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Flooding: Insurance

Volume 746: debated on Wednesday 26 June 2013


Asked by

To ask Her Majesty’s Government what agreement they have reached with the insurance industry to ensure that owners of homes at risk of flooding can obtain affordable home insurance.

My Lords, we are at an advanced stage in discussions with the insurance industry about the future of flood insurance. We aim to conclude those discussions and announce future measures as soon as possible to ensure that households can continue to access affordable flood insurance in the future.

My Lords, the Secretary of State is currently struggling to agree a fair deal on CAP reform for UK farmers, and his department has one of the worst settlements in Whitehall in today’s CSR. I hope that he does a lot better for 200,000 householders in this negotiation with insurers. This House rises on the deadline for concluding the negotiation. Given the persistent interest from noble Lords on all sides, can the Minister therefore guarantee us an opportunity to question him in here on the conclusion of the negotiations before we break for the Recess?

My Lords, I had hoped we might have a constructive debate about this. However, since the noble Lord has raised the common agricultural policy, perhaps I should say that it was Labour’s leadership in the last round of CAP reform that cost us €550 million in disallowance and led us to the disastrous administration of the single farm payment. We, by contrast, are tackling another immensely complex negotiation on flood insurance in a measured and sensible way. We have to balance the interests of those at high risk of flood, wider policyholders and taxpayers, while the ABI is a membership organisation with a lot of interests to represent. The noble Lord asks about an opportunity to debate the eventual outcome. I would be pleased about that; it is not my role to guarantee it, but I am sure that we will have a chance to do that.

My Lords, to bring the question back to flood insurance, has my noble friend looked at the precedent in America, and are there lessons to be learnt as to how to deal with flood insurance from the treatment of vulnerable homeowners in America?

My Lords, that is something to which we have given considerable thought. However, international comparisons provide no clear model. The state-backed national disaster insurance system in the US was in debt to the taxpayer by $17 billion even before Hurricane Sandy struck. Emergency legislation was required in January 2013 to increase the fund’s borrowing by $9.7 billion when the scheme was days from running out of money, to enable claims to be paid. So we have considered it, but it has its limitations.

My Lords, given that previous deadlines have already been missed, as regards bringing the negotiations to a conclusion, what assurance can the Minister give that this will not be announced some time in the middle of August or September, when there is no chance for us to scrutinise the detail? Further, the Question uses the wording “affordable insurance”. Will he comment on the fact that after the Cockermouth floods, my insurance company for my house in Cumbria increased my premium more than sixfold?

Yes, my Lords. In answer to the noble Lord’s first question, the ABI, in its letter to which we referred when we last debated this subject a month ago, has expressed confidence that we will be able to conclude this before the end of July, and I have every confidence in that. We need a solution that provides affordable insurance, as the noble Lord said, for those at risk, but that does not place unsustainable costs on wider policyholders or the taxpayer. Obtaining insurance might involve some householders shopping around or going through specialist brokers if flood risks are significant. In terms of help for householders, in July last year, we published a guide to obtaining flood insurance in high-risk areas in collaboration with the National Flood Forum and industry representatives.

My Lords, I heard this morning a rustling in the undergrowth, and it was not oncoming water: it was a suggestion that an agreement has actually now been reached between the Association of British Insurers and Defra—the Government. I do not know whether the Minister is able to confirm that, because it has perhaps has not been signed, sealed and delivered yet, but the agreement is there. When that news arrives—perhaps tomorrow—will it be given by an Oral Statement? That would then allow the Opposition in this House to have the Statement taken here, which would be the normal procedure, but can happen only if it is an Oral Statement?

My Lords, my noble friend is unique among your Lordships in that he seems to have both ears to the ground at the same time. As I said, we are at an advanced stage in discussions with the insurance industry about the future of flood insurance. We aim to announce future measures shortly to ensure that households can continue to access affordable flood insurance.

My Lords, why should not all policyholders carry the risk? It would mean a very marginal difference in premiums.

Yes, my Lords. We are trying to arrange a system where those at the highest risk who have difficulty affording the insurance effectively have a continued cross-subsidy from wider policyholders. It is a very complicated negotiation, as I think that the noble Lord is effectively pointing out, and we have a lot of interests to keep in mind here.

Would the negotiations be made easier if the Government decided and announced that any agreement to insure flood-risk property would not extend to any property on flood plains for the building of which planning permission had been given after, let us say, today’s date?

My noble friend is persistent in raising this issue. The Environment Agency provides advice to local planning authorities on the flood risk associated with new developments, which is used to develop strategic flood-risk assessments. During 2012-13, 99% of planning objections raised by the Environment Agency were amended in line with the advice of the NPPF. Where development is allowed because the risk is low, the proposed development should be designed to ensure that it is safe even in a one-in-1,000-year-scale flood.