My Lords, the instrument before us was laid before the House on 27 January. It makes important changes to the Flood Re scheme, a joint government and industry scheme launched in 2016 designed to improve the availability and affordability of UK household flood insurance.
In 2019, the scheme administrator, Flood Re, published its first quinquennial review. This is a statutory requirement. Flood Re made several recommendations to the Government. A number of proposals have since been assessed and consulted on, leading to the changes set out in this instrument.
To date, Flood Re has helped more than 350,000 households at high risk of flooding across the UK to access affordable insurance. Before Flood Re, just 9% of policyholders with a prior flood claim could obtain flood insurance quotes from two or more insurers, and none could get quotes from five or more. Following the scheme’s launch in 2016, the 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 have seen price reductions of more than 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 UK to become more resilient to the changing climate. I will outline these measures in turn.
The statutory instrument designates a revised scheme, as described in the new scheme document dated 19 January 2022. The scheme document provides the framework for Flood Re to administer the scheme. First, 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. Levy 1 is the scheme’s primary income, raised from UK household insurers based on their market share. The revised levy amount will be subject to parliamentary approval every three years. This change will allow Flood Re to obtain better value for money when purchasing reinsurance and be more dynamic in response to the potentially changing risk profile. The instrument amends the figure for levy 1 from £180 million to £135 million per year for the next three years. This will ensure that the total levy is no higher than it needs to be.
Secondly, the new scheme document will allow Flood Re to set the liability limit— this sets the maximum amount of claims that 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.
Thirdly, the new scheme document also makes a technical clarification that levy 1 funds will be returned to the Government when the scheme ends, in line with the established agreement between the Government and Flood Re.
I now turn to the change that will help drive the uptake of property flood resilience in UK households. We have seen only recently the devastation that can be caused by flooding and the impact on the lives and health of those households that are affected. Property flood resilience gives homes and businesses the tools to manage the impact that flooding has on their property and their lives, enabling them to respond and recover more quickly if flooding happens.
The new scheme document will allow Flood Re to pay claims from insurers ceding to the scheme, which include an amount of resilient repair up to a value of £10,000 above the cost of like-for-like reinstatement of actual flood damage. This will allow UK householders to build back better after a flood, making their homes more resilient to possible future flooding by using products such as air brick covers, flood doors, water-resistant kitchens and plasterboard. Resilient repair will enable homeowners to return to their homes quicker and reduce the cost of any future claims.
Build back better is being introduced on a voluntary basis. Insurance companies who cede to the scheme can choose whether to offer build back better to their
customers. Participating insurers will be able to start offering build back better soon after the regulations come into force. Flood Re, the scheme administrator, will require insurers choosing to participate in build back better to offer it across their home insurance offerings rather than just on insurance policies ceded to Flood Re, thus ensuring consistency and fairness for all customers.
By providing Flood Re with the power to pay claims to fund resilient repair over and above normal reinstatement, the Government and Flood Re aim to drive a cultural shift across the insurance market, driving positive changes in supply chains, raising awareness and demand for property flood resilience, and helping to 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, identifying the action that government and industry need to take to accelerate the take-up of property flood resilience measures and successfully underpin the market. This will ensure that all relevant bodies play their part and that consumers can have assurance about the quality of products and their installation. The road map will consider whether any changes to build back better are required to strengthen and improve it. Any future regulations brought forward making further changes to the Flood Re scheme would receive parliamentary scrutiny through the affirmative procedure, as required by the Water Act 2014.
Flood risk management policy is devolved. However, insurance policy, including the operation and application of the Flood Re scheme, is a reserved policy. Any changes to the scheme, including those in this instrument, take effect across the UK. The Government have engaged extensively with the devolved Administrations throughout the development of these changes; they support their implementation. No impact assessment has been prepared for this instrument because it has no significant impact on business, charities or voluntary bodies. Most impacts on business are anticipated to be either neutral or positive. There is also no impact on the public sector.
I commend these regulations to the Committee.
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