As early as next year, up to 200,000 homes in the UK could find themselves effectively uninsurable against the risk of flood.
Unless action is taken to rethink ways in which the insurance market is regulated, 2013 could herald catastrophic losses for tens of thousands of homeowners, left with rapidly plummeting property values in areas that will in all likelihood quickly succumb to severe social and economic blight.
This looming emergency has its origins in an unfortunate mix of causes. One of the effects of climate change has been to increase the frequency and intensity of flooding in the UK, with this trend set to worsen in coming years. The second factor is political: the current Statement of Principles between the Government and the insurance industry (which provides access to insurance for high-risk homes) is due to expire in June 2013. At the same time, technical advances give insurers a greater ability to price according to fine-grained assessments of flood risk, shifting costs to those most exposed to the danger of flooding. Taken together, this means that, in the absence of a serious response from Government, the prospect of an unconstrained free market in flood insurance carries the possibility of a social and economic disaster.
The current predicament has started to receive some overdue attention, with dire warnings being issued by bodies as diverse as the Local Government Association (LGA), Public Accounts Committee (PAC) and even the Association of British Insurers (ABI) themselves. Meanwhile, the response from Government has singularly failed to address the problem. The Department for Environment, Food and Rural Affairs (Defra) issued an inconclusive report at the end of 2011, which flirts with a policy of laissez-faire and assumes the inevitability of rising costs for the most vulnerable.
What are the alternatives? Firstly, it's important to note that, as Otto Thoresen, Director General of the ABI, puts it: "No country in the world has an entirely free market providing universal affordable flood insurance. The UK's increasingly free market approach is an international exception, not only by comparison with the state protection offered in France and Germany, but even in comparison to the National Flood Insurance Programme in the USA.
Fairer results can be achieved in a number of ways, including, for example, mandatory cross-subsidisation in the insurance market, government-backed reinsurance, a public natural disaster insurance scheme, or direct support for those in most need. There needs to be serious public debate – and quickly – about what a fair and workable response to this problem should be. Time is short.
Minimal standards of fairness and social justice must embrace principles of solidarity in how we face the burden of the effects of climate change. A critic might reply that individuals should bear the costs of their own decisions, including the decision over where to live. But changing weather patterns mean that patterns of risk are themselves unpredictable and, moreover, many of the poorest and most vulnerable people lack the real choice to avoid risky areas, as research for JRF by Sarah Lindley et al shows. We need to think of access to insurance as, at least in part, an important social good, like access to healthcare or clean water. As such, it cannot be left purely to the market.
Any just policy must incorporate social solidarity in the design of flood insurance arrangements. The alternative is to create a situation in which we would not only be condemning massive swathes of properties to blight –creating a vast economic loss – but also generating the enormous injustice of very many blighted lives.
As climate change brings policy on flood management further up the public agenda, it is vital that public debate about the future of flood insurance moves beyond the Government's unreflective assumptions in favour of market-based solutions. Instead, a range of policy options must be given serious consideration, recognising that the regulation of flood insurance is not merely a technical question, but a question of social justice and of how we protect the most vulnerable.