Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015
Debate between Earl of Kinnoull and Lord De Mauley
The Earl of Kinnoull (CB)
My Lords, I apologise for being a minute or so late for that very eloquent introduction. Before welcoming these statutory instruments, I declare my interests as set out in the register, in particular the fact that for several years I was head of the division within the Hiscox group which wrote United Kingdom household insurance and for some years the CEO of the reinsurance company at the centre of the Hiscox group, which wrote many reinsurances of the players in the United Kingdom household insurance market.
These regulations are an excellent example of co-operation between the Government and the industry. It is not the first example, of course. There was one in the early 1990s when, following the two dreadful explosions in the City of London which caused immense damage and in which lives were lost, Pool Re was formed. Pool Re has been a success for the UK insurance market and the UK insurance industry.
It is worth pausing for a moment to consider the UK insurance industry. I am afraid that it is not at the glamour end of the financial services of the City, but it is a very strong industry and in a leadership position in the world. The London and international insurance and reinsurance markets alone account for gross written premiums of around £60 billion a year. The industry employs about 50,000 highly specialist staff, and it is this expertise in insurance and reinsurance which has come together with the Government to structure what is today Flood Re. Will the Minister join me in saying that there is much to congratulate the UK insurance industry on, in its world leadership and its strong, centuries-old reputation for consistently paying valid claims?
Flood Re provides the availability and affordability of flood insurance for flood-prone homes. We have at Hiscox lots of computer systems which can cause artificial floods on a computer screen. You can see just how many homes in recent times have become flood-prone. This is due both to planning policy and to geographical and climate changes. Essentially, the bet has become too big to place with the private insurance market. There are many examples of catastrophe insurance around the world which have become too big for the private markets. Flood Re represents a singularly appealing way of getting around the problem.
As we have heard, the scheme is aimed at 500,000 out of the 25 million or so homes in Britain, so quite a large number of homes are involved in it. On review, I feel that it is simple, secure and sensible. Will the Minister confirm something slightly different in terms of the review process, which is that it is the intention of the Government, particularly in the early years, to review progress of Flood Re and, if necessary, tweak matters to optimise the scheme?
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.