Flood Insurance for Businesses — House of Commons, 2016-02-08
Topic: Public Lands
Roderick James Nugent Stewart (Conservative, Centre-right): I pay tribute to my hon. Friend the Member for Calder Valley (Craig Whittaker) for a very quiet but very forensic speech that showed the deep care that he has for his constituency. I saw that directly myself when I walked through many of the businesses that he described. I saw how, in essence, a tidal wave had moved through a furniture factory, wiping out half a million pounds-worth of stock. I saw how a furniture warehouse was ruined and a community centre had been wiped out. I saw, as many hon. Members on both sides of the House have noted, the incredible impact that this has had on a very precious and beautiful area of our country and a historic community, and how intimately the subject of business insurance is connected to the livelihood and the longevity of these communities I will not get into a detailed discussion about the DEFRA survey, although I would point out that it is not quite as bad as it seems on paper. A total of 2,686 businesses were surveyed, but I absolutely agree with my hon. Friend that the 25 on whom an in-depth survey was conducted was not a large enough number to be a decent sample. I strongly encourage the hon. Member for Falkirk (John Mc Nally) and his APPG to get involved in the detailed investigation of what is happening in business insurance in Calder Valley. The hon. Member for Stockton North (Alex Cunningham) raised that issue powerfully There are improvements that we can already make without looking at a flood re scheme. First, we need to make information far more accurate so that businesses in a flood-vulnerable zone are not being punished when they are not actually flooded. Secondly, as has been pointed out, we need to make sure that businesses are more resilient. We have access to good public information about that. There is a very good example of a business in Cockermouth that took the right measures and, as a result, was able to come back from the flooding in two days whereas previously it took four months In relation to business, the Government have a part to play in investment and infrastructure. We need to guarantee broadband connections; there was a problem in that regard at Tadcaster bridge. Electricity substations and roads must be left open, because that matters not just for communities but for businesses. We need to acknowledge that the insurance industry cannot be the complete answer. As the hon. Member for West Aberdeenshire and Kincardine (Stuart Blair Donaldson) pointed out, it is important that there is an element of grant coming in. We have put a great deal of grant behind businesses—an average of £2,500 per business, but in some cases considerably more—because we acknowledge that the insurance industry does not produce all the answers. There is also the capital expenditure that we need to put into flood schemes in general. My hon. Friend the Member for Calder Valley focused, as did the hon. Member for York Central (Rachael Maskell), specifically on whether there should be a Flood Re scheme. I am afraid that time will not allow me to answer this question in detail, but I will give some points to consider in looking at business insurance. First, setting up one of these schemes involves a very considerable cost to the dry. At the moment, within a Flood Re scheme, regardless of where someone is located—they could be on the edge of a river and flood every three years—they would be guaranteed that for a £250 premium, or the basic rate of council tax on a £250 excess, they would be insured. This would mean that businesses in dry areas would have to cover the cost of providing insurance in some of the cases that my hon. Friend raised. For example, if a business has indeed, as he said, flooded twice in four years at a cost of £500,000 to its stock each time, it will be difficult to provide insurance without some measure of cross-subsidy for businesses that are not in flood-affected areas The second problem is the complexity of flood insurance for businesses. It is much more straightforward for householders, who basically look to insure their buildings and contents. A business, on the other hand, has to look at how much cash it has in the bank, and how much it therefore wants to lower its premiums and self-insure against a higher excess. It has to look at whether it has high fixed structural assets and whether it wants to insure them. An internet company will not want to invest much in insuring the building that it is in, whereas for a farm, a property business or a restaurant, that fixed structural asset is absolutely essential to the continuity of its business The difference can be huge when it comes to business interruption insurance. For example, business interruption would be minimal for a company such as cheapflights.com, provided that its service was not located in the area affected. However, if the McVities biscuit factory in Carlisle were wiped out by a flood, the business interruption consequences would be catastrophic. That is why it is much more difficult to model business insurance than household insurance There is also, of course, the issue of moral hazard. We do not want to encourage businesses to locate themselves in flood-vulnerable zones if they have a high fixed structural asset cost. We want to keep those communities vibrant and alive, but we also want to do so in a way that makes sense Nevertheless, something must be done. The hon. Member for Halifax (Holly Lynch) has emphasised the importance of business insurance for retaining the communities for the sake of their history and the social costs involved. We therefore need to answer some questions. First, how much subsidy—because there will have to be an element of subsidy—do we wish to put into an individual valley? Secondly, as the hon. Member for Strangford (Jim Shannon) has asked, what should the balance be between the Government element of the subsidy and that provided by the insurance industry for businesses in non-flood-affected areas Thirdly, should we consider a different insurance model? One possibility—we have not done this in flood insurance before—is to consider the approach taken by travel and medical insurance, which have a fixed indemnity. If the Government are to be involved, it might be reassuring for them to know that a property had a fixed indemnity of £20,000 or £50,000 attached to it, rather than what we have at the moment, which is an unlimited flood insurance liability That is why I am delighted to say that tomorrow I will host a round table with BIBA, ABI, the Federation of Small Businesses and a dozen other stakeholders, to talk through the concrete, detailed issues involved in providing serious insurance for businesses.