Last week (Monday June 23) LKP met DEFRA Minister Dan Rogerson for a round table meeting with other leasehold groups about the flood insurance proposals in the Water Bill.
All are concerned flooded leaseholders will be left out of the government’s Flood Re scheme. The only organisations seemingly unconcerned is the Association of British Insurers.
In the past the industry’s “statement of principles” has provided some level of guarantee of flood cover, but this is due to be updated. Worryingly for leaseholders, DEFRA has taken much of its input from the powerful ABI (Association of British Insurers).
DEFRA’s view is that “Flood Re is designed to help people at the highest flood risk by making subsidised premiums available at a set price or ‘threshold’ (which varies by council tax band). The majority of people will continue to purchase cover through their insurer at prices lower than the Flood Re thresholds”.
However, this new safety net has number of exclusions. Those properties built after 2009, those rented in the Privated Rented Sector, those with band H council tax, those in the leasehold sector, business premises. This means flooded leaseholders could be left out.
For once almost the whole leasehold sector is working together to explain to the minister why there are concerns over the Water Bill and the exclusion of leasehold properties from the Flood Re scheme, which guarantees affordable flood cover.
Along with LKP those attending the meeting to raise issues included the British Property Federation, Association of Residential Managing Agents, the Residential Landlords Association), the Council of Mortgage Lenders, the British Insurance Brokers Association, the Federation of Private Residents Associations), the National Landlords Association, the Royal Institution of Chartered Surveyors and the Federation of small Businesses.
LKP’s concern – along with many other groups – is the exclusion of leasehold from the proposed safety net, even though concessions have been made in recent months to potentially include small blocks of three or less flats.
So the minister heard from the whole leasehold sector that there were worries about the loss of the affordability safety net could cause problems.
The only group attending the meeting who argued to the contrary was the ABI, who somehow became invited the Friday before the meeting. The ABI again assured the minister their members felt there would be no problem with flood cover for leasehold properties but provided no evidence to the meeting.
The minister listened and welcomed what he understood as the co-operative approach taken by everyone at the meeting.
Unfortunately, the ABI in true Mandelson style immediately briefed the press they were right and there was no evidence to support the argument there might be a problem.
The press briefing quotes spokesman Aiden Keer. It was the same Mr Keer who said on radio 4 You and Yours of February 27: “a lot of the lobbying we are seeing so far are using quite scaremongering numbers but no evidence as to whether an issue exists”
LKP’s position is that our review of the sector showed that the number of flats and leasehold properties is much larger than government had assumed and therefore more homes may be outside the safety net.
We are also not confident the EA flood data acts as a reliable indicator of how many homes at high risk may be leasehold. The ABI claims its position is based on evidence, but we are not aware they have provided any evidence to DEFRA in relation to leasehold homes.
In a letter to LKP DEFRA state the opposite is the case:
“For the Impact Assessment underpinning the flood insurance evidence base, Defra has conducted an analysis using industry data on the potential cost of the flood risk element of domestic policy premiums in a risk reflective market. This data was sampled from insurers’ domestic portfolios, and therefore it can be expected that it broadly reflects the current proposals for eligibility to Flood Re, which were designed by insurers to reflect the general practice of the industry. The data does not distinguish whether or not the properties within the sample were freehold or leasehold.”
At this late stage in the passage of the Water Bill there is now a limited opportunity to change legislation, but as the sector continues to work together the evidence will gradually emerge.
If the ABI is right then there will be no issue. If they are wrong then it seems likely it will be the smaller blocks and particularly those run by the leaseholders rather than through a managing agent with greater buying power where the problems seem most likely to emerge.
The ABI’s wrongly claims the whole sector is just a lobby which they seem to think is seeking to oppose Flood Re.
The sector does not oppose Flood Re for houses.
It opposes the fact we are moving to a position where the guarantee of flood cover is being removed from leasehold homes and we are meant to just trust the insurance industries claim there will be no problems.
You say the ABI became invited the Friday before the meeting?
1. Were they not part of the original invitees? and if so why not?
2. Who then invited them?
3. These are business men who insure properties for a living, knowing they will
benefit, why should they be believed?
4. Global Warming has already added millions by Government are they politically
5. Who is the chairman?
6. How many subsidiaries do they have?
Who would trust any Insurance Company knowing, how Peverel Group Ltd manipulate their own company, Kingsborough Insurance Services Ltd to provide cover by bringing in Brokers such as Oval Brokering Services Ltd, who then bring in another company to insure the developments, thereby receiving up to 40% commissions, as they have in the past?
5. If, as been stated, any leasehold development that is a private company, as are
most of the Retirement Sector, will not be covered???
6. Only the Local Authority Private Leaseholds will be covered, is this true??
The Retirement Sector in the past year has increased from 3m to over 5 million as LKP found out, how are we to trust the Conservative Government, who was not aware of the correct numbers, how can they misplace 2m leaseholders?
I believe the Conservative Government through, Local Government have taken away the subsidiaries to Care Homes where I live, in a very small town/village and two of the smaller Care Homes totalling 34 beds have been closed and are to sold at a tremendous loss??
The 5m residents have a say who governs Britain, are the Conservatives or Labour or even UKIP aware of the potential we Silver Surfers have if used to our potential???
Slightly concerned that you say “At this late stage in the passage of the Water Bill there is now a limited opportunity to change legislation” – the Bill became an Act on 14 May this year.
I see ABI notes “Assuming various implementation issues are resolved, the aim is for it [Flood Re] to be ready for business in summer 2015.
DEFRA says, “Flood Re is designed to cover the 1 to 2% of households at the greatest risk of flooding, who would otherwise find it difficult to find affordable insurance cover in an open market. The majority of homes will not need to be in Flood Re because they will be able to secure flood insurance at prices lower than those offered through Flood Re” and “Leaseholders in larger blocks of flats will be excluded because freeholders will be responsible for buying building insurance for their leaseholders, and this insurance is on commercial rather than domestic terms, and therefore not covered by Flood Re.”
Why slightly concerning? While the primary legislation is now past the secondary legislation and regulations still has to go before parliament some time later this year..
The quotes that you make from the ABI and DEFRA sites are also not quite what they seem .”Larger blocks” is anything larger than three and DEFRA have only just understood there is no commercial benefit to the landlord (or at least should be none) in these policies. While they may be commercial policies from the insurers prospective they are not commercial in the financial sense of being provided to the commercial rather than domestic market
“Slightly concerning” because referring to the Water Bill seemed to suggest you had not realised it had passed into law. I agree with you that there is scope for change through secondary legislation .
You may be aware that the Council of Mortgage Lenders has publicly expressed concern about Flood Re – in February it urged changes to the Bill and said “We find it difficult to believe that the original policy intention was to exclude a whole swathe of residential property from the stated aim of ensuring the affordable flood insurance continued to be available across the market.
“Given that this appears to be an unintended consequence, we strongly urge legislators and the insurance industry to re-consider the proposals and ensure that flood cover remains available on homes, as people would expect.”
It added, “for any lender considering a mortgage application, it was a fundamental requirement that the borrower was able to take out insurance covering all potential risks to the property, including those presented by flooding.”
At that point it was examining the potential of a possible compromise proposal under which insurance currently provided under the “statement of principles” remained available for households that might be excluded from Flood Re (specifically leasehold and privately rented homes). I am not sure of the current position – you may know more than I do about this.
So their argument is that residential block insurance is actually a commercial product and when presented with their own shortcomings in understanding and their research , reply, by implication,” oh and go away and shut up as it is very unlikely to be a problem….”