I am of course quite happy to review the figures and to write to the noble Lord on that.
On Amendment 160ZA on reporting on leasehold and private rented sector policies, I see that we will also discuss the proposals in this regard on Flood Re later on today. However, before I come on to the specific subject of reporting, I remind noble Lords that the key issue in determining the scope of Flood Re is
whether the policy for a particular property is treated as commercial or residential by the industry. Commercial policies are out of scope of Flood Re, which is designed to support households. We believe this approach is fair and practical, and it was supported in the public consultation. However, we recognise that the leasehold sector presents a more complex situation, where the contents policy is classified as domestic but the buildings policy could be classified as either commercial or domestic and could cover multiple dwellings.
I have listened to representatives of the property sector who have come forward with concerns about the impact of the proposed approach on the leasehold sector. They highlighted in particular that those in a smaller building might find it difficult to afford cover in the open market. The ABI has assured me that there is no evidence of a systemic problem with freeholders being able to obtain insurance for their leasehold properties, which I am sure noble Lords will agree is very welcome. However, given the strength of feeling on the matter, particularly in light of the ongoing extreme weather conditions, we need to take time to consider it in more detail, although without evidence of market failure it will be difficult to justify action. We will examine the evidence further with the ABI and hope to provide an update on Report. We will also continue to monitor this sector over time, as a part of the commercial insurance market.
I will focus briefly on the subject of the private rented sector. I take this opportunity to explain that it is proposed that buildings insurance cover for landlords would be out of scope for Flood Re, although contents cover for tenants would be eligible. At this stage I reiterate my declaration of an interest as owner of a property that flooded in 2007. The reason that landlords’ policies are out of scope is primarily because insurers classify all types of landlord insurance as commercial business, while Flood Re is designed for the domestic market. However, it is also important to recognise that the inclusion of landlords would effectively mean that people who do not own their own home could, through their contents premium, subsidise people who own several.
Flood Re targets support towards those least able to pay, through council tax bands. A landlord’s ability to pay cannot be judged against the council tax band of the property he lets. For example, the landlord of a council tax band A property could receive the maximum support if landlords were to be included, even if they were perfectly able to pay. Landlords already benefit from tax relief on the cost of their buildings insurance policy. They can offset many of their costs through taxable allowances which can significantly reduce their tax bill.
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Returning to the subject of reporting on the availability of affordable insurance for this sector, I should like to point out that the insurance industry is clear that the majority of landlords would be able to find a more competitive rate outside Flood Re. However, as is the case for the rest of the small business sector, the Government and the industry will continue to monitor the situation. I hope that this provides reassurance as to our intentions in this regard.
Lastly, I turn to Amendments 161B and 161C in the name of my noble friend Lady Bakewell and Amendment 161D in the name of the noble Earl, Lord Lytton, to Clause 69, the purpose of which would be to define all mixed-use properties as household premises for the purposes of the register under the flood insurance obligation, the Government’s fallback policy. This could include a very large range of premises, including many that are beyond the scope of the policy intention. The broad intention is that eligibility for inclusion on the register for the purposes of the flood insurance obligation would be based on publicly available data about the level of flood risk.
I remind noble Lords that the criteria for inclusion on the register for the purposes of the obligation are different from the eligibility criteria for Flood Re, and therefore some of the exclusions and inclusions may be different. Where Flood Re considers eligible policies, the obligation would be based on eligible properties. The intention is to use the same definitions where possible, but these also need to be consistent with the criteria used for defining domestic properties by the administrators of the register, the Environment Agency and its counterparts in the devolved Administrations. Before regulating under the Bill, we would need to consult fully on the definitions and any possible exclusions, not least to ensure that they are clear and can be consistently applied across the UK.
The Delegated Powers Committee has recommended that these definitions be subject to the affirmative procedure and we are carefully considering this recommendation. I hope this reassures noble Lords that, should the flood insurance obligation ever need to be used, the definitions would be subject to appropriate scrutiny, and that their amendments are not necessary.
Understandably, there has been much interest in those who may not benefit from Flood Re or the obligation. However, we must not lose sight of the hundreds of thousands of householders who will benefit. The Government are satisfied that, overall, the proposed approach is fair and targeted towards those most in need of support. However, it is always important that the effect of any policy is reviewed as time goes on. That is why we have committed to monitoring the market over time, and to publishing these findings. Should the evidence point to a specific issue for domestic household insurance, we will discuss with the industry what might be possible.
Turning to Amendment 161, I recognise noble Lords’ concern that Flood Re should help households at high flood risk. To ensure value for money, should households with policies in Flood Re flood repeatedly and not take action, their continuing eligibility to benefit from the public subsidy provided by Flood Re may need to be considered. Constructive discussions continue with the industry on how those who may over time make themselves ineligible for further public subsidy should be treated.
It is important that there should be a challenge mechanism if an individual exclusion from Flood Re were unjustified. I can confirm that the Government will not designate the scheme until we are satisfied with the industry’s proposals. These could include the need to have in place a proportionate challenge mechanism
for any households that are deemed to have become ineligible. The regulations setting up and designating Flood Re will be subject to public consultation and we are currently considering the Delegated Powers Committee’s recommendation that regulations made under this clause should be subject to the affirmative procedure. However, Flood Re is not a compulsory scheme and insurers may choose whether or not to cede the flood risk element of policies to it. Householders should, therefore, continue to shop around to get the best deal.
Moreover, it is important to recognise that the relationship between the insurer and the householder will not be affected by the introduction of Flood Re. Under the current regulatory regime for financial services there exists a conduct of business regulator, the Financial Conduct Authority, and a separate complaints-handling service, the Financial Ombudsman Service. The Financial Conduct Authority sets the rules regarding the treatment of customers, the behaviour of firms and the functioning of the market. The Financial Ombudsman Service is an independent entity that makes a judgment against these rules should an individual consumer have a dispute which they cannot resolve through contacting their insurer. I will be meeting noble Lords before Report and will be happy to provide an update to them, and I will come back on Report with more details of how those who flood repeatedly might be treated.
I shall address some of the questions that noble Lords asked. My noble friend Lady Bakewell asked about mixed-use properties—mixed hereditaments. Under the ABI’s proposed approach, mixed-use properties would be out of scope for buildings insurance although contents cover for domestic homes in the property would be included. However, as with other commercial policies, these tend to be priced to risk and do not have the same systemic issues that residential policies may face.
The noble Earl, Lord Lytton, raised a number of issues. I have mentioned several times the report of the Delegated Powers Committee. I am grateful to that committee for its work and welcome its scrutiny of the Bill. It reported at the end of last week and we will respond to its report before Report. We will consider very carefully each of its amendments and, of course, respond accordingly.
The noble Earl, Lord Lytton, asked about definitions. We recognise the desire to give greater certainty about what is meant by the terms in the Bill, but believe that this needs to be balanced with the further public consultation which is intended. Specifically for those terms relevant to the Flood Re scheme, a number of areas of detail relate to the arrangements under which insurance contracts are written by the industry.
The noble Earl also asked a question related to mortgage availability, and I am grateful to him for raising it. We have always been clear that Flood Re is a transitional measure aimed at smoothing the move to an open market over the lifetime of the scheme. If property owners do not take action to lessen the impacts over this period, it is likely that they could face higher premiums when the scheme comes to an end. Adjustments in asset prices and mortgage decisions
that are based on them will be a necessary part of this transition. I appreciate that the noble Earl thinks that Flood Re may not be the place to deal with this and I am very happy to continue discussions with him on that matter.
For the reasons I have set out, I hope that my noble friend will withdraw the amendment.