Justice and the future of flood insurance: markets or solidarity?
Philosophical research on the limits of - and alternatives to - market responses to environmental problems reveal the unjust impacts of market-based responses to flood insurance and biodiversity.
Our work in philosophy at Manchester has been critical of the increasing use of markets in environmental governance. This work informed arguments against UK government proposals for a free market in flood insurance.
The arguments have been taken up by a coalition of affected communities and parts of the insurance industry and have led to an agreement for the support of those at high risk from those at lower risk.
Although the UK government advocates a free market for insurance based on risk, our philosophically grounded arguments come to a different conclusion. Our Joseph Rowntree Foundation (JRF) report 'Social Justice and the Future of Flood Insurance' calls for greater solidarity and suggests that people at lower risk should support those who suffer from higher risk.
The report contributed to the development of policy and position papers within numerous think-tanks, affected communities and representatives of the insurance industry, including the:
- Joseph Rowntree Foundation;
- National Flood Forum (NFF);
- Morpeth Flood Action Group (MFAG);
- Association of British Insurers (ABI).
Its explicit and systematic treatment of social justice was recognised by all participants to have added an important new dimension to the policy debates on the future of flood insurance.
In June 2013, DEFRA announced a new agreement following negotiations with the Association of British Insurers (ABI). The compromise agreement includes some provisions for elements of solidarity defended in our research.
The new agreement involves a cap on insurance premiums linked to council tax bands that is to be funded by a general levy on all insurers. However, the government has retained its longer term goal of a free market in insurance in which costs fully reflect risks.
Ongoing work by Prof John O’Neill and Dr Martin O’Neill continues to influence the development of critical responses to this final aspect of government policy, in particular through the government’s own consultation on the policy and related draft flood insurance clauses in the new Water Bill 2013-2014.
The research team at Manchester has developed a philosophically informed critique of the market-based approaches to environmental problems. This has included a re-examination of the environmental dimensions of Otto Neurath’s contributions to the social calculation debates (O’Neill and Uebel), work critical of the increasing use of market based approaches to biodiversity protection (EU BIOMOT project involving Knights, O’Neill and Scott), and the research on markets in flood insurance (O’Neill and O’Neill).
Based on underlying principles of justice, our research on insurance argued against a market-based individualist, risk-sensitive insurance for flooding and for the adoption of a ‘solidaristic’ model, in which those at lower risk contribute to the support of those at higher risk.
It distinguishes between three different approaches to ‘fairness’ in flood insurance:
- Pure actuarial fairness – insurance costs to individuals directly reflect their risk level
- Choice-sensitive fairness – insurance costs to individuals reflect only those risks that result from their own choices
- Fairness as social justice – insurance for people’s basic needs (eg housing) should be provided independently of individuals’ risks and choices.
‘Pure actuarial fairness’ cannot provide a compelling approach to flood insurance. While defending ‘fairness as social justice’, we showed that neither this approach nor ‘choice-sensitive fairness’ could justify a free market in insurance that was fully sensitive to risk. Both give grounds for a more solidaristic flood insurance regime.