ABI: Flood Re band H exclusion was ‘ministerial decision’

Politicians, not insurers, inserted the controversial exclusion for council tax band H properties into Flood Re, according to ABI deputy director general Huw Evans.

Speaking to Insurance Times following the ABI’s decision to back the inclusion of band H properties, Evans added that adding band H will not jeopardise Flood Re and there is still time to change the scheme.

Ministerial decision

Band H properties are excluded from Flood Re under the June 2013 memorandum of understanding between the government and the insurance industry that underpins the scheme.

Evans said ministers were worried that the Flood Re levy, under which households at low risk of flooding subsidise affordable coverage for those in high-risk areas, would prove politically unpalatable. Ministers convinced the industry that excluding high-value band H properties would make the levy more acceptable to their fellow politicians.

Evans said: “We accepted that as the overall price for the deal. There was a range of views in the industry, but we at no point proposed this exclusion. It was something that ministers proposed and felt had to be in there to make the levy sellable to parliament.”

He added: “It was very clearly a ministerial decision about the exclusion”.

However, now that the levy has been embraced by politicians on all sides, the ABI felt emboldened to make its support for band H inclusion public.

Controversy

Evans admitted that there would be some controversy about including band H because some politicians will view it as the poor subsidising the rich.

But he added: “[Band H inclusion] is not something in our view that would disrupt the cross-party backing for Flood Re. We would not put the cross-party support for Flood Re at risk by asking for it if we thought that would be the case.”

He also noted that including Band H would not require any major structural change to Flood Re. While including the estimated 1,400 to 2,800 band H homes in the scheme would boost the annual £180m levy by about £2m, Evans described the increase as “barely noticeable”.

Time to change

Evans added that there is still opportunity to change Flood Re. The Water Bill, which contains the legislation enabling the formation of Flood Re, is close to completing its journey through parliament. But the secondary legislation covering the scope of Flood Re could take until this summer to finalise.

Evans said: “There is time to debate and discuss this and we hope to make a good and strong argument that ministers are prepared to accept.

“We are not asking ministers to respond tomorrow and make an immediate decision on this. We are asking them to think about this and reflect on the merits of the argument.”