiations on flood insurance shed broader light on the UK’s wider environmental policy. The risks of flooding, which is effectively what we are debating, prompt a simple question: have we got our environmental priorities right? Met Office data show that four of the five wettest years on record have occurred since 2000. The Government’s chief scientist has warned that
“in quite a short time scale…we are going to have more floods, we are going to have more sea surges and we are going to have more storms”.
Strengthening flood defences should therefore be a top priority—both in its own right as a matter of sound policy, but also to contain the rising insurance premiums that have prompted today’s debate—and yet environmental resilience has been relatively low down the pecking order of UK environmental policy for more than a decade. By way of illustration, the cost to businesses and consumers of the inefficient green subsidies to solar and onshore wind through the renewables obligation will be £2.6 billion this financial year. That is almost as much as DEFRA will spend on flooding and coastal defences over the entire five-year period of this Parliament. Those are skewed priorities. The Government ought to place greater emphasis on adapting to the reality of climate change—the environmental here and now—and spend less time speculating on technological winners that hike energy bills, particularly for the squeezed middle, without substantially decarbonising the UK economy.
That points to a more systemic, bureaucratic problem, namely the lack of policy coherence between the Department of Energy and Climate Change and DEFRA since they were separated in 2008 by the previous Government. Too often, DEFRA feels like DECC’s more realistic but poorer cousin, and yet DEFRA is left to pick up the pieces when an environmental crisis strikes. Have Ministers considered re-merging the two Departments? That would integrate policy and realise at least £1 billion from cutting bureaucracy, which could be used to invest in flood defences as well as to pay off the deficit more quickly.
The state has a role to play in managing acute and severe risks such as flooding. We need the Government to provide the right framework to meet UK energy demands, especially through nuclear power and shale gas; to invest in flood and coastal defences; and to strike the right deal with industry, and soon, to protect small businesses and vulnerable homes from soaring insurance premiums. I commend the motion to the House.