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Flooding: Insurance

Volume 739: debated on Wednesday 18 July 2012


Asked By

To ask Her Majesty’s Government what discussions they have had with insurance companies to ensure that affordable flood insurance is available for householders in areas considered to be at risk.

My Lords, Ministers have met with a range of representatives from the insurance industry, including the Association of British Insurers. Together, we are looking to deliver a new approach that genuinely addresses the availability of flood insurance as well as securing its affordability for the first time. A number of options are being considered that would allow policyholders in high flood-risk areas to continue to secure affordable insurance without having an impact on bills more generally.

My Lords, the Minister’s statement is welcome but is he aware that, given that thousands of homes have been devastated by floods in recent years, at present some insurance companies are imposing swingeing increases on premiums in order to deter householders, some of whom have to go to other companies that then bear all the risk? The insurance industry needs to put its house in order. Will the Minister take all that into account in his negotiations with the industry?

Yes, my Lords. Although this is not exactly a declaration of interest I ought to say that my former home was flooded in 2007, so I have been through the process of claiming on the insurance. We recognise that the price of insurance is rising in areas of flood risk and has the potential to become unaffordable for some. This is precisely why the Government, working closely with the industry, are considering an internal industry levy which would allow policyholders in high flood-risk areas to secure affordable insurance without having an impact on bills more generally.

My Lords, will my noble friend the Minister bear in mind when dealing with this matter not just the terrible inconvenience of having one’s house flooded but the fact that no mortgage can be obtained if insurance is not available? It therefore becomes almost impossible to sell one’s house if the deal does not go through.

My Lords, that is a very important point. We recognise that there are concerns over the continued ability of existing and prospective mortgage-holders to find affordable insurance. We are working with those involved to get a better understanding of what the impact on the mortgage market would be of increased premiums and how lenders would choose to react.

My Lords, surely the answer is to ensure that planning permission is not given for building on the flood plain unless the developer takes precautionary measures to ensure that the area cannot be flooded in future?

My Lords, the affordability of insurance depends partly on the flood risk. I commend the Government and the insurance industry for all the work that they are doing to find an internal solution within the industry to this, but it also depends on how much money the householder has and their resources. Last December, the excellent report published as the road map states:

“The Government will look at further ways to encourage take up of insurance by low-income households, including the potential of insurance-with-rent schemes for social housing”.

Are the Government taking this forward seriously, as it is one answer to the problem? Do the Government understand that the people really in difficulty when it comes to insurance are often those in privately rented accommodation? Can insurance-with-rent schemes be promoted within that sector?

My Lords, it is not just a question of the availability of insurance. Just as important is the question of excess. Will that very important component be on the agenda?

My Lords, I have first-hand experience of that very point. I think that in a number of cases, premiums have been held relatively steady but the excesses have been put up. The noble Lord is absolutely right.

My Lords, I understand that the environment department has a complete set of maps of flood risk areas. Will my noble friend suggest that the Secretary of State should call in all planning applications that fall within those areas?

My Lords, a week last Saturday the River Wey rose and chose to flow through the ground floor of my house. I now know the scale of difficulty that this is causing thousands of householders around the country. I take this opportunity to thank not only neighbours but staff in the Environment Agency and the insurance industry for their support. These people tell me in conversations that we will be lucky to end the summer with ground water at anything other than normal winter levels. Is it not therefore urgent that before Defra Ministers go on holiday, they must conclude a deal with insurers to incentivise householders to invest in flood resilience for householders’ homes to be insurable and for their premiums to be affordable?

My Lords, there is a lot in that question. I agree with the general thrust of what the noble Lord has said. Like him, I pay tribute to the Environment Agency staff who have worked tirelessly for 24 hours a day through the recent floods, the front-line emergency services, the Flood Forecasting Centre staff and the local authorities, all of whom have been working extremely hard.

My Lords, does my noble friend the Minister have a scheme whereby if a levy is imposed on the industry, it can be got to agree to absorb the cost of this? Will it not otherwise be passed on to the rest of the householders?

My Lords, although it is early days in the negotiations, there are certainly a number of options as to which route could be followed. What my noble friend says is a very valid point and will certainly be taken into account.

My Lords, perhaps I may feed in one further point for the negotiations. Does the Minister agree that postcodes in the country often cover very large areas, encompassing both high-risk and low-risk properties? Does he further agree that it would be better if the insurance industry used Environment Agency maps to identify the risk for more specific locations?