Motion: Flood Re Insurance Scheme


John Stevenson: I beg to move,

That this House
has considered the Flood Re insurance scheme.

It is a pleasure to serve under your chairmanship today, Mr Hollobone. I am delighted to have the opportunity to move the motion.

Back in 2005, Carlisle was badly affected by floods, following which substantial investment was made in flood defences. By December 2015, the view was that Carlisle was probably safe from further floods and would not be affected. Exactly one year ago today, however, Storm Desmond struck the United Kingdom and in particular Cumbria. It was an extraordinary weather event, and the floods had a profound effect on our city.

For the record, the emergency services were absolutely brilliant. We must also recognise the contribution of individuals—friends, families, strangers—and communities. They all did a terrific job. I acknowledge, too, the contribution of Government. Central Government and local government rose equally to the challenge of the times, giving great support, manpower and assistance to the community.

To give one small example, the week after the floods I asked the then Chancellor at Prime Minister’s questions if he would support the Cumbria Community Foundation. He indicated that he would match any funding raised. The foundation subsequently raised £5 million, which meant that, with the matched funding from central Government, £10 million was available, helping people enormously throughout Cumbria to recover from the floods. Work by the Environment Agency and the Cumbria Community Foundation is still going on, and people are gradually getting back into their homes. For the future, the Government have also committed a further £25 million to flood defences, which I am sure the EA will invest in and around Carlisle over the next few years.

What of the impact of Storm Desmond? From a Carlisle perspective—not even Cumbria, just Carlisle—more than 2,000 individual homes were directly affected. The knock-on impact on families, friends and the wider city was considerable. Furthermore, hundreds of businesses were affected, ranging from small, one or two-employee businesses to large factories such as McVitie’s, which has more than 800 staff—I am delighted that it is back up in production now.

Nor should we forget the side effects of the floods on sporting facilities. Carlisle lost its tennis, rugby, squash, football, cricket, bowls and athletics facilities. The impact of that on the wider community is quite extraordinary. Furthermore, many people do not appreciate that three secondary schools were also affected. One of them has closed at its original site and is looking to move to a different location. The impact on Carlisle, its community, individuals, families, businesses, schools and social clubs, can therefore be appreciated. The effect was dramatic and is still ongoing.

It is important to set the scene for the Minister and explain what happened in Carlisle as a result of the floods then and subsequently. However, the purpose of today’s debate is to address one particular aspect of flooding, namely Flood Re, which I will talk about from my perspective. A number of my colleagues are present today, and they will have their own views and issues to do with their own local communities, including the impact that Flood Re may or may not have had on individual households and the wider community.

For the record, Flood Re was an excellent bit of thinking by the Government and the insurance industry. Overall, it has been a great success. It took a number of years to get there; nevertheless, it was an inspired bit of thinking by the industry and Government, which reached a sensible compromise that has been hugely beneficial to many people up and down the country. The statistics are starting to tell the story about the number of people who managed to get insurance under the Flood Re regime.

An important thing from the Carlisle perspective was that the 2015 floods came, in many respects, unexpectedly—given what had happened in 2005 and the subsequent work on flood defences. At the time the community was badly affected and morale was low, but the one thing that gave people a little confidence was that through the Flood Re scheme they knew they could get insurance. That was vital for individuals and householders. I congratulate the Government and the insurance industry on Flood Re, because it is a job well done.

Therefore I am not here to be negative; I am here to be constructive. As with any new idea or piece of legislation passed by the House, however, sometimes issues can be overlooked, particular circumstances not taken into consideration, or judgment calls by the Government or the industry might need some adjustment or further thought. Perhaps the Government need to review the Flood Re regime and make some adjustment to it for the future.

I will concentrate on the specific issue of long leaseholders, although I accept that there are other issues with regards to leaseholds and so on. For example, there is what I call the accidental landlord—someone who for whatever reason, perhaps a job, might have to move to a different part of the country. Such people might not be able to sell their house, or they do not want to because they intend to move back to the area, so they lease the property out while purchasing or living elsewhere. That is clearly an issue, because they would not be able to get Flood Re insurance for the house they have vacated. That is a side issue for me, today in particular, but it is worth the Government looking at it.

I will concentrate on the long leaseholder. The purpose of Flood Re, as I understand it, is to help owner-occupiers—those who own their own principal private residence—not commercial owners. I fully understand the thinking about commercial owners, and in many respects I accept that.

Seema Kennedy: I thank my hon. Friend for securing the debate. He is always a great champion of Carlisle and the north-west. May I make a point about non-commercial, community assets? On Boxing Day in my constituency, the village of Croston was badly flooded by Storm Eva, but Croston community centre is not eligible for assistance under the Flood Re scheme and it has been quoted excess of £35,000. The future of the centre, which of course was a hub of activity in the floods, is now unviable. I know my hon. Friend is concentrating on long leaseholders, but does he have anything to say about that?

John Stevenson: I have some sympathy with what my hon. Friend says. In Carlisle, the sporting facilities were badly affected and they have ongoing issues with their insurance. She has raised a similar issue, which the Minister might wish to address when she sums up.

Craig Whittaker: My constituency, including several thousand homes and several thousand businesses, was also badly hit. Last weekend I met some residents of a block of 10 leasehold flats, next door to seven bungalows. The bungalows are eligible for Flood Re, but the 10 leasehold flats are not—one resident had bought a flat because they could not afford a bungalow. Does my hon. Friend agree that the £50,000 excess that each flat individually is being charged for flood insurance is excessive? Does he agree that Flood Re should be relooked at for that area of private residents?

John Stevenson: My hon. Friend is in many respects raising the very issue that I am about to deal with, so I obviously have a great deal of sympathy. Again, it will be interesting to hear what the Minister says about that point.

The real issue concerns long leaseholders who live in a property that is in effect their principal private residence—it is where they live, have their family and community, and so on. To all intents and purposes they are homeowners, but for a variety of legal and technical reasons they do not own the freehold—they are long leaseholders, but they do not own the freehold.

A group of long leaseholders will have a lessor, which is usually a management company. The management company owns the freehold and individuals take a lease on the property. Often the management company is in fact owned by the leaseholders. Leases may be for 999 years, and the freeholder is the management company, which would control it from there. They would be responsible for the communal areas, which could include grass cutting and roads, and may be responsible for parts of the fabric of the property, depending on the nature of the leasehold interests—whether it is a tenement flat going upwards or a group of properties next to each other. There will be variations, depending on the structure of the agreement at the outset. Interestingly enough, the landlord will be invariably responsible for ensuring that covenants between leaseholders are enforced to ensure that they comply with certain requirements under the terms of the leases.

It is interesting that the Flood Re legislation already allows for that set-up to a certain extent. It is allowed for properties of three flats, and three only. We could therefore have a situation where a landlord occupied one of the three properties—admittedly, they would have to live in one of them—and had another two on leasehold that are covered by Flood Re.

I will read from a letter from someone in the circumstances that I have raised. The freehold area is known as Willowbank, and he says:

“Willowbank is owned by a company, but that company is owned by the 29 leaseholders. The company has no income and no reserves. It makes no profit and pays no dividend. The two directors are paid neither a salary nor expenses.”

In many respects, Flood Re was there to help people like that. They are principal private occupiers who own their properties that are effectively freehold, but for whatever technical reason they are called leasehold and not covered by the legislation.

The legislation is meant to cover the whole of the United Kingdom, which includes Scotland, and in Scotland they have tenement blocks. As I understand it, the set-up under Scottish legislation is similar, but the tenement blocks, which are similar to the scenario I have set out, are covered by Flood Re legislation. I genuinely believe that it was not the intention of the legislation or of Parliament to exclude those I have described from Flood Re. I think the goal was to help secure the insurance requirements for people in those circumstances.

Helen Grant: I want to come in on the positive aspects of Flood Re. Having grown up in Carlisle, I would also like to say that it was horrific and heartbreaking to see so much of the city knee deep or worse in water. I hope that most people have fully recovered.

More positively, Flood Re has made a real difference to many in my constituency, who have seen reduced premiums, reduced excesses and insurance made available when it was not before. Notwithstanding my hon. Friend’s reservations, will he commend the Government on taking such positive action and remind them that many businesses are still worried and in need of help?

John Stevenson: I agree wholeheartedly with my hon. Friend. Flood Re has been a success. I have seen that in my constituency, where people now have confidence that their house will be insured. What I am trying to get at is a small group of people. In the setting I mentioned earlier, 29 houses were involved and in another scheme in Carlisle there are, I think, 68, but there will not be many other than those. I suspect that there will not be too many in such circumstances in the flood areas up and down the country, so most people will be able to get the appropriate cover, which, as she rightly says, is a positive.

Andrew Smith: The hon. Gentleman is being generous in giving way. I, too, congratulate him on this important debate, which will be welcomed by his constituents and by everybody who has been seriously affected by flooding. Has he examined the proposal recently launched by the British Insurance Brokers Association that is intended for commercial properties and which I understand will also cover long lets? Is there not a danger, though, that because premiums are calculated on specifically targeted risk, they might end up as unaffordable for people in long-lease properties?

John Stevenson: The right hon. Gentleman raises an interesting point. I am aware of the proposal with regards to commercial properties, which may be a way forward for them. I have concentrated on a narrow point with regards to the circumstances surrounding Flood Re.

To conclude, will the Minister bring forward a constructive review of Flood Re? Will she consult Flood Re and the insurance industry? Will she listen to the concerns of homeowners in my constituency who genuinely feel that they are being let down by the legislation and are unable to get that security and insurance for flood? It is an ongoing concern for them that if we get another Storm Desmond, they will not necessarily have the money to refurbish their properties. I do not think that is the intention of the legislation. I hope the Minister will take on board the arguments that I have set out about the legislation and will acknowledge that there was an oversight, or that something was missed when it was considered, and that it would be appropriate to bring forward primary or secondary legislation to expand Flood Re to cover that small group. That would assist a small group of people in my constituency, but it would be hugely beneficial and give them confidence for the future.

Therese Coffey: It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend John Stevenson for raising the issue of access to affordable flood insurance and the Flood Re scheme. For those at high flood risk, whether households or businesses, or indeed community leaders and their surrounding communities, this matter is a central one.

I would also like to thank other hon. Members for their interventions. I hope to address them all during my response. The anniversary of Storm Desmond—we had Storm Angus last week—is a timely reminder that the potential for flooding, and the devastating impact it can have, is never far away. It is worth reflecting on the purpose and value of Flood Re, which replaced the statement of principles—a series of agreements made by the Government and the insurance industry since the 1960s on the provision of insurance to those at flood risk.

However, the statement of principles had limitations. Under the statement, members of the Association of British Insurers agreed to make insurance available to domestic and small business properties in areas that were not at a significant risk of flooding. For properties in significant flood risk areas, the statement of principles provided an offer of cover only to existing customers, provided that plans were in place to reduce the risk within five years. There was no availability of cover for those most at risk if they had not historically had flood insurance or the risk was not being reduced. Importantly, the statement of principles did not provide for the affordability of flood insurance.


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