§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Chapman.]
10.16 pmMr. Eric Insley (Barnsley, Central)I am grateful for the opportunity to raise a subject that is of great importance not only to my constituents but to many people who live in coal mining areas and former coal mining areas. It is about the recent refusals by insurance companies to grant insurance cover to properties that have been damaged by coal mining subsidence. That has led to refusals of mortgages for people wishing to purchase properties. It has led to a number of properties in coal mining areas being rendered unsaleable and in other cases to the value of properties being much reduced.
In the past, the problem has not been particularly great, unless the property was severely damaged or likely to suffer further damage in future, in which case an insurance company would be justified in not granting insurance cover and a building society would be justified in not granting a mortgage on a potential risk. It appears that there has been a change of policy by the insurance companies, and one can only assume that that is because of the impending privatisation of the coal industry and fears by insurance companies—perhaps misguided—that the provisions of the Coal Industry Bill are inadequate to cover this area.
I came to know about the subject only recently, or I would have sought to raise it during the debates on the Coal Industry Bill. I found out about it through a chance meeting with the director of a local estate agent. It had been aware of the problem for some time, as had British Coal's est!tes departments around the country. But for some reason British Coal had not seen fit to raise the matter publicly. One can only assume that that was done so as not to jeopardise the deliberations on the Coal Industry Bill as it passed through the House.
What is the effect of the decision by the insurance companies? Basically, the majority of properties in coal mining areas have at some time been damaged by subsidence. In the past, that has been quite common in coal mining areas and British Coal has always attended efficiently to compensation. It has sought to repair properties or at least compensate the owners for the damage that has been caused.
In the past, apart from one or two problems on which I shall not dwell, the subsidence damage system has worked well. The Coal Mining Subsidence Act passed through the House in 1991. But if insurance companies refuse to insure properties that are basically sound, but which have historic subsidence damage, thousands of properties will be blighted.
That applies not only to properties in my constituency but to properties in coal mining areas throughout the country, and that is despite the fact that those properties are in sound condition at present, any damage having previously been repaired. Many properties are being left unsaleable and, in extreme cases, many will be worth nothing apart from the value of the land on which they stand.
The only redress available to owners of such blighted properties is to take action against British Coal for further compensation in view of the depreciation of their properties. Given the potential number of properties involved and the potential value of claims, which range 489 from a few thousand pounds to tens of thousands of unds for individual properties, British Coal would face a substantial claim. That means that, at a time when British Coal is being privatised with a few billion pounds worth of contingent liabilities, it will face further liabilities and the threat of further claims for compensation from blighted property owners.
The Government should also remember that the matter will affect not only relatively recent coal mining areas, such as Barnsley, Wales or Scotland, but areas where, although coal mining has long since ceased, there are historic liabilities—places such as Somerset and Bristol, or Kent, which is a more recent example. In those areas, there will still be historic aspects of coal mining subsidence damage.
The threat of such compensation claims should have led British Coal, which I believe has known about the matter for some time, to raise the matter publicly and to take action to make insurance companies realise that what they are doing is nonsensical.
One can only assume that insurance companies, valuers and surveyors are more than ever sensitive to subsidence damage. Anyone who seeks to buy a home and employs a valuer or surveyor to value it for mortgage purposes might be asked whether the property has been previously damaged by coal mining subsidence. If the answer is in the affirmative, the valuer will automatically refer it to the insurance company to see whether it will cover the risk. The insurance company then decides whether to insure the property.
Alternatively, the valuer will suggest that a mining report be obtained and if that shows evidence of a previous claim, albeit many years ago, the building society will again refer the property to the insurance company for it to decide whether it is a substantial risk.
A couple in my constituency arranged a mortgage on a property that they wanted to buy a few hundred yards from my home. They went through the usual procedures and obtained a mining report which showed that there had been a previous claim for compensation for coal mining subsidence. The mortgage offer was withdrawn because the building society could not arrange cover through an insurance company on that property. The solicitors acting on behalf of the purchasers tried 33 different insurance companies in Barnsley, but could not obtain insurance cover for that property. The insurance cover was refused because of the previous subsidence claim—a claim for compensation for previous subsidence damage for which repairs were carried out. The refusal of insurance cover was not because the property was in a poor condition or had any particular current defect, but was solely on the ground of the historic claim for compensation. Due to the refusal of a mortgage, the sale fell through, as did succeeding sales throughout the chain. The major point is that that is historical subsidence damage, which has been repaired by British Coal. In the days of the British Coal estates department, damage was repaired to a very high standard. It is historical subsidence damage and we are not talking of current defects in those properties.
The chance of further subsidence damage is remote because there are no collieries left in my area, thanks, of course, to the present Government's policy. Also, subsidence damage will always settle and, after time, there 490 should be no further damage from those original workings. The insurance companies do not seem to have regard to the previous repairs or the present state of the property. As I have said, the properties are quite sound and in some cases they are perfectly sound. Insurance companies are refusing cover even when the valuer or the surveyor reports no immediate, current problems.
The insurance companies also have no regard to the date of the last workings under the property or in its vicinity. They are not looking back at the previous workings. It is clear that many sound properties are being mistakenly and needlessly blighted by the actions of the building societies and the insurance companies.
In the final few minutes, I shall consider why that is happening. I mentioned earlier that insurance companies are refusing to cover future risk because of historic liabilities and incidents. No account is being taken of the current situation and no judgment is being made purely on the current state of the property. However, it also seems that insurance companies are afraid that if there are instances of further damage, which is, of course, unlikely, adequate repairs will not be carried out by the new coal companies or by the new Coal Authority, as envisaged in the Coal Industry Bill, or that the newly privatised coal companies will not readily accept liability for subsidence damage, or that they will try to delay settlement. It seems that insurance companies and building societies feel that the new coal companies may quickly fail financially. In an uncertain market, the insurance companies may not have confidence in the long-term future of the new private coal companies that are pringing up. It is obvious that the new coal companies will want to limit their liability and, obviously, will try to avoid liability for historic subsidence damage. They will try to minimise their future liabilities. They may try to avoid payment or avoid liability or even prevaricate in the settlement of compensation claims.
The proposals in the Coal Industry Bill do not engender confidence. Now not only Opposition Members are making the point that the subsidence proposals are not adequate, but the financial institutions are, too. It would be appear that the people in the City—the insurance companies—are not willing to risk their money on the Government's proposals for subsidence damage. It would appear that the subsidence provisions in the Bill have failed at the first hurdle.
I have been in contact, as I am sure the Minister has, with a number of organisations in relation to the matter, especially many estate agents and building societies in my locality. I have also received a letter from the Association of British Insurers and I thank it for its assistance. It said that its main concern is that there should be no diminution of the Coal Mining Subsidence Act 1991. As we know, certain provisions of that Act are to be repealed by the Coal Industry Bill. The Association of British Insurers supported an amendment as part of the coal liaison group to place responsibility for subsidence damage on the Coal Authority. That would have a number of advantages. First, it would leave one body to deal with coal mining subsidence matters; secondly, it would be one address for people to contact; thirdly, it would deal with the whole gamut of subsidence arrangements; and, fourthly, it would enable the Coal Authority to use existing structures such as British Coal's estates departments, which do a good job in relation to coal mining subsidence. I congratulate them on their work in the past. Fifthly, it would give uniformity across the country, as all areas would be dealt with 491 adequately and uniformly by one authority. Sixthly, it would, perhaps, give a speedier system whereby the Coal Authority could deal quickly with claims; and, seventhly, it would also allow that authority then to claim reimbursement from the new coal companies.
If the amendment were supported, it would probably give a little more confidence to the insurance industry on those matters. The insurers seem quite happy with the provisions of the Subsidence Act 1991. As someone who served on the Standing Committee that considered that legislation, I can see why. I served also on the Select Committee on Energy, where we investigated coal mining subsidence matters, and the Bill succeeded its report.
The Government should take a number of steps to try to restore some confidence to the insurance companies with regard to those properties. I ask the Minister, if he has not already done so, to meet representatives of the insurance companies to discuss the issues and try to persuade them to take a more realistic attitude with regard to those properties and the granting of insurance cover. I ask him also to check with British Coal to judge the extent of the problem and see whether British Coal cannot reassure the insurance companies and show them the competence and standard of repairs that have been carried out, which might alleviate some of their fears. I urge him, even at this late stage, to accept the amendment proposed by the coal liaison group to retain the provisions of the 1991 Act in full, but, above all, to place future responsibility for subsidence damage on the Coal Authority alone.
The issue is very important in my area. If the Minister seriously wants the proposals in the Coal Industry Bill to succeed, I hope that he will give serious consideration to the matters that I have raised this evening.
§ The Minister for Energy (Mr. Tim Eggar)I congratulate the hon. Member for Barnsley, Central (Mr. Illsley) not only on being a Whip for his party but on being so persuasive in his letter to you, Madam Speaker, that you felt able to select the matter for debate at such a civilised time in the evening.
I also congratulate the hon. Gentleman on identifying and raising the issue. I do not think that I am being unfair to him when I say that he could not resist the odd digs at me and introduced the odd hint of a conspiracy them on the issue; a bit of party politics, even at this time of night, never does anybody any harm. The reality is that he has identified a concern in his constituency which he recognises is fairly specific, but which, if it gained hold, could create quite a considerable problem. It is not a matter that I was aware of previously and the Adjournment debate has, as they are designed to do, acquainted me with the issue. Both he and I have been able in our different ways to get senior people in the building societies and insurance companies to concentrate on the issue and, perhaps, understand the various elements rather better.
I cannot resist a little bit of gentle retaliation. I am delighted that home ownership has caught on so widely in Barnsley and that the hon. Gentleman and his hon. Friend the Member for Barnsley, West and Penistone (Mr. Clapham), who is well-known for his moderation, being a member of the right-wing of his party, are here to represent and support the home owners of Barnsley so effectively. It is one of the great successes of this Government that home ownership has risen so widely, even in Barnsley. I am the 492 first to recognise that, of course, from time to time, difficulties are associated with home ownership. It is in the interests of both sides of the House that we do our best to sort them out.
The hon. Member for Barnsley, Central is right to zero in on the problem of insurance and the response of insurance companies to applications by home owners for insurance. There is no serious division across the House about the effectiveness of the 1991 Act in practice as well as in theory. It is a considerable improvement on the previous system.
In fairness to the insurance companies, one must also set the whole issue of insurance and subsidence in context. Most insuring companies have had considerable underwriting losses on their general insurance accounts in the past few years. Indeed, the total losses in the previous three-year period were no less than £5.6 billion. Interestingly, the cost of claims relating to subsidence, which amounted to £255 million in 1989, had risen to £506 million in 1990 and £540 million in 1991. Not only was that a significant increase; it was completely unanticipated. It was associated with drought conditions across the country—something which we had never known on such a scale in this country before.
The evidence for the unexpected nature of those increases in claims is that the value of subsidence claims had fallen back to £134 million by 1993. I say that simply to put in context the fact that insurance companies have generally become much more concerned about subsidence, for whatever reason the subsidence was caused. One only has to look at the impact on their profitability and their capital base to understand why that happened.
The hon. Gentleman has been in touch with the Association of British Insurers, and I know that he recognises that the particular terms and conditions of cover are matters solely for insurers to determine. Indeed, the Government's powers under the Insurance Companies Act 1982 are primarily concerned with the solvency of insurance companies. Except where such matters are concerned—in other words, the essential financial solvency—the Government have no powers to intervene in the day-to-day business of insurance companies.
None the less, I have been in touch with the ABI, as the hon. Gentleman knows. I was keen to learn about the position of ABI where mining subsidence had previously occurred. The reason why I am concentrating on the position where mining subsidence had previously occurred is because it is the hon. Gentleman's particular concern and because, where that has happened, British Coal and its successor companies under the 1991 Act are under an obligation to remedy mining subsidence. In practice therefore, insurers should not be affected by this particular factor.
I also spoke to British Coal about the matter. For the record and because I know that the hon. Gentleman does not mean it, I must simply reject his conspiracy theory that British Coal is keeping quiet about all this. British Coal told me that, from time to time, it is approached by individuals saying that they are unable to get insurance because their property has previously suffered mining subsidence damage; often, that mining subsidence damage has been repaired.
I understand that when British Coal is approached by an individual, it offers to contact the insurance company to spell out the extent of British Coal's remedial obligations for subsidence damage. In other words, it explains the 493 impact of the 1991 Act to the insurance company. The purpose of that discussion is to bring home to the insurance company the fact that it will not be liable for mining subsidence damage claims.
In addition, British Coal met the Association of British Insurers on a number of occasions, most recently within the past couple of months, to get the same point across. The purpose of those meetings is to put the association in a position to inform its members.
I think that I can infer from what the hon. Gentleman said that part of the problem is that insurance companies —at a relatively junior level—do not understand the implications of the fact that mining subsidence damage is involved and that the damage has been recognised as such. Possibly, the change that he identified has more to do with the general wariness of insurance companies about subsidence in general than with anything else.
I gather that the ABI has responded to the hon. Gentleman. It led me to understand that the insurance industry's attitude to property damage in mining areas is that where satisfactory repairs have been carried out as a result of a subsidence claim being settled, an insurer would not generally refuse a renewal of cover.
As regards house sales in mining areas, insurance cover should be made available to a new owner, subject to normal underwriting conditions, provided that the property was not damaged or, if it had been, it had been repaired satisfactorily.
The hon. Gentleman suggested that lenders and insurers might become more reluctant to insure and lend as a result of fears that a private sector mining company might not meet subsidence obligations because of insolvency. I do not think that he had the pleasure of serving on the Standing Committee of the Coal Industry Bill with his hon. Friend the Member for Barnsley, West and Penistone. We spent a considerable time debating the relevant clauses, although it is fair to say that we had not identified that problem at the time.
494 I will not detain the House by going through all the various measures in the Bill that are designed to ensure that private sector mining companies have the funds to meet all subsidence claims.
Of course, one recognises that, eventually, within the area of responsibility, as it is termed in the Bill, mining will finish and some time after that subsidence liabilities will fall on the Coal Authority—that is, the public sector. The Bill allows for the area of responsibility and the associated responsibility for subsidence to be extinguished so that an operator does not have to retain liability for subsidence indefinitely. I am sure that the hon. Member for Barnsley, West and Penistone remembers our debates on that issue.
My officials also spoke to the Council of Mortgage Lenders and the Building Societies Association to ascertain their positions on the matter. They have been unable to find any evidence to show that the members of those organisations have changed their policy.
I am genuinely grateful to the hon. Member for Barnsley, Central for raising the issue. The fact that he has done so has alerted me to it and meant that I have been able to raise it with insurers and mortgage lenders. I am hopeful that, as a result of the attention that he has been able to draw to the problem, the difficulties will not continue and that general awareness within the insurance industry and mining areas will be increased.
If there are specific problems, I will willingly seek to work with the Member to try to redress them. I have already explained British Coal's policy. We shall also ensure that when the time comes for private sector operators to take over mining areas, the debate is drawn to their attention, so that they are aware of British Coal's policy.
I thank the hon. Gentleman for raising the issue, and thank you, Madam Speaker, for selecting it for discussion this evening.
§ Question put and agreed to.
§ Adjourned accordingly at seventeen minutes to Eleven o'clock.