PARLIAMENTARY DEBATES - United Kingdom Parliament

1521 Flood Insurance
26 MARCH 2013
Flood Insurance
1522
Mr Laurence Robertson (Tewkesbury) (Con): I am
grateful to my hon. Friend for raising this very important
subject. Does he agree that another factor to consider is
the level of excesses that insurance companies charge?
If they set the excess at £20,000, the family affected are,
in effect, not insured.
Mr Raab: I thank my hon. Friend for his timely
intervention and I think that he is on point. We need a
comprehensive deal covering all of the aspects of the
insurance premium.
Mr Andrew Smith (Oxford East) (Lab): Will the hon.
Gentleman give way?
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 flood plains 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 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 the 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