Social justice and the future of flood insurance

2012 viewpoint paper for JRF by John O’Neill and Martin O’Neill, Universities of Manchester and York

This report discusses different possible arrangements for flood insurance following the expiry in 2013 of the ‘Statement of Principles’ between the government and the Association of British Insurers (ABI): a free market approach to insurance in which individuals’ payments are proportional to their level of risk; a more solidaristic, risk-insensitive approach, in which those at lower risk contribute to the support of those at higher risk.

The viewpoint outlines different approaches to fairness in the provision of flood insurance. It argues that any plausible account of fairness justifies a more solidaristic approach. 

The report highlights how mechanisms can make people more socially vulnerable. In this case, market-based insurance models, which often raise premiums on homes that have been previously flooded, cannot be afforded by many groups of people, such as tenants and those on low incomes, thus making them more socially vulnerable to flooding.

This report was written before the announcement of “Flood Re”, a new deal struck by the UK government and the Association of British Insurers, which should be implemented by 2015 and will cap insurance premiums for properties located in areas with high flood probability. Though this is an important development it does not mean that insurance will be equally affordable to householders in the future, just as it isn’t today. There are also expected to be a number of households excluded from access to the Flood Re premiums.