The Flood Reinsurance Scheme
Section 64: The Flood Reinsurance Scheme
230.Subsection (1)(a) introduces the Flood Reinsurance Scheme (“FR Scheme”) as a scheme established for the purpose set out in subsection (2). Subsection (1)(b) states that the FR Scheme will be designated by regulations made by the Secretary of State.
231.Subsection (2) specifies the purpose of the FR Scheme which is to promote the availability and affordability of flood insurance for household premises, while limiting the costs of doing so. The FR Scheme will do this by making reinsurance for flood risk available to all insurers that underwrite household insurance policies in the UK. Reinsurance is routinely purchased by insurers to limit their exposure to risk. The FR Scheme will cover the risks that are directly attributable to flooding but will not cover other risks, such as theft or subsidence, which tend to be covered under standard household policies. The provision of reinsurance shall be done in a way as to manage the transition to risk reflective pricing.
232.Subsection (3) gives the Secretary of State power to make regulations to set the level of those reinsurance premiums which will be payable by relevant insurers should they choose to reinsure flood risk relating to an insurance policy with the FR Scheme. Subsection (4) provides that those regulations may make different provision for different purposes by reference to the value of the property insured which is likely to be by reference to Council Tax bands (or an equivalent where Council Tax bands are not in place). Subsection (5) provides a definition of flood insurance for the purpose of the FR Scheme.
Section 65: Scheme administrator
233.This section sets out who will administer the FR Scheme. Subsection (1) gives the Secretary of the State the power to designate a body as the administrator of the FR Scheme by regulations. Subsection (2) specifies that the FR Scheme administrator may be a company registered under the Companies Act 2006 or other body.
Section 66: Scheme funding
234.This section covers measures needed to fund the FR Scheme. Subsection (1) provides a power for the Secretary of State to make regulations with the consent of the Treasury, requiring relevant insurers to pay a levy in accordance with the regulations (see subsection (1)(a)) or such further amounts as may be requested by the FR Scheme administrator in accordance with the FR Scheme (see subsection(1)(b)). It is intended that all insurers underwriting household buildings and/or contents insurance policies in the UK would be required to pay a levy and ad hoc payments to the FR Scheme administrator.
235.The levy that may be imposed under subsection (1)(a) is designed to replace the current, informal cross-subsidy in the market between those at low and high risk of flooding that has historically subsidised the flood cover that is made available to those at high risk.
236.Ad hoc payments could be required from relevant insurers under subsection (1)(b) from time to time, should the FR Scheme have insufficient income from the premium incomes and the levy payments to meet its outgoings. Subsection (2) specifies that the regulations under subsection (1)(b) may set out the circumstances under which a request for ad hoc payments may be requested, and set out limits on what amount could be requested for that top up funding.
237.Subsection (3) provides for the FR Scheme administrator to pursue non-payment of the required levies and payments from individual insurers as a civil debt. Subsection (4) provides for regulations regarding the use of the levy and ad hoc payments, for instance to allow the FR Scheme administrator to cover its administrative costs. Subsection (5) gives the Secretary of State the power to make regulations requiring that, where conditions set out in the regulations are met as regards the reserves of the FR Scheme, the FR Scheme administrator must pay an amount of the reserves to the Secretary of State. These regulations will require the consent of the FR Scheme administrator, which may not be unreasonably withheld.
Section 67: Scheme administration
238.Subsection (1) provides a power for the Secretary of State to make regulations about the administration of the FR Scheme. Subsection (2) provides that the regulations may require the FR Scheme administrator to have regard to certain matters in discharging its functions – as set out in subsections (2)(a) to (d). Subsection (3) also allows for the regulations under subsection (1) to require the FR Scheme administrator to produce and publish a plan for achieving the transition to risk-reflective pricing over the life of the scheme.
239.Subsection (4) provides a power to place a requirement on the FR Scheme administrator to provide information to relevant insurers to pass on to their policyholders whose policies are reinsured under the FR Scheme. The information is intended to help households understand the flood risk in their area, how it can be managed and understand the transitional nature of the FR scheme.
240.Subsection (5) sets out a number of matters relating to finance and accounting which the regulations may provide for. These include: limiting the company’s ability to borrow and incur debt; limiting the financial losses that may be incurred; restricting draw downs and transfers and making provisions about any reserves Flood Re builds up; specifying the form and contents of Flood Re’s accounts; and requiring that Flood Re’s accounts be laid in Parliament.
241.Those regulations may also provide for the National Audit Office (NAO) to examine how the FR Scheme administrator has delivered value for money in the discharge of its duties and if the FR Scheme has been operated with propriety and regularity. The regulations may require the provision of access to documents and any assistance required by the NAO.
242.Subsection (6) provides that the regulations under subsection (1) may require the FR Scheme administrator to appoint a “responsible officer” and may set out the responsibilities of the responsible officer. These may include responsibility in respect of the Scheme’s finances and the Scheme’s accounts; accountability to Parliament for value for money, propriety and regularity; and examination and reports by the National Audit Office.
243.Subsection (7) states that regulations under subsection (1) may make provision about the disclosure of information required for the purpose of the FR Scheme. In particular the regulations may require relevant insurers to provide information on insurance policies to the FR Scheme administrator.
244.Subsection (8) provides that regulations under subsection (1) may require the FR Scheme administrator to provide information (for example the number of claims for flooding made) to the Environment Agency, Scottish Environment Protection Agency, the Natural Resources Body for Wales (which is commonly known as Natural Resources Wales), the Department of Agriculture and Rural Development in Northern Ireland, or another body as may be specified.
245.Under subsection (9) the FR Scheme administrator may also be required to provide information to the Secretary of State as may be needed for the purposes of government accounting.
246.The subsections in this section set out particular provision which may be made in regulations under subsection (1). Subsection (10) states that subsections (2) to (9) are not exhaustive as to the provision which the regulations may make. Subsection (11) specifies that the definition of “flood insurance” has the meaning given in section 64 and sets out the definition of “the FR Scheme’s accounts”.
Section 68: Replacement of the scheme or administrator
247.This section makes provision for the situation where either of the designations for the FR Scheme administrator or the FR Scheme is revoked. Subsections (1) and (2) set out provisions which regulations made under section 64 and 65 may include.
248.Subsection (1) operates in the circumstances where the FR Scheme is replaced with a new FR Scheme. Replacement of the FR Scheme would be achieved by revoking the designation of the existing scheme using the power under section 64 and making a new designation for a replacement scheme.
249.Subsection (2) operates in the circumstances where the existing Scheme administrator is replaced. It makes provision for the transfer of property, rights and liabilities, including pension liabilities in respect of staff in such circumstances. The replacement of the Scheme administrator itself would be achieved by revoking the designation of the existing scheme administrator using the power under section 64 and making a new designation.
Section 69: Disclosure of HMRC council tax information
250.Subsection (1) allows the Commissioners for Her Majesty’s Revenue and Customs to disclose “relevant HMRC council tax information” for use for preparatory purposes in relation to the setting up of the FR scheme and for the purposes of the FR Scheme once it has been designated. “Relevant HMRC council tax information” is defined in subsection (3), as is “HMRC council tax information”. Subsection (2) provides for how the information, once disclosed, may be used and that it may not be further disclosed except with the consent of the Commissioners.
251.Subsection (4) provides powers to amend the definition of “relevant HMRC council tax information”. If any such amendment is made, subsection (5) allows further regulations to be made, in accordance with subsection (6). Subsection (6) sets out that regulations may create a criminal offence by applying section 19 of the Commissioners for Revenue and Customs Act 2005 to the disclosure of the items of “relevant HMRC council tax information” which have been added to the definition under regulations made under subsection (4). The regulations may provide for section 19 to apply if disclosure is in contravention of subsection (2)(b) and if the information disclosed relates to a person who can be identified from the disclosure. Subsection (7) sets out that the Secretary of State must consult the Commissioners before amending the definition of “relevant HMRC council tax information”.
