I thank noble Lords who have contributed to the debate. I will address the questions put to me.
As has been noted, the levy will reduce from £180 million to £135 million per year for the next three years. That is based on an assessment that £135 million is what is needed. The view is that we do not want to set the levy higher than it needs to be because it is effectively a form of tax.
I note the arguments put forward by the noble Baronesses, Lady Bakewell and Lady Jones, that everything suggests that flood risk is increasing and that volatile weather patterns are likely to become more so, but the scheme is not designed to be the UK’s answer to flood risk; it is a part of the answer. There is a whole bunch of other policies designed to make the UK more resilient in the face of increasingly volatile weather. For example, a major component of the environmental land management subsidy system is about better land management to create more resilience. Our tree strategy, the peat strategy and so on are all different components of it. There is the grey infrastructure component of the work Defra is doing as well. This is just part of the much wider approach the UK is taking.
The scheme is financially secure. Flood Re has met its initial liquidity and capital requirements and has a high solvency ratio. The Government have undertaken the necessary due diligence to assure themselves that Flood Re has enough funds to cover any losses as a result of a major flood event. The Government Actuary’s Department agrees that £135 million is suitable and well within the risk appetite of Flood Re.
The noble Baroness, Lady Bakewell, asked about the liability limit. Flood Re has set the liability limit at £1.9 billion from 1 April 2022 for the following three years. This is a non-statutory change already approved by the Secretary of State for the Environment, aligned with the Government’s assurance process.
Build back better will play a key role in helping to increase the resilience of UK households to flooding. We hope that it will 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.
Research by Defra and Flood Re has demonstrated that the additional investment for flood resilience over standard repair can be as high as £35,000, but averages to around £5,200. However, the Government recognise that the cost of making different properties resilient may still exceed the contribution from build back better. Insurers and/or the householders can choose to pay for build back better above the £10,000 cap if that is what they want to do.
3 pm
The noble Baroness, Lady Jones, asked whether the scheme is open to farm buildings. It is open to them but not to outbuildings—the precise definition of which I am unable to offer her now but I will do so if she asks me to follow up in writing.
Build back better is being introduced on a voluntary basis, as I have said. The reason why it is not a mandatory scheme is that we calculate it is very much in the interests of the insurance companies to buy into it, if additional flood resilience measures have a knock-on effect in terms of the costs they are likely to bear going forward. Insurance companies that cede to the scheme can choose whether to offer build back better to their customers, but I am encouraged to hear that insurers representing a big proportion of the home insurance market have already applied to participate. While the noble Baroness was talking, I tried to find exactly how many have signed up, but I am afraid that I do not have the figures so will come back to her. However, I am assured that it is a significant proportion of the market.
Property flood resilience is a nascent market. At this early stage, we want insurers to adopt build back better, embed it into their processes and encourage innovation and learning by doing. Flood Re will work with insurance companies to capture and contribute data and insight to assist the development of an evidence base on the impact of the policy and property flood resilience. Flood Re will encourage insurers to meet best practice when implementing build back better and will set out its expectations in the scheme’s treaty and underwriting guide. This will include recommending assessment surveys and that proposals for measures and installations are underpinned by the property flood resilience code of practice, and highlighting the training opportunities available and the BSI standards and kitemarks for insurers to use.
The Government will publish a road map by the end of 2022 to further accelerate take-up of property flood resilience measures. This will ensure all relevant bodies are playing their part and that consumers can have assurance about the quality of products and their installation. The Government have the option of tightening the regulations in the future, should that be necessary, following the publication of the PFR road
map, which will identify the action required by government and industry to successfully underpin the property flood resilience market.
These changes will come into force on 1 April 2022, subject to the will of Parliament. Build back better will be a business decision by insurance companies. It will be for insurance companies that cede policies to the scheme to opt into build back better and to choose how best to offer it to their customers. The Government expect participating insurers to begin offering build back better to their customers soon after these regulations come into force.
I hope that I have covered the questions put to me. The scheme is necessary; it helps improve the efficiency and effectiveness of the Flood Re schemes and builds a nation more resilient to climate change. I hope that I have reassured noble Lords on their questions.