Flood Re Insurance Scheme

Debate between Tom Tugendhat and Thérèse Coffey

Tuesday 6th December 2016 Westminster Hall

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Dr Thérèse Coffey)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for Carlisle (John Stevenson) for raising the issue of access to affordable flood insurance and the Flood Re scheme. For those at high flood risk, whether households or businesses, or indeed community leaders and their surrounding communities, this matter is a central one.

I would also like to thank other hon. Members for their interventions. I hope to address them all during my response. The anniversary of Storm Desmond—we had Storm Angus last week—is a timely reminder that the potential for flooding, and the devastating impact it can have, is never far away. It is worth reflecting on the purpose and value of Flood Re, which replaced the statement of principles—a series of agreements made by the Government and the insurance industry since the 1960s on the provision of insurance to those at flood risk.

However, the statement of principles had limitations. Under the statement, members of the Association of British Insurers agreed to make insurance available to domestic and small business properties in areas that were not at a significant risk of flooding. For properties in significant flood risk areas, the statement of principles provided an offer of cover only to existing customers, provided that plans were in place to reduce the risk within five years. There was no availability of cover for those most at risk if they had not historically had flood insurance or the risk was not being reduced. Importantly, the statement of principles did not provide for the affordability of flood insurance.

[Tom Tugendhat (Tonbridge and Malling) (Con)]

Will the Minister give way?

[Dr Coffey]

I would like to make some progress and then I will happily hear from my hon. Friend.

In the insurance industry, traditionally there has been an informal cross-subsidisation of the costs of flood risk, which is a common approach to managing risk in the insurance sector. However, commercial pressures and the availability of more sophisticated flood risk models have given rise to a trend towards insurers increasingly assessing local flood risk and imposing risk-reflective terms. Without Flood Re and with an immediate transition to fully risk-reflective prices in a free market, many households at high flood risk in the UK would probably experience a significant increase in their insurance premiums in the coming years. I therefore welcome the comments made by my hon. Friend the Member for Maidstone and The Weald (Mrs Grant).

--- Later in debate ---

[Tom Tugendhat]

I draw attention to my entry in the Register of Members’ Financial Interests. As my hon. Friend the Member for Carlisle (John Stevenson) elucidated, the Flood Re scheme has gone some way towards supporting communities, individuals and housing that is vulnerable to flood risk, but it is clear from the original legislation that it does not work in isolation. It works alongside flood defences not simply as a repair product but as part of a structure to build confidence in housing and industry in flood-affected areas. Will the Minister say a little about the flood protection the Government are introducing and how that will defend communities, particularly in areas such as the Medway?

[Dr Coffey]

I certainly hope to come on to that. To return to the genesis of Flood Re, the Government, working with the insurance industry, established the scheme to help householders at the highest flood risk who were blighted by not being able to access affordable insurance. It is expected to help about 350,000 households. Flood Re not only limits the price of flood insurance according to council tax band but limits the excess to £250. It ensures that all home insurers in the UK are part of the solution. It is a complex scheme, but it is a world-first and it is the fifth biggest reinsurance scheme globally and the second largest in Europe. There is much international interest in what we are doing.

Flood Re is providing relief for thousands of householders at flood risk and brings real practical and emotional comfort to many, as has been said. Fifty insurance companies, representing more than 90% of the market, now offer access and in its first six months of operation 53,000 households have benefited. This portfolio will build as the market matures, with Flood Re policies expected to grow in number over the next three years. I encourage hon. Members to advertise that to their constituents. Nevertheless, it is worth emphasising that a number of factors beyond flood risk determine any insurance quotation and it remains important for householders to shop around for the best deal.