Water Bill

Lord Campbell-Savours Excerpts

Tuesday 8th April 2014 Lords Chamber

[Lord Curry of Kirkharle (CB)]

My Lords, I have some concerns about the amendment. If I can describe the noble Baroness, Lady Parminter, and the noble Lord, Lord Krebs, as friends, I hesitate to object to their amendment, but I have concerns. I declare an interest in that I was, until two years ago, a chair of an insurance company.

My concerns are around the following issues. First, as a policyholder contributing to the funds that will be accumulated to create Flood Re, I am concerned that some of my contributions will be used to create resilience measures—which are, I assume, measures to reduce the risk of flooding—for a select group of properties. That is not why we will contribute the funds.

[Lord Campbell-Savours (Lab)]

Does the noble Lord not accept that in the long term the insurance company will benefit because it will save money?

[Lord Curry of Kirkharle]

Perhaps I may respond to that as I work through my argument.

Secondly, identifying the properties that will be subject to this special treatment will require the wisdom of Solomon and might create division and resentment among other property owners who are not able to benefit from the resilience measures used.

Thirdly—here I have some sympathy with the comments made by the noble Baroness, Lady Parminter—Flood Re needs a strategy for the amount of reserves that will be appropriate and need to be built up to cover flood risk. A strategic approach to the amount of surplus required is important. It will be very difficult to determine what the reserve should be to cover flood risk over a period of years, but it is essential that a reserve is established to maintain adequate funds to cover significant flood risk.

Finally, my most important point—I respond here to the comments made by the noble Lord, Lord Campbell-Savours—is that, as a policyholder, I do not want to continue contributing to a fund that has established a significant surplus. Once the surplus has been determined and achieved, I would hope that the Government and the ABI would have a mature discussion about reducing the contributions to the fund so that they do not establish an ever-increasing fund which may never be used. It would benefit the insurance companies if they did not need to continue collecting funds to contribute to this reserve. Resilience measures are essential and should be taken as properties are restored after flooding, but it is not the role of the fund to provide the resources to do that.

--- Later in debate ---

Moved by

[Lord Campbell-Savours]

15: Clause 55, page 110, line 22, at end insert—
“(e) the need to review annually the operation of the Scheme”

[Lord Campbell-Savours]

My Lords, in moving this amendment, which calls for an annual review of Flood Re to deal with business which I do not believe has been concluded, I need to declare an interest. I have a leasehold interest with my wife, which I have declared on previous occasions on the Bill, in a band G home on the Thames. Although it is built on the flood plain, my flat is not threatened by flooding. It has never been flooded and can never flood because it is on the second floor. Nevertheless, I have to report that the car park area that serves our block of flats was recently subjected to some flooding, and it is with that in mind that I feel I should restrict my comments today and limit again what I have to say.

The problem with this whole debate on Flood Re is that it was never fully considered in the House of Commons. Some of the worst flooding—certainly this century and for a greater part of the previous century—actually took place after consideration in the Commons and during consideration in the Lords. I believe that many Members of Parliament in the other place would have been drawn into the debate as a result of pressure from their constituents in the event that they had experienced what many people experienced in January and February.

Before I make my wider comments, I thank the Minister for generously offering to arrange a meeting through his office, and I thank Mr Leckie, one of his staff, who has been excellent in his dealings with me. I hope at that meeting to have a representative of the ABI; Miss Anne McIntosh, the Member of Parliament for the constituency to which I referred on another occasion; and one of her constituents, whose statements I drew upon in the previous debate.

I have tabled this amendment because for many people in the country these proceedings are the most important part of the Bill, and they are watching what is happening in this debate on the internet. Many thousands of people in the country are following this debate because they feel that they have been excluded from Flood Re. While we all want Flood Re to go through, I believe that it remains unfinished business. I want to refer specifically to a group of properties, which would not include my own, that fall under the lower council tax bands A to D—mine is G, so I would not be affected by my own amendment or by what I am advocating. I choose those council tax bands because they involve, generally speaking, a group of lower- income people who can ill afford the arrangements that are being made.

I want to call on some correspondence that I received by e-mail, which a number of Members have received, from a man called Mr Junco Cochrane. He has been expressing concern in desperate e-mails to Members of this place in his best e-mail English. He says:

“I wrote to the ABI Director and have had quite a bullying type of reply. Leaseholders”—

he is one; they are excluded from Flood Re—

“have very little say and are virtually told what to do and how high to pay”.

He then points out the need to,

“prevent discrimination and distress for leaseholders”—

I believe he is speaking for leaseholders all over the country—

“who often are the poorer and older persons at the end of the property market, and with rip-off charges in various areas, often for nothing of any or little value”.

This is how he has phrased his e-mail. He goes on to say:

“Many leaseholders are pensioners and are not comfortably off ones. May I say respectfully, not like you in your fortunate situation”—

he is talking about me and my band G—

“as many of us just have the one small leasehold and struggle to keep that”.

I repeat: this man is excluded from the arrangements that are being made. He goes on to say:

“Many of us are the poorer category of households, old people in retirement flats, sheltered housing and social leaseholders, who are generally older people, of which there are millions in these types of flats”.

He is exaggerating but he obviously believes that there is a great number. He goes on:

“They are not in the ‘three’ conversions such as those referred to by DEFRA”.

We know what the three conversions are: they are where you have three flats in one block and there has been a compromise in Flood Re whereby they are now included. His e-mails to me and to others are desperate. This is the desperate voice of someone who is really upset about the way in which the legislation is being handled.

In response to people like him—and to Beverley Morris, who wrote to me on a previous occasion—the ABI maintains that insurance at reasonable rates will be made available. In a letter which the Minister kindly arranged to be sent to me, Otto Thoresen, the director-general of the ABI, gives assurances to government that it can deliver on reasonably priced insurance. He states:

“While there are a range of customers seeking insurance in the leasehold market, on the whole freeholders of leasehold property are commercial enterprises that buy their buildings insurance in a different way from ordinary homeowners. There is no failure in this market, and we expect affordable cover to remain available for such properties in an open market. For this reason, they do not need to be included in Flood Re … We fully expect the competitive market that currently allows leasehold managers to buy affordable cover to remain in place, and there remains no evidence to suggest it will not. It may be helpful to stress that Flood Re will be available for contents cover bought by individual residents in leasehold properties”—

which is true—

“and that leaseholders who insure their building in their own name will be able to access buildings and contents insurance through Flood Re if needed”.

That statement is simply inaccurate. He must know what the truth is. He must have seen the evidence that we presented on Report, wherein a lady writes to tell us that her insurance is to go five times higher than what it is at the moment. It is to go up from £5,000 to £23,000, yet Mr Thoresen gives those assurances.

That is the case with Mr Cochrane and people all over the country—very often low-income families—who live in properties many of which at the end of the day will not even be insured because people will not be able to find insurance. If a lower-income family living in a block of flats in an affected area finds that they cannot afford the insurance at the higher prices, they will still have to buy it, because those who have taken out a mortgage are under pressure from their mortgage company to insure their flats. Therefore, they are locked into high reinsurance premiums and there is no way out.

I understand that Mr Ian Fletcher of the British Property Federation, while expressing his concerns about the comments of people such as Mr Thoresen on Flood Re in general, told the Daily Telegraph—and this is his explanation as to why the insurance companies have taken the position that they have:

“We think the problem stems from the fact that insurers’ systems can’t cope with leasehold as a residential form of ownership. They are viewed as commercial properties from insurers’ viewpoints”.

Well, the fact is that they are not necessarily commercial properties. Anyhow, surely they could have changed their systems when they were devising Flood Re somehow to incorporate such people, particularly those in lower-income groups, who are going to find themselves in a pretty difficult position. That matter must inevitably become the subject of Flood Re at some stage in the future.

I move on to another group of people who feel very aggrieved. I have a note, which has just come down the line to me, from Lynne Jones, the chair of the Keswick Flood Action Group. She is speaking on another group who are excluded and who should be of equal concern to us. She states:

“I am … Chair of Keswick Flood Action Group”—

Keswick Flood Action Group is an action group in my former constituency of Workington in Cumbria—

“I am frequently asked about how to get insurance and within my duties as Chair I would also like to point out some local issues with Flood Re working against others in my community”.

She then goes on to comment on the issue of rented property and how that is affected:

“To not give guarantees to rented properties would affect some of the least well off in our town. Most of these are not covered by the Statement of Principles. Landlords’ insurance is currently commercial. The interesting issue will be whether the introduction of Flood Re will affect this market. One of the things I have been arguing for is that it should be mandatory for landlords to hold insurance and that this should cover flooding. That would be a significant improvement on the current situation. Housing associations tend to build on cheap land—flood plains. Thus here as, I suspect, in towns and cities throughout the UK, there are quite a few local occupancy and housing association homes in flood risk areas. But these are typically covered by commercial insurance”—

all excluded.

“Houses are expensive here and many locals can’t buy homes so they can ill afford high premiums—or no flood cover. Tenants will be covered by Flood Re for contents insurance, but my real concern is landlords not taking out insurance at all”.

That is because they are not included. We are not talking about vast commercial landlords, but the chap who buys the house next door or someone who buys something in the town which they may rent out.

“In addition we have a significant amount of housing stock taken over to self-catering. This is a good point and needs thinking about. What proportion of that is covered by residential insurance rather than commercial? How much is currently covered by the Statement of Principles? How much of this would be at significant flood risk? Keswick relies on tourism and the surrounding area relies upon Keswick for the wealth visitors (national and international) bring. Are these also to be denied the chance of flood insurance?

I hope that you will take this information on board when you look at the future of flood insurance”.

Again, that is a group of people concerned about the absence of Flood Re cover.

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[Lord De Mauley]

I thank the noble Lord, Lord Campbell-Savours, for his amendment and I thank him even more for reminding me that, in my excitement over my earlier amendments, I have so far omitted to declare my interests, and I should do so. I own a farm, through which a tributary of the River Thames runs, I have an extraction licence, a bore hole, a house which was flooded in 2007 and a minority stake in a lake. I am glad to put that on the record.

As I explained in previous debates, Flood Re will be subject to regular review. We expect these formal reviews will take place at least every five years. These formal reviews will need to consider the effectiveness of Flood Re in discharging its purpose and functions. Importantly, the reviews will also need to consider the levy and premium thresholds, particularly in relation to its capital model, which we debated in detail earlier in relation to the amendment from my noble friend.

The reviews will also need to consider Flood Re’s effectiveness in managing the transition to risk-reflective pricing over the operation of the scheme. As I said earlier, the secondary legislation will set out in more detail the points that Flood Re’s transition plan should cover. Flood Re will have to lay its accounts in Parliament on an annual basis, and its responsible officer will be directly accountable to Parliament. The Comptroller and Auditor-General will examine Flood Re’s economy, efficiency and effectiveness as well as its propriety and regularity.

It is also important to note that there is nothing to preclude the formal reviews taking place more frequently, which the noble Lord, Lord Whitty, asked me to confirm, should concerns be raised; for example, if it is seen that excessive surpluses are being built up.

I hope that it is clear that Flood Re is going to be regularly reviewed and closely scrutinised, but we need to strike a balance and, in particular, I am concerned about significant risks to the certainty and stability of Flood Re income if it is under constant review. Flood Re, the insurance industry and policyholders need to have some degree of certainty about its operation and Flood Re must be allowed to plan for transition accordingly. Insurance is a long-term business. An annual review of the scheme would be resource intensive and I am not clear what added value it would bring in addition to the current arrangements for parliamentary scrutiny.

In addition to the formal review process which will be carried out at least every five years, as I have described, both the Government and the Association of British Insurers have committed to monitoring the market for flood insurance and will publish the results of that monitoring.

[Lord Campbell-Savours]

Will the Minister ask his officials to contact the ABI and ask it, prior to our meeting, how it responds to the cases that I have brought forward of people who say that they cannot find insurance or that their insurance premiums rise five times over, or whatever? I would like to hear its response prior to the meeting.

[Lord De Mauley]

I will certainly do that. I, too, would like to hear the answer.

This ongoing monitoring will enable us to identify trends and any potential issues in the market, including in the leasehold sector, to which the noble Lord referred. We have discussed the rationale for the scope of Flood Re at length and in detail in your Lordships’ House. The design of Flood Re was guided by three principles: affordability, progressivity and fairness. We have been clear that Flood Re should not increase the cost of insurance for those at low or no flood risk so it is fair to all households. To achieve this, Flood Re will replicate the cross-subsidy that currently operates in the domestic market. The benefits of Flood Re will be targeted at lower council tax bands, where affordability is more likely to be an issue.

In previous debates, I have gone into some detail on the thought process behind the leasehold sector; if the noble Lord will forgive me, I will not reiterate those arguments. I am, as he knows, sorry to hear about the specific examples he cites. As I have said, I would be happy to speak to the ABI about the initial case to which he referred. It would be helpful to me to have some more details; perhaps we could discuss that.

The noble Lord also asked about the letter from Otto Thoresen. I am sorry that he feels that the assurances from the ABI are inadequate. We have previously asked for evidence of problems and, to date, have had nothing but anecdotal evidence. Again, however, if the noble Lord would like to share the details with me, that would be helpful and I would be happy to take the matter forward.

I have a number of notes here which deal with matters that we have dealt with at some length in earlier debates; I hope that noble Lords will forgive me if I do not simply reiterate old arguments. It might be helpful if I deal with the issue of maps, which some noble Lords have raised. It was probably the noble Lord, Lord Campbell-Savours, who asked what happens if a property is not proven to be at risk. If a home owner has evidence that the maps do not accurately reflect their level of risk, they can provide it to their lead local flood authority or the Environment Agency for review.

There was a complaint that it takes too long for the Environment Agency to update maps and then share them with insurers. The Environment Agency—and I see the chairman in his place—revises the rivers and sea flood risk maps on a quarterly basis. It is possible that some insurers do not choose to receive updates as regularly as that, which could explain the time lag that some people have experienced. It almost always pays to shop around or to contact a specialist broker to explore ways of reducing premiums. This is important: there is a competitive market in the United Kingdom which will and does help to keep prices low. From personal experience, I know that different insurers take different approaches to pricing risk, which is, as I say, why people should be encouraged to shop around. One of the benefits of Flood Re is that it enables the provision of claims data from the insurance industry to the Environment Agency to help improve risk mapping in the future.

Under the statement of principles, people had to stay with their existing insurer to benefit. Therefore, they were prevented from shopping around for the best price—something I have been going on about at some length. Once Flood Re is up and running, people will be able to shop around, with those in scope knowing the maximum they should expect to pay for the flood risk part of their premium. Insurers have estimated that only 1% to 2% of the market would expect to pay prices higher than the proposed premium thresholds which were set out in the impact assessment. These are the people who will need Flood Re. The majority of the market is expected to be covered by prices lower than those offered through Flood Re. I hope that that is helpful and that, on that basis, the noble Lord will feel able to withdraw his amendment.

[Lord Campbell-Savours]

I thank the noble Lord for his response. I do not want to detain the House. As I say, we will have to come back to these matters in the future. I hope that, in light of what the Minister said, he will be looking for further information. Those who are watching this debate on the internet might well send me their concerns about it, and I will forward them to the Minister. On that basis, I beg leave to withdraw the amendment.

Amendment 15 withdrawn.