Draft Flood Reinsurance (Amendment) Regulations 2022
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Rebecca Pow)
I beg to move,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2022.
It is a pleasure as ever to have you in the Chair, Mr Robertson. This statutory instrument makes important changes to the Flood Re scheme, which is a joint Government and industry initiative, launched in 2016, designed to improve the availability and affordability of UK household flood insurance.
In 2019, Flood Re, the scheme administrator, published its first quinquennial review of the scheme. This is a statutory requirement. Flood Re made a number of recommendations to Government. We have since considered and consulted on proposals, leading to the changes set out in this statutory instrument.
Since its launch, Flood Re has helped to provide cover for flood insurance to over 350,000 households at risk of flooding across the UK. Before Flood Re, only 9% of policy holders with a prior flood claim could get flood insurance quotes from two or more insurers and none could get quotes from five or more insurance companies. Following the scheme’s launch in 2016, availability of flood insurance policies for those with prior flood claims has increased; around 96% of customers can now get five or more quotes, and four out of five householders with a prior flood claim see price reductions of over 50% since the scheme’s launch. Building on this success, the statutory instrument makes technical changes to the scheme to improve its efficiency and effectiveness and changes to drive the uptake of property flood resilience measures, helping the United Kingdom to become more resilient to future flooding and the changing climate. I will set those changes out in turn.
First, there are several technical changes. The statutory instrument designates a revised scheme, as described in the new scheme document dated 19 January 2022. This provides the framework within which the scheme administrator, Flood Re, will administer the scheme. The new scheme document will allow Flood Re to propose a revision to levy 1 every three years instead of every five, and reflects the Government’s assurance process. The levy is the scheme’s primary source of income, raised from UK household insurers based on their market share. The revised levy amount will be subject to parliamentary approval every three years. The change will allow Flood Re to obtain better value for money when purchasing reinsurance and to be more dynamic to the potentially changing risk profile. The statutory instrument amends the figure for the levy from £180 million to £135 million per year for the next three years. That ensures the amount of levy being raised is not higher than it needs to be.
The new scheme document will allow Flood Re to set the liability limit, which sets the maximum amount of claims Flood Re is liable to pay to insurers in any one financial year, every three years instead of every five. This will align it with the levy setting cycle and afford Flood Re greater flexibility to respond to the scheme’s changing income needs and risk profile.
The new scheme document also makes a technical clarification to make it clear that surplus levy 1 funds will be returned to Government when the scheme ends, in line with the agreed position between the Government and Flood Re when the scheme was established.
Recently, we saw the devastation that can be caused by flooding and the impact it can have on the lives of those affected. We are making important changes to help to drive the uptake of property flood resilience. Property flood resilience gives households the tools to manage the impact that flooding has on their property and their lives, enabling them to respond and recover more quickly and reducing the cost of damage and, in turn, the cost of insurance claims. The new scheme document will allow Flood Re to pay claims from insurers ceding to the scheme that include an amount of resilient repair up to a value of £10,000 over and above the cost of like-for-like reinstatement of actual flood damage. That will allow UK householders to build back better after a flood, making their homes more resilient to future flooding. That involves using products such as air brick covers, flood doors, water-resistant kitchens and plasterboard. I have seen lots of things being used, and the people who had them put in are generally pleased that they did so. That is what the new claim will enable. Resilient repair will enable homeowners to get back into their houses more quickly following a flood and reduce the cost of future claims.
The Build Back Better scheme is being introduced on a voluntary basis. Insurance companies who cede to the scheme can choose whether to offer it to their customers. Participating insurers will be able to start offering Build Back Better as soon as the draft regulations come into force. Flood Re will require insurers choosing to participate in the Build Back Better scheme to offer it across all their home insurance offerings, rather than just on insurance policies ceded to Flood Re, to ensure consistency and fairness for all customers. By providing Flood Re with the power to pay claims to fund resilient repair over and above—what has largely been happening at the moment—normal reinstatement, Government and Flood Re aim to drive a cultural shift across the insurance market and positive changes in supply chains, to raise awareness and demand for property flood resilience, and to help capture the evidence on the benefits of property flood resilience to support future changes in the market.
The Government will publish a property flood resilience road map at the end of this year to identify the action that Government and industry need to take to accelerate uptake of property flood resilience measures and to underpin the market successfully. That will ensure that all relevant bodies play their part and that consumers can have assurance about the quality of products and their installation.
Any future regulations proposed to make further changes to the Flood Re scheme would receive parliamentary scrutiny through the affirmative procedure, as required under the Water Act 2014. Flood risk management policy is devolved, but insurance policy, including the operation and application of the Flood Re scheme, is a reserved policy. Any changes to the Flood Re scheme, including those in the draft instrument, take effect across the UK. Government have engaged extensively with the devolved Administrations throughout the development of the changes, and they have given their full support for their implementation.
No impact assessment has been prepared for the draft instrument. That is because it has no significant impact on business, charities or voluntary bodies. Most impacts on business are anticipated to be neutral or positive. There is also no impact on the public sector. On those grounds, I commend the draft regulations to the Committee.
Rebecca Pow
I thank Members for all their comments on the statutory instrument. Of course, flooding affects so many of us. I come from Somerset, and we have had to deal with very serious flooding over the years, including just before I arrived in Parliament. It has to be said that the Government, with their funding, have really helped us to address that down in Somerset.
I thank the shadow Minister, the hon. Member for Leeds North West, for his support for the SI. I know that he has some knowledge of flooding in his constituency. He raised some very valid questions. He asked whether the scheme should not be made compulsory for all insurers. In the approach that we are taking, we are trying to encourage a cultural shift in the insurance industry. We have done a huge amount of engagement. Insurance companies are very pro what we have brought forward, and many are already taking the scheme on board; they are either getting it in writing or just about to start offering it anyway once the SI goes through.
We are optimistic that the scheme will be very widely picked up, and that it will have a really positive impact on supply chains, awareness and demand. Once one lot of insurance companies start offering it, we anticipate that the majority will take it up. That is why we are confident that introducing it on a voluntary basis is what we need to achieve what we are hoping to achieve, which is basically more people being more sure of their property’s flood resilience and being able to get hold of the right money to build back better—to put their houses back in a better state than they were.
At the moment, as I said, houses are often just reinstated as they were. It is awful to think that one might flood again, but in some areas people have to be mindful of that. Therefore, putting down tiles or waterproof plasterboard—you can get that now, Mr Robertson—rather than carpets might make full sense, but it might cost more; that is why this extra bit of funding will be really helpful. We are fully optimistic that we have the necessary measures in place. I hope that gives the hon. Member some reassurance.
The hon. Member also asked about landlords and tenants. All types of landlord insurance are classified by the insurance industry as commercial business insurance, since such insurance, including for larger leasehold premises, is often bespoke. However, leasehold properties consisting of three or fewer blocks, where the freeholder him or herself lives in the block, are eligible for Flood Re, and tenants and leaseholders are able to obtain contents insurance supported by Flood Re regardless of the size of the block. A number of insurers also offer solutions to those struggling to access flood insurance, including parametric insurance and a scheme that amends a lease for the remaining lifetime of Flood Re to allow the individual leaseholders in a block to insure their individual flats. Quite a lot of thinking has gone into that, and quite a number of tenants and leaseholders are covered.
Following the 2019 flooding, the Government commissioned an independent review of flood insurance in Doncaster, which the hon. Member might remember. Following that report, we are taking forward action, which includes repeating some research into the availability and affordability of flood insurance, because there was a small group of people, which included some tenants, that still fell out of getting cover. Work is continuing on that.
We have also been working with the insurance industry to set up a new flood insurance directory, to which customers can be signposted by insurers and brokers when they themselves cannot offer flood cover. The directory, which has recently been launched, aims to reduce the number of policies sold with flood exclusions and drive uptake of suitable flood cover. The directory can be found on the British Insurance Brokers’ Association website. I hope that gives some reassurance.
The hon. Member mentioned farming and farmers. What happens to farmers when their land gets flooded has been raised with me many times. Farmers have to work with temporary flooding in many areas—that probably applies to your area around Tewkesbury, Mr Robertson—but there are issues when the water stays longer on the land. A lot of new schemes, particularly the environmental land management scheme, give particular mention to working with farmers to take water in flood-risk areas. It is a changing landscape for farmers, but we are very aware of that particular issue, especially as we are going to get more extreme weather events. Whatever we do about climate change—and we have to do everything we can to tackle it—we still have to adapt, and many of our policies are working towards that.
I thank all hon. Members for their comments. I thank the Scottish shadow Minister, the hon. Member for Gordon, for welcoming the policies. We were very pleased to work with the devolveds on this, because there was all-round support.
My right hon. Friend the Member for Hereford and South Herefordshire is a great advocate for the River Wye. As he knows, I made a visit to look at what is going on there. We are doing so much work now to tackle the issue of pollution in his area, but, as he says, there have also been flooding issues. I will write to him on his point about the road, as it comes under the remit of the Department for Transport and is linked to its road investment strategy.
It is important to address how we tackle the flooding of wider infrastructure. We are at pains to work even more closely on flooding with all other Departments. When we allocate our flood funding money—it is a huge budget worth £5.2 billion of investment—we can get an awful lot of wider spin-offs if we work with other Departments. There are benefits if we tackle the issue effectively. There are huge benefits for the economy from sorting out the flood risk for businesses.
Jesse Norman
I perfectly understand that the Minister will write to me, including in relation to DFT, and I am of course happy with that. This bears on DEFRA because there is a hole in the Bellwin approach that has the effect of not providing funding to address the catastrophic destruction of roads, and that cannot be remedied by small authorities that simply do not have the funds to address such large-scale devastation. That is the problem. I would be grateful if the Minister could look at that in her response.
Rebecca Pow
The Bellwin scheme comes under the Department for Levelling Up, Housing and Communities. Although I am the floods Minister, there is only one significant fund that comes under DEFRA, and that is for farmland. That is why we have to work with other Departments. The Bellwin fund is very much for local authorities to cover the urgent and drastic clean-up required after a flood. I will write to my right hon. Friend on the issue of flooding on the roads, but I take his point.
I thank my hon. Friend the Member for Shrewsbury and Atcham, who talks to me regularly and is a massive advocate for his constituency. I am sorry that it has had flooding recently. He knows that there are schemes under way, and we are going to have a meeting about some additional ones. I welcome his work chairing the partnership of 45 MPs who represent constituencies up and down our enormous and important River Severn. He will know that we have recently given funding to do some much wider, innovative and creative thinking about how to tackle flooding right up and down the whole catchment. Some pilots have already started. A lot of that involves nature-based solutions, as well as hard flood defences and so on. It also involves speaking with our devolved colleagues in Wales. I am really working hard on that, because the river does of course have two sides—in England and in Wales.
Daniel Kawczynski
My hon. Friend is doing a very good job. I am grateful to her for visiting Shropshire and the River Severn. Bearing in mind that we are seeing an increased frequency in flooding and the devastation it is causing to our communities, does she agree that £5.3 billion of extra funding for DEFRA is not sufficient and that we need to lobby the Treasury for even more money for flood defences?
Rebecca Pow
I would say that my hon. Friend is being a bit cheeky, actually. It is £5.2 billion—an extraordinary amount of investment in flood defences and coastal erosion, covering up to 2,000 defences, and an awful lot of other schemes and projects. It is not the only money, either. That is why I say it is so important to work with other Departments to attract levelling-up funds and so on.
I will give an example. I recently launched flood defences in Hull; £42 million was spent on eight different schemes along the Humber estuary. Because that has made people feel more secure and businesses now know they are not at risk of flooding, they are flooding into Hull and setting up. One of the big manufacturers of safety equipment that businesses use, including covid safety equipment, moved there. It was encouraged to go because it knew that it could now get insurance and that it would be safe. There are so many things in addition to that money, but we have to make sure that it is well spent. Of course, the money has to come from somewhere, and the Government have to be very mindful of how we spend our funds.
I hope that I have covered all the questions. This SI will improve the efficiency and effectiveness of the Flood Re scheme and help to build a nation more resilient to future flooding, which is what we need, and that is better able to cope with the changing climate. Once again, I thank everyone for their contributions, and I thank you, Mr Robertson.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Flood Reinsurance (Amendment) Regulations 2022.