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Flooding: Insurance

Volume 741: debated on Thursday 29 November 2012

Question

Asked by

To ask Her Majesty’s Government what action they are taking to make sure that house insurance is available for residents in areas that are liable to flooding.

My Lords, the future of flood insurance is a priority for the Government. We remain committed to discussions with the insurance industry and others about what replaces the statement of principles. We want a solution that ensures affordable insurance bills for those at flood risk but does not place unsustainable costs on wider policyholders and the taxpayer. Our primary focus is flood-risk management, on which we are spending more than £2.17 billion over four years.

My Lords, there are now at least 200,000 households in high-risk flood areas whose properties are virtually uninsurable against flood. The discussions with the insurance industry have been taking place for years. There are now only seven months before the existing statement of principles runs out, and that itself is less useful by the week. Do the Government support the practical proposal from the Association of British Insurers, on behalf of the insurance industry, for a non-profit-making flood insurance fund to provide insurance against flooding for properties in high-risk areas basically funded by cross-subsidies from the rest of us who are fortunate enough not to live in high-risk flood areas? If so, why are the negotiations on this matter being blocked by high-ranking Ministers in the coalition Government from another party?

My Lords, this is a serious matter. We have been working very hard with the industry on this extremely complex issue. We need a lasting solution that ensures affordable insurance bills for those at flood risk but does not place unsustainable costs on wider policyholders and the taxpayer. The ball is now in the industry’s court. The ABI understands the Government’s position. It is up to the ABI to come back to us with a practical and sustainable option that provides insurance for those that need it without increasing bills for all or placing unacceptable burdens on the taxpayer.

My Lords, first, I offer sympathy to those who have lost loved ones and suffered the trauma of flooding in the past week. This is the third time since July that this matter has been raised at Question Time. The Minister consistently tells us that the Government are in intense and constructive negotiations with the insurance industry. Today, he tells us that it is a priority. Yet today I received an e-mail from the Association of British Insurers saying that negotiations are currently at an impasse. The Minister now says that it is up to the Association of British Insurers to come up with a better deal and yet he has been asked a perfectly good question by the noble Lord, Lord Greaves, on whether he agrees with the proposal that it has put forward. When will Defra sort this out and give comfort to the 200,000 people who are really struggling to get flood insurance?

My Lords, I absolutely agree with the noble Lord on his first point. We really feel strongly for those affected by this. The emergency services, local authorities and the Environment Agency have been working extremely hard for them and I pay tribute to that. In answer to the noble Lord’s question, the statement of principles that his party put in place takes no account of the affordability of insurance, so I will not take any criticism from the other side.

My Lords, I declare an interest, having been flooded in 1997 and 2008. In his discussions with the insurance industry, does my noble friend ever mention not just that those of us who are in that position are very nervous about what will happen to our insurance next year but the fact that our houses are unsellable? There are elderly people who need to go into residential care, but they cannot sell their home. Others, like me, retire and want to move nearer to their families. Those properties are blighted. In a very small lane in rural Devon that has a lot of old thatched houses and cottages, some of which are listed, if they are not insured, eventually they will just be allowed to deteriorate and fall down.

My noble friend is of course right that there are concerns about the continued availability of insurance to householders—mortgage holders and those looking to sell their houses. We are working with those involved better to understand what the impact on the mortgage market might be. I am certainly encouraged that the Council of Mortgage Lenders is quoted as saying that the focus needs to be on finding a solution on flood insurance, rather than worrying householders unnecessarily about how lenders might choose to react. That has a knock-on effect on the selling market to which my noble friend refers. I also point out that in July, we published a guide to obtain flood insurance in high-risk areas in collaboration with the National Flood Forum and industry representatives, which I think is helpful.

I, too, encourage the Minister to bring those discussions to a conclusion as soon as possible. I declare an interest: I was chair of a mutual insurance company until the end of last year. I have a further concern. Those companies which have a strong CSR policy could be commercially disadvantaged in the marketplace compared with those who take a purely commercial approach. It is also deeply regrettable that planning permission is still being granted in areas that the Environment Agency has identified as potentially subject to flooding, which is simply aggravating the problem in the long term.

The noble Lord makes a couple of good points. In answer to his last one, development in areas of flood risk is permitted only exceptionally, where there are wider sustainability considerations, and must in all cases be safe, must not increase flood risk elsewhere; and, where possible, overall flood risk should be reduced.