Hansard

Thank you, Presiding Officer—and I noted your hesitation before you said “14 minutes”.

I am pleased to open this debate on the motion in my name on behalf of the Public Petitions Committee. I stand in place of our injured convener, David Stewart, who had a particular interest in the subject covered in PE1441.

In this second Public Petitions Committee chamber debate this session, I welcome the opportunity to discuss the issues that have been raised with the committee by Professor David Crichton in PE1441, which refers to the challenges of flooding and the attendant flood insurance problems. Professor Crichton has spent a large number of years in the insurance industry, latterly as a consultant advising insurers across four continents, and is a founder member of every flood liaison and advice group—or FLAG—in Scotland. The groups cover 94 per cent of Scotland’s population.

The petition, which was submitted last August, highlights the importance of the matter in light of the climatic changes that we see and experience every day and seeks primarily to ensure that Scottish interests are represented and considered in discussions between the United Kingdom Department for Environment, Food and Rural Affairs and the UK insurance industry. As matters stand, financial services, including insurance, are reserved to Westminster, whereas flood risk management decisions relating to Scotland are devolved.

The committee is aware that negotiations are taking place between DEFRA and the insurance industry on arrangements to succeed the current insurance agreements as enshrined in a joint agreement known as the statement of principles, which is due to expire in seven weeks’ time at the end of June. We also know that the Scottish Government has been engaged, if indirectly, in those discussions as they affect Scotland. For reasons that I will try to explain, it is important and very urgent that appropriate arrangements are put in place from 1 July onwards.

One-off flooding is one of the greatest natural threats—if not the greatest—that we and the rest of the globe face, and well-documented examples of the damage caused by flooding and its serious long-lasting effects increasingly invade our sitting rooms.

In the United Kingdom in the 1990s, we had two flood events that cost £150 million, yet in the past decade we have had five events costing £3 billion, with 2007 being a particularly disastrous year. Debate on the reasons for that is for another day, although it is safe to say that a committed global approach to addressing climate change becomes more critical as each day passes.

Because of its different landscape and topography, Scotland does not face the same degree of flooding as the rest of the UK. There have been examples of severe flooding in Scotland but not to the same degree as in the rest of the UK. I know that that lies at the heart of the petition and, therefore, at the heart of the motion.

This is not a them-and-us debate. However, there is a manifest anomaly in the background to the motion. There is an unfairness—an inequity—because there is a cross-subsidy that relies on families in Scotland who are insured against high flood risk subsidising, through a higher premium, the higher volume of at-risk properties and the higher risk of flooding down south. Regrettably, 23.1 per cent of English and Welsh households are at risk, whereas only 4.5 per cent of Scots households are at risk.

It might be helpful if I set out some of the background to the petition. In 2008, as I mentioned, an updated joint statement on the provision of flood insurance was agreed with the insurers. According to the Association of British Insurers, the statement was originally drawn up in 2000 and was supposed to be a temporary sticking plaster—a palliative—while the Scottish Government, the UK Government and the ABI worked together to enable flood insurance to continue to be widely available without distorting the market.

The statement identified a number of measures to be taken. The first was to improve the understanding of flood risk from all sources. The second was to work towards putting in place a longer-term strategy—for 25-plus years—to reduce flood risk. That strategy would set out the Government’s objectives and measures backed by local planning and funding arrangements. The third measure was the retention of a national planning policy to ensure that inappropriate development in flood risk areas would be prevented and that any essential new development in medium or high flood risk areas would be flood resistant or at least as resilient as possible. The fourth measure was to raise awareness in areas where flood risks are significant and to encourage actions to mitigate and minimise the risk of flooding, including reinstatement of flood-damaged property in a much more resilient way. The fifth measure was to promote access to insurance for low-income households.

For its part, the insurance industry was committed until the end of June 2013 to continuing to make flood insurance for domestic properties and small businesses available as part of standard policies if the flood risk was not significant—significance is defined as a 1 in 75 annual probability of flooding. It was also committed to continuing to offer flood cover to existing domestic property and small business customers at significant flood risk provided that the relevant local authority had announced plans and notified the ABI of its intention to reduce the risk for those customers to below significant within five years.

The agreement ensured that flood insurance would be available for homes in Scotland that were at risk of flooding. However, it will expire at the start of July and the insurance industry has made it clear that it does not intend to renew it, owing to its belief that that would prevent the development of a free market in flood insurance—a basis that the ABI believes will allow it to establish more accountable and attributable premiums.

We are at a crunch point, with only seven weeks to go before we know whether those in our communities who are at high risk of flooding will be covered by insurance or whether they will continue to be penalised because of the disproportionality between Scotland and the rest of the UK of which I have just spoken.

It might be suggested that because the various measures that have been taken on flood management in Scotland, such as those that are contained in the Flood Risk Management (Scotland) Act 2009, have not been implemented elsewhere, the disproportionality of the subsidy becomes much more profound. Requests to have stricter planning rules to control flood plain development, more spending on structural flood defences and more resilient building regulations, which have largely been complied with in Scotland, Wales and Northern Ireland, have not been complied with to the same extent in England, and that is having an overall impact on the insurance industry’s approach to future agreements.

Notwithstanding that feeling, the Public Petitions Committee was advised that the Scottish Government had commissioned the centre of expertise for waters at the University of Dundee—which, henceforth, I will refer to as CREW—to consider the effect of the changes to the flood insurance market in the face of the joint agreement or statement of principles coming to an end, which we know will happen unless the Department for Environment, Food and Rural Affairs, the ABI and the devolved Administrations reach agreement. I remind Parliament that financial services—in this case, we are talking about insurance—are a reserved matter.

In its research, CREW sought to assess the prices that are currently paid for flood insurance in those areas in Scotland that are potentially vulnerable to flooding; to establish the likely impact of the agreement coming to an end this summer; to identify those communities in Scotland that are most likely to be affected and determine whether particular households would be affected by changes in the availability of insurance and cost; and to undertake a survey to identify trends and hold workshops to explore emerging issues in much more detail.

CREW’s report, “Flood Insurance Provision and Affordability Beyond the Statement of Principles: Implications for Scotland”, was published in July last year. I draw Parliament’s attention to a number of the points that it made. CREW’s research found that the statement of principles confirmed that there was substantial cross-subsidising of insurance in flood risk areas. The insurance body confirmed that the flood risk in England and Wales was significantly greater than the flood risk in Scotland. ABI UK-wide figures indicated that the amount of cross-subsidy from households that are not in the significant risk zone to those that are could be as much as £430 per household.

CREW also found that policyholders do not know how much they are being charged to provide any cross-subsidy, as the information that is held on risk is not publicly available. CREW expected that transparency for the public would improve with the publication of the Scottish Environment Protection Agency’s flood hazard and flood risk maps. That was due to happen during 2013, but it has now slipped to the end of the year. A flood risk management plan is to be available by 2015.

Once again, it will be people on low incomes, the elderly and those in non-home-owner households who are likely to suffer particular potential difficulties in meeting the extra insurance costs that might well be passed on once the existing agreement comes to an end, regardless of what form its successor might take. As someone who lived in the south-east of the UK some 10 years ago, when council tax was subsidised by flood grants to Thames valley councils, I am sure that people there will have little truck with concerns such as those that I have expressed.

The insurance industry might allow home owners to continue with their existing insurance temporarily after 30 June 2013, but their cover could be qualified in several ways. It appears that one of the problems was that the industry had difficulty accessing information on the Scottish flood defence asset database that it could use for commercial purposes so that it could apply premiums more cogently and more appropriately. That data is relevant and is of importance, and lack of access to it is of concern. Perhaps the minister will be able to allay that concern.

The committee was told that not having access to that data made it more difficult for insurers to compare risk in Scotland with that in England and Wales, where a commercial licence had already been agreed with the Environment Agency that allowed insurers to use data to establish more applicable and fairer premiums. The committee was very disappointed to note that a similar licence had not yet been agreed for Scotland, which meant that insurers could not replicate the fairer and more applicable premium indicator in Scotland.

The committee was advised that SEPA had written to all local authorities seeking permission to share the data that was filed on the database with all stakeholders, including the insurers. When agreed, that data would be released to the insurance industry so that more applicable and fairer premiums could be set. The plan was set for the end of March, but by mid-April—surprise, surprise—there was no agreement to release the data, because three of our local authorities had not responded to SEPA’s request. I assure those councils that when the Public Petitions Committee seeks information and data we do not do it for fun but as part of our duty to petitioners. A bit more courtesy and timeliness in meeting our requests are anticipated henceforth.

The minister has confirmed the further work that the Government has done and is doing through implementation of the Flood Risk Management (Scotland) Act 2009, the Reservoirs (Scotland) Act 2011 and the national flood risk assessment plan regarding large-scale flood protection schemes in communities across Scotland. That is good and welcome, but the committee and I suggest that time is running out. We may be at something of an impasse, but options for the replacement of the statement of principles need urgent consideration; in fact, they need urgent implementation and agreement if flood insurance in the UK—particularly in Scotland—is to be available, affordable and proportionate. I am anxious that we engage with the industry on its proposed flood re scheme—a not-for-profit flood insurance fund that could deliver a real choice for consumers in Scotland.

It is paramount that we deal with the issues of cross-subsidy, accurate assessment of flood risk and availability of data to insurers if we are to reduce the anxieties and the financial burden that hang like a dark cloud over some of our very vulnerable households and communities.

I look forward to hearing the views of my colleagues across the chamber in what should be a constructive and important debate.

I move,

That the Parliament notes petition PE1441 in the name of David Crichton on the issue of flood insurance problems; welcomes the petitioner’s efforts to highlight what it considers to be an important matter, and commends the issues raised in the petition to the Scottish Government for further consideration.