My Lords, we all owe a great debt of gratitude to the noble Earl for moving this amendment and to the noble Lord who just spoke for spelling out in great detail some of the shortcomings that can be identified. I think it is 37 years since I was a director of a firm of Lloyd’s insurance brokers, on the board of a large Lloyd’s underwriting agency and losing money at Lloyd’s. I do not think I must declare an interest for that, though, like others, I must declare one as living in a band H property.
I have been very uncomfortable about this scheme, based not so much on the residue of knowledge long forgotten as on the political outlay that I see arising when the whole scheme does not produce the results that most people expect. I told my noble friend Lord de Mauley on Thursday morning, when we happened to meet, that I had just received an e-mail from the chief executive of Hiscox. My noble friend asked me
to send a copy of that to him—although he was copied into it, apparently he had not seen it. I said I would come back to this issue because the Hiscox e-mail raised a number of very significant issues that must be addressed. I do not have to go through them all in detail because we had very good summaries from both the noble Earl and the noble Lord, Lord Cameron.
Hiscox points out that the scheme, though clearly desirable in principle, will not solve the problem of unaffordable flood insurance that it was created to address. Nor does it take into account the changing nature of flood. Hiscox points out that of the 885,000 homes in high-risk areas more than 350,000—3.8% of the total housing stock—will be excluded. While some of those will be commercially owned properties able to buy commercial insurance, a proportion will be private buy-to-let properties. What is more, Hiscox says it is likely that this underestimates the scale of the problem. The noble Earl pointed out the uncertainties about the numbers. Hiscox indicates that 80% of its claims came from homes that it did not consider to be at flood risk. It is not just homes sitting in obvious flood plains, of the sort with which I had to deal when chairman of the National Rivers Authority. No one is more indignant about some of the planning decisions that have been taken there than I am.
The whole thing has been arrived at by negotiation between the Government and the Association of British Insurers. No doubt we will be told that this is the best deal that can be done at present. I am not sure we should be satisfied with that. Clearly quite a number of active insurers do not believe it is the best possible scheme and, for the reasons well elaborated by the noble Lord, Lord Cameron, it does not appear fair.
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The noble Lord drew attention to the contribution that the average UK home owner is likely to pay—approximately £3.30 to £4.40 per week on the average home insurance premiums—but band H and I properties will pay 15 to 20 times the average, and they are not going to get covered at all. Together with new-build homes, they will pay 8% of the £180 million to fund the scheme even though they are to be actively excluded from the protection that the scheme offers. So one asks how those faults can be remedied; Hiscox actually indicates how. Again, some of the answers were provided by the noble Lord, Lord Cameron. Flood Re could be expanded to cover an additional 10 million homes in Hiscox’s view. This would increase the levy to Flood Re by an estimated £100 million. The progressive nature of Flood Re would mean that the better-off would still pay more. In addition, opposing a cap of £160,000 on the amount insurers can recoup from Flood Re would ensure that the most valuable properties did not impose excessive costs on the scheme.
Therefore, we are entitled to say that more needs to be done. I come back to the point that really prompts my concern. It is not that we should not have a scheme like this, or that perhaps negotiations do not have to continue, but that when the floods do arise there will be fury—not just anger—among those who thought that they were covered and find that they are not, and those who have contributed to a scheme for which
they receive no benefit, and which does not apparently even then cover all those who clearly should be covered. Therefore I am very concerned about this.
Because we are dealing with an ongoing negotiation, my noble friend might say that this is the best deal we have been able to get at present. However, it should not be left there. If it is simply a negotiation, we should have an understanding and a clear statement from the Government because, as the noble Lord, Lord Cameron, pointed out, they have laid out some of the basic conditions, not the insurers—the Government have laid down some of the most startling exclusions. But this is not a matter that holds here. Every effort surely must be made to improve a flawed scheme that will cause anger to be felt not just by the insurance industry but by the Government of the day.
These things often happen quicker that we can imagine. Just because we have had one very bad winter with a lot of floods, does not mean it will not happen again quite quickly. It was always my experience that when we had a major drought, it was immediately followed by a flood when I had responsibility for dealing with it. Whenever I was told that there was a one in 100-year risk, the flood happened the following year and probably twice in the next two or three years, so this may happen quite quickly. In that case it may be my noble friend Lord De Mauley who receives the flak and the present Government, or it may be the successor Government in the very near future. Therefore, I hope we can receive some reassurance that this is not the end of the story, and that every effort will be made to improve on the negotiated scheme that we have before us.