My Lords, I should declare an interest that I declared on Second Reading, which is that, until June, I was the chief executive of two insurance companies, and I still labour under some residual contract limitations.
There is an overriding need to put in place a workable solution that will, first, solve the most pressing need, which is to address the availability and cost of flood insurance and, secondly, do so in a way that is timely,
affordable to the insurance industry, secured in co-operation with it and that does not allow government subsidy to create a huge deficit in the scheme over time.
Addressing the issue of small businesses raised by the amendment of the noble Lord, Lord Moynihan, we ought to remind ourselves that the statement of principles only covers the availability, not the affordability, of insurance for those small businesses. It covers only renewal policies, so the policyholder at risk of flooding cannot change insurer, and it does not cover the cost of the policy.
There is also the question of practicality. The introduction of businesses into Flood Re would dramatically complicate the pricing of the scheme, the availability of Flood Re as crucial reinsurance—on which the scheme depends—and, by no means least, the complexity of the internal model, which will have to be approved by the PRA. All the different coverage afforded by business policies, such as business interruption, contingent business interruption and loss of profits, will make the internal model much more complicated compared to what are fairly homogenous homeowners’ policies.
To address the most pressing need as soon as possible in a way that is acceptable to as many people as possible, we should concentrate on the most important issues and leave the Flood Re design as it is.
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