My Lords, I was not for a moment suggesting that the lady to whom the noble Lord referred was one of those bandying around that sort of figure—by no means. It is difficult for me to speak about a very specific instance but, if I can, I will come back to that later. I was referring to estimates of the number of households involved. I hope the noble Lord understands that.
Several noble Lords referred to band H properties. In designing Flood Re, we have been very clear that we want to target the benefits where they are most needed while not increasing the costs for those not at flood
risk. On that basis, we believe that it would not be justified for band H and equivalent properties to be included. The progressive nature of Flood Re received wide support in the public consultation.
Let us be clear that the exclusion of band H properties was set out explicitly as part of the June 2013 memorandum of understanding. This document reflects the needs of both parties and was agreed by the Government and the ABI on behalf of its members. In designing the scheme, the Government and the industry needed to ensure that the pool was viable and affordable. Including band H properties would increase the costs of Flood Re overall, which could result in a reduction in the benefits to households in lower council tax bands or an increase in the levy for all households. We stand by the decision to target support to those in lower council tax bands, as reflected in the memorandum of understanding.
Responding to the points raised about affordability for those in this council tax band, our analysis suggests that relative to other bands, a move to risk-reflective pricing would have limited impact on the affordability of a combined insurance policy for band H households. The noble Lord, Lord Whitty, referred to concerns that those households, which might be asset rich but income poor, would be at risk though this approach. We looked closely at this. According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in band H properties and hold a combined insurance policy are in the top 30% of earners with 48% in the top 10%. More significantly, perhaps, only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas. I think my noble friend Lady Parminter mentioned that.
The noble Earl, Lord Lytton, the noble Lord, Lord Whitty, and others referred to small businesses. As I said in Committee, we gave careful thought to the scope of Flood Re scheme and consulted on the proposed figures on the domestic insurance market, which received broad support. The consultation responses did not provide evidence of widespread problems for small businesses with secure and affordable cover, although anecdotal examples of problems in some specific geographical areas were put forward. A government survey of more than 9,000 small businesses in England found that less than 1% of businesses had experienced difficulty getting property insurance in the past year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.
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As my noble friend Lord Cathcart set out so eloquently in Committee, in relation to his own business, business insurance policies tend to be bespoke and are priced to take account of their specific risks. On this basis, we have concluded that the insurance market for small businesses does not appear to have the same systemic issues as the domestic insurance market. Therefore, we remain of the view that overall there is insufficient evidence to justify government intervention in the provision of insurance cover for small businesses. The insurance industry has also recently confirmed that it
does not expect there to be widespread issues with small and medium-sized enterprises’ access to the insurance market, and that there is plenty of capacity to continue to provide insurance on a competitive basis. But I agree with the noble Lord, Lord Whitty, and I assure noble Lords that we will not lose sight of small businesses.
The noble Earl, Lord Lytton, and the noble Lord, Lord Cameron, among others, referred to properties built after 1 January 2009. That cut-off date recognises that new housing developments should be located to avoid flood risk or, when development in a flood risk area is necessary, it should be designed to be safe, appropriately resilient to flooding and not increase flood risk elsewhere, in line with that national planning policies in place. The date therefore reflects the fact that homes built since then should already be insurable at affordable prices.
As I am sure noble Lords are aware—the noble Lord, Lord Whitty, explained this—when the statement of principle agreement between government and the insurance industry was signed in 2008, it was agreed that there should be a cut-off date, and it was set at 1 January 2009. We are maintaining that under Flood Re, and we consulted widely on it. I must be absolutely clear that there has been no change in policy. The noble Lord, Lord Cameron, in particular, spoke about planning and development in this context. Tens of thousands of planning applications are made every year, including minor applications such as for extensions. The Environment Agency is a statutory consultee to local planning authorities for several types of planning application related to statutory duties on flood risk, protection of land and water quality, waste regulation and fisheries.
The Environment Agency has published standing advice for developers and planning authorities as a tool to help local planning authorities establish the level of environmental risk involved in planning applications. Its role in examining planning applications is only part of the planning process. Right from the start, local plans should ensure that new development is steered to areas at least risk of flooding, wherever possible. Local planning authorities undertake strategic flood risk assessments to develop their understanding of flood risk in their respective areas.
The noble Lord, Lord Cameron, suggested there might be an exclusion of a large number of homes from Flood Re. As I said earlier, only 1% to 2% of properties need to be covered by Flood Re. The Government have been clear on the number of properties built after 2009, and band H properties that would potentially be eligible for Flood Re if the risk-reflective premium for Flood Re met the relevant criteria. It is very difficult to identify the number of leaseholders who are covered by a commercial policy who would potentially be at a high enough level of flood risk otherwise to be eligible for Flood Re, but, based on the best available data, it would be in the low thousands at the very most. The suggestion that tens of millions of homes would be excluded is not right. If the number is supposed to refer to those policies that are out of scope because they are treated as commercial by the industry, I would also disagree that such properties are excluded. They are not covered by Flood Re because
they form part of a separate commercial insurance portfolio. These policies will not contribute to the levy so, while they are out of scope, it is not because government or the industry has decided wilfully to exclude them but because they are not part of the market that Flood Re is designed to address.
My noble friend Lord Crickhowell put forward his suggestion that Flood Re does not take into account the changing nature of flood. One of the benefits of Flood Re is that it is flexible. Eligibility is based on the insurer’s assessment of risk to a property, which will be reflected in the premium for the flood risk part of the policy. As long as the insurance industry continues to keep pace with changing risk, that will be reflected in the policies eligible for Flood Re.
My noble friend Lord Crickhowell also referred to a suggestion about introducing a cap on claims. That is an interesting suggestion, but it was considered and discounted during the design phase. Flood Re must be as simple as possible to operate if it is to be up and running next year. This type of cap on insurance claims would create an extra level of administrative burden that would add to the complexity of the design of Flood Re. We also have concerns about the impact a cap would have on the ability of customers to protect themselves from the effects of flooding.
The noble Lord, Lord Campbell-Savours, referred to a specific example. I am very sorry to hear about the incident that he referred to. When prices are put up we normally advise that people should shop around, because that nearly always means a better deal. I appreciate that that is difficult for the leasehold sector. We have asked for evidence and I thank the noble Lord for bringing this example to my attention. It might be helpful if we were to have a specific discussion about it, because it may be that we can point people in the right direction. I certainly will ask the ABI, too, to follow up. For these reasons I am going to ask the noble Earl to accept that his Amendment 89 would not be appropriate.
I turn briefly to Amendment 90 to Clause 53. This requires the levy to be set in such a way as to reflect the council tax band of the property concerned. The amount of the levy collected from insurers will be determined according to the insurer’s share of the market. If I have understood the amendment correctly, in order to calculate the levy according to council tax band, Flood Re would need access to detailed information from each insurer on the number of households in each council tax band they currently insure.
Flood Re is designed to be as simple to operate as possible. At present this information would be administratively burdensome to collect and would place impracticalities in the way of Flood Re’s successful operation. It would be costly to force insurers to apportion the levy for each household by council tax band and there would be no way to enforce that. For the reasons I have set out, this would not be workable in practice, so I hope that the noble Earl will be persuaded to withdraw his amendments.